Yahoo grows up, or loses its cool?

The one time I met Jerry Yang, I’ll never forget what he said to me.  He said: “MBAs…I guess we need them.”  I was just one of a crowd of MBA interns, most from Standford GBS, but a smattering from some east coast schools as well.

It was an awkward meeting.  Yang had nothing to say to us, no prepared speech for the future business leaders of his company (most of whom would get laid off in the next year).  It was clear to all of us that we had nothing in common.  Most of us hoped to one day create a modest success for ourselves by plodding heroically through financial statements and operational processes.  He had achieved unimaginable success by the shear force of his genius, luck and, most important, a sprinkling of eccentricity.

And it was his eccentricity that served him so well back in the days of the new economy, when he was refashioning Filo’s nerd diversion into a multi-billion dollar enterprise.  It was so much more than a character trait, it was the currency franca of his generation, and it was the only thing that distinguished him from all the other Turks storming the gates of Sand Hill Road.

The x-factor of Silicon-valley cool is what so starkly divided the founders from the room of MBAs.  Filo and Yang treated us with the mild indifference you would expect from two independent artists in a room of dependent capitalists, and we dutifully worshiped because we could quantify the value of their personalities by comparing the multiples of Yahoo, Apple and Google with their pin-striped competitors such as, ahem, Microsoft.

Filo and Yang hated Microsoft so much that no one in the company took seriously the rumor then circulating that Microsoft was about to acquire Yahoo.  My mentor in the Finance department, a business and systems genius for whom everything had a price, offered the opinion that it would never happen.  Yang, I later discovered, was so passionate in his hatred of Windows that he would not so much as open an attachment in Microsoft format.  If you had a document to share with him, you had better PDF that sucker.

Which is why it came as such a surprise to me when Yahoo and Microsoft announced this week that they had struck a deal to merge their search operations.  The financial media proclaimed the ‘honeymoon over’ for Carol Bartz, Yahoo’s CEO who brokered the deal.  TechCrunch tried to use the Efficient Market Hypothesis (recently debunked by reality) to prove that the deal represented a zero sum gain for shareholders of the two companies, that the deal was effectively a transfer of $2.9 billion from Yahoo to Microsoft.

The gist of the argument that Yahoo lost in this deal is the fact that Yahoo received no money up front from Microsoft (the unstated assumption being that Yahoo had made some sort of immediate sacrifice that required immediate compensation).

The street, it seems, likened the long courtship of Microsoft and Yahoo to that of the young lovers in the 1987 hit Can’t Buy Me Love.  Microsoft is the be-speckled Ronald Miller who goes “from totally geek to totally sheik” by offering $1,000 to the most popular cheerleader in school (Yahoo) to make him top dog his Senior year.  Only, in this latest version, the cheerleader sold out for free.

What the street (or, at least, the financial media) seems to be missing is the breathtaking speed with which Carol Bartz has taken Yahoo off the road to ruin.  Net Assets and revenue are up since Bartz took over the company six months ago, and she has, for the time being, treaded the fine line between allowing Carl Icahn to completely control the board and selling out shareholders to a massive green-mailing.

Beyond Bartz’ recent success, we can look to the details of the deal as proof that Yahoo did not get the short end of the stick: Microsoft will be footing much of the integration bill, but the future cash, it appears, will be dutch treat.

That Yahoo would consider a deal with the untouchables from Seattle shows that they’re finally growing up.  That they didn’t get swept up in a bad deal (even in the midst of an economic meltdown with a barbarian on their board), shows that they still have their cool.