Lex is a premium daily commentary service from the Financial Times. It helps readers make better investment decisions by highlighting key emerging risks and opportunities.
Yahoo pays $30-million for an iPhone app that has no revenue and is made by a teenager and this is what counts as product buzz at the $25-billion internet giant? That is not to say the backstory is uninteresting. Nick D'Aloisio as a boy in London teaches himself to code. He then invents a program called Summly that truncates news articles for the impatient mobile phone set. Later the free-to-download program quickly attracts some glittering backers and ultimately 1 million downloads.
But Yahoo plans to shutter the app so why pay $30-million or $30 per user? (Recall a year ago Facebook paid roughly that price per user – $1-billion in total – for the photo app Instagram that also lacked revenue but did represent a growing and passionate community). For one, Yahoo gets the summarisation algorithm that Mr D'Aloisio created with SRI International, the Silicon Valley lab that had originated the Siri personal assistant technology embedded in iPhones. Yahoo also gets the services of Mr D'Aloisio for the next 18 months. Mostly, it gets to show momentum in mobile technology to users and investors, but also to the developer talent that must believe working for Yahoo is as cool as working at Google or Twitter or any currently unknown pre-IPO start-up.
Yahoo's struggles in traditional internet search and advertising are well-documented but with the mobile environment still up for grabs, it has the chance to redeem itself there. The company does have strong content portfolio and its 186 million U.S. monthly unique visitors, according to comScore, surprisingly is ahead of Facebook and only slightly trails Google. And the stock is up 50 per cent since Marissa Mayer took the helm in July (though half of its equity value is tied to non-core Asian investments). It could be time to consider buying one of those web or mobile players, say Hulu, run by a full-fledged grown-up.