Mayer’s Challenge: Merging the Cultures of Yahoo and Tumblr

5/23/13Follow @dnordfors

Yahoo + Tumblr is a good match because Tumblr has the huge and vibrant social network, but no revenues, while Yahoo lacks social, but knows how to earn money on ads.

Yahoo + Tumblr are a bad match, because Yahoo is a company with 14,000 employees in a corporate organizational culture needing change, while Tumblr is a startup culture with less than 200 employees.

Or perhaps this is good? It depends on whether the Tumblr and Yahoo cultures can be brought to match.

If Marissa Mayer wants to change the Yahoo culture, one obvious task will be to keep the Tumblrs from cashing out and moving on. What will make them stay as well as spread their culture? It’s not easy to empower newcomers in old organizations.

In an “innovate or die” economy, the existential question for every large and successful company is how to stay innovative. The thing is, success in innovation feeds its own antithesis when the organization grows large.

In a world of quarterly reports, which of the following will the typical large public company usually do? A) give the cash cow more attention. B) Give the cash cow less attention. Yes, correct, that’s a rhetorical question.

Yahoo CEO Marissa Mayer

Yahoo CEO Marissa Mayer

By favoring cash cows more than radical change, power will shift from the CEO to the VPs bringing in the money. In the old industrial economy this had its merits. After all, the daily duty was about doing more of the same—it was about optimizing the business lines.

But the innovation economy is the opposite of the more-of-the-same economy in this sense. Now it’s all about doing new things that replace old things. It’s about challenging the lines, not keeping them. Staying innovative means the CEO must stay powerful, ruling through change.

Dan Maydan, the former president of Applied Materials, had a special recipe for staying innovative while growing the company from 300 to 10,000 employees. Dan would always have a next-big-thing project cooking, such as disrupting the manufacturing of LCD screens. He made sure to bet the company’s future on it—boom or bust. He would set up the project as an in-house startup, appointing half the staff from within the company, the rest from outside. He would give them their own building, generous resources and startup-like incentives. They would work independently. If they succeeded, the startup folks would become rich and their project would be the next cash cow.

Dan Maydan, former president of Applied Materials

Dan Maydan, former president of Applied Materials

This model can easily pit the CEO against the VPs running the existing cash cows. No Type-A vice president of a cash cow division will tell the CEO, ”Please take the money I’m earning for the company and invest it in a next-big-thing project I’m not in charge of. By the way, give the guys running it larger incentives than I can dream of.”

If the project succeeds at a time when the company is suffering, the CFO will have to pay out huge incentives to a few employees, while administering cuts and downsizing the rest of the company. Imagine the pressure this puts on the organization and the clout and charisma it requires from the CEO.

Yahoo’s acquisition of Tumblr has a touch of this. Tumblr will apparently be treated as a startup within Yahoo, maintaining its independence. Says Mayer: “Tumblr has a really good thing going. I’m cognizant of the fact that we don’t want to mess that up.” Also: “Especially when you have a hypergrowth company, you want them to operate independently so they can run as fast as they can. That’s really how you deliver value from the acquisition to the core company.”

Clearly, she is saying the newcomers are the future of Yahoo (and will be favored accordingly). And when she says they will operate separately so that her present team of employees won’t “mess that up,” that’s a strong message. She will have to be one tough cookie to sell that pitch to her Yahoo folks. She will have to not only make them accept it, but also support it, making it an even harder sell.

For Tumblr and Yahoo to combine their strengths, when Yahoo attempts to put ads on Tumblr, the two cultures must mingle. The Yahoo revenue experts must work with the Tumblr social experts. The two cultures must interface. They have to integrate. Phoning across the bulletproof glass won’t be enough.

Dan Maydan solved that by staffing his in-house next-big-thing startup with internal and external people 50-50. The solution will not be as straightforward for Marissa Mayer. Tumblr already has its culture and it does not include Yahoo. How will she solve it? At the end of the day, it’s a question of leadership. If Mayer succeeds, she will be seen as one of the great leaders of Silicon Valley.

David Nordfors is the president of IIIJ Innovation and Communication. Follow @dnordfors

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