Sunday, January 8, 2012

Yahoo once again

The Yahoo board has appointed Scott ‘Thompson as its new CEO. It provokes a bit of a sinking feeling in me and apparently in the market as well. Yahoo’s stock dropped modestly after his appointment. Thompson is a technology person, a product person, with little experience in media and advertising. How can he help Yahoo growth its advertising revenue?

One senses in Yahoo’s situation the spectacle of psychological drift, or what is called “decision avoidance.” One view of the situation is that Yahoo faces a fundamental choice between two conceptions of its identity. Is it a “content company” or is it a “connector company?” Connector companies like Google or Apple use content to increase their usefulness as connectors. Thus Google excels in search and Apple in distributing music. Content companies rely on connectors to disseminate their content. Disney, one of the great content companies, has just signed an agreement with Comcast, a connector, to distribute its content across a wide variety of media devices and platforms.

Can a firm occupy both spaces at the same time?  One classical theory of competition, based on the work of Michael Porter of the Harvard business school, suggests that this is difficult. If you try to occupy both, the specialists on either side of you can deliver better value as either pure connectors or pure content providers.

In behavioral economics it is commonly presumed that we use our feelings to anticipate the gains we will get upon choosing one of a number of options. We try to anticipate our future pleasure or regret. It turns out that we are quite bad predictors of how we will feel in the future. This is not surprising since feelings arise directly from the “here and now” of our experience. The psychodynamic conception of decision-making by contrast, puts great store in the feelings stimulated by the process of choosing itself. It focuses on the “here and now.” Being stuck in the middle, as Yahoo is, and deciding to choose one exclusive path over the other is itself a painful process. Because the selection is so difficult, the decision-process stimulates anxiety in its own right. Elsewhere, I have called this the challenge of the “primary risk.”

Of course a group of executives or board members have methods to structure the selection process in the hope of reducing the pain; for example, by listing the risks of each option, assessing the company’s current strengths and weaknesses, and comparing the firm to its competitors. These are sensible methods, but they rarely determine the decision. A group facing a primary risk must at some point take a leap of faith.

But what happens when a group makes a leap of faith. As the term “faith” implies, it is not a rational process. Instead, followers willingly forgo their sense of autonomy by placing their future in the hands of the leader with whom they identify. Why should an adult be willing to forgo control over his or her fate? Because through identification, they no longer feel the pain associated with the decision process. The leader agrees, so to speak, to acquire their pain in exchange for their loyalty. In addition, by identifying with the leader, as Freud once noted, they gain a new psychological connection to each other.

One sensible question to ask is whether or not Scott Thompson has the psychological makeup to be such a leader. The Wall Street Journal reports that one acquaintance described him, as not a “micromanager.” Instead he chooses good people, gives them the authorization to the work as they see fit and then measures them by their results. This style, admirable when a company faces operational rather than identity challenges, may prove insufficient in Yahoo’s case.  When Steve Jobs returned to Apple for his second coming, he made a critical decision to overturn a policy of allowing other computer manufacturers to produce Mac “clones.” He reasserted his vision of Apple as a company with a proprietary platform, through which software and hardware were seamlessly integrated. It is likely that instead of feeling pain, he felt conviction, something his predecessors sorely lacked because they were failing. So perhaps the better test for Thompson is not his management style, but his capacity to feel and communicate conviction.

It sounds strange that a business conundrum of the kind Yahoo faces should provoke what sounds like an irrational if not a primitive process. But this is what happens when risk and uncertainty predominate. Most of us are familiar with Walt Kelley’s phrase, mouthed by Pogo, his cartoon character, “We have met the enemy and it us.” Through modernization, we have vanquished many of nature’s threats -- disease famine, floods -- but we have created an economy of sufficient complexity that the threats we feel and the risks we face, grow out of our relationships to one another. And as Freud pointed out, as humans socialized in families, we are an uneasy compromise between what is rational and what is not.


  1. Comment by Philip Boxer:
    Michael Porter, in his 1996 HBR paper on 'What is Strategy', distinguished *three* sources of distinct advantage that “are not mutually exclusive and often overlap”: *variety-based* positioning of content, taking content into a variety of market segments; *access-based* positioning, connecting customer segments to the best configurations of content; and *needs-based* positioning, in which a tailored set of activities can be dynamically aligned to particular customers’ situations. Google and Apple are pursuing *platform* strategies (e.g. Cusamano on 'Staying Power', or Evans, Hagiu and Schmalensee on 'Invisible Engines'), making this possible through enabling not only customization of products and services, but also their *dynamic alignment* to the customer's situation. Scott Thompson indicates that he understands this third source of advantage with his track record at PayPal balancing users and advertisers (CNET on “Yahoo will reclaim its tech leadership”), and with his declaration to Advertising Age that “Data is the key to Yahoo’s long-term health”.
    So how are we to understand the source of the ambivalence that Larry describes as underlying the *primary risk* that he sees Scott facing? What should be Scott’s source of “conviction” about the right way forward? Larry describes identification to a leader as providing the leap of faith needed – some combination for Scott’s people of *having* Scott as their leader (Freud’s object-cathexis) and *being* like Scott in the way they work (Freud’s identification to an ideal)?
    But Freud also offers a third possibility: Scott’s people mobilising themselves around an identification to a *symptom* based on the possibility of putting themselves in the same situation as their customers (Freud’s third identification)? If we understand primary risk in terms of ambivalence in relation to all three possibilities, then primary risk becomes the individual’s relation to a *beyond* of the pleasure principle, i.e. to drive functioning, in which s/he can see the opportunity for shared creativity and disruption in the face of pain, and not just a forgoing of autonomy.
    Quoting Scott: “Just give me a bit of time to do what I do best: interact with the team to come up with a really compelling forward-looking plan.” Sounds to me like a good-enough way to work through a dilemma or two!

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