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Yahoo and the Transitory World

The writing has been on the wall for some time. But where once it spelled out Yahoo, it now says Altaba.

The Yahooligans are no more, have ceased to be, bereft of life, they rest in peace. Marissa Mayer may be riding off into the Silicon Valley sunset with her golden parachute trailing behind. The parking lot attendants at 701 First Avenue, Sunnyvale, CA could soon be sandblasting her name off the CEO’s reserved parking spot. And, predictably, we Internet codgers are mourning the loss of yet another digital pioneer.

But here’s the thing. For the last 150 years the point of a corporation is to not be a permanent fixture. And, in this world, that’s truer than ever. So we’d better get use to stepping around a growing pile of corporate corpses.

The notion of a corporation has been around since Roman times. The name comes from the Latin corpus (body) and means “body of people.” The original idea was that a corporation would live on beyond the lifespan of any of its members. This has certainly been true of the Stora Kopparberg, a mining community in Sweden, the oldest corporation in the world. It started in 1347.

But things changed in 1855 with the passing of the Limited Liability act in England. This flipped the idea of the perpetuity of a corporation on its head. This legislation allowed shareholders to walk away from the wreckage of a failed corporation without assuming any personal liability. It enabled serial entrepreneurialism and lowered the threshold of tolerable risk.

In short, corporate limited liability law made it okay for business people to try and possibly fail.

In the century and a half since the passing of the limited Liability Act (and similar legislation in most US states) we somehow believed that corporations existed to build size and scale, as befits a market that’s pre-occupied with mass. Economist Ronald Coase said the reason corporations exist is that because in imperfect markets, there is less friction doing things inside an organization than outside, making corporate structures more profitable than open markets. That was true in markets that built physical things from raw materials scattered around the world and then also had to distribute those things to distant markets.

But that’s not the world we live in. The world we live in is the world of rapid iteration and Eric Ries’ “Minimum Viable Product”. Increasingly, these products are not made of physical stuff but of digital bytes, where there is very little in the way of transactional costs.

I think we have to start thinking of the Minimum Viable Company – companies that can be assembled quickly around a market need but also can be disassembled and repurposed quickly. In today’s world, that’s the purpose of an organization and it’s a transitory thing.

In their book Creative Destruction, Richard Foster and Sarah Kaplan envision a new corporate structure more like a venture capital fund. A corporation should be made up of a number of transitory operating units that explore market opportunities in a Darwinian fashion. Arguably, this is closer to the model adopted by Google with Alphabet and, ironically, the new corporate structure of Altaba.

But even here, corporate hubris tends to get in the way. At some point, inevitably, the powers that be begin to believe they’re smarter than the market and build an illusion of sustainability. As economist Joseph Schumpeter said, “The problem that is usually being visualized is how capitalism administers existing structures, whereas the relevant problem is how it creates and destroys them.” Corporations have a vested interest in the status quo. Cognitive biases being what they are, we’ll always favor on the side of what we have rather than what we should build. For this reason, I think Coase’s justification for the corporation might be on its last legs.

That was definitely true of Yahoo. It was a corporation that lived beyond its time. Sooner or later, that had to catch up with it.