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Why Open Innovation Could Be Marissa Mayer's Downfall At Yahoo!

The real lesson that Mayer should take from Google is the failure of its scattershot innovation strategy, argue Jens Martin Skibsted and Rasmus Bech Hansen.

Most business pundits share the opinion that Marissa Mayer, the newly appointed CEO of Yahoo! and a former Google engineer, will bring an open-innovation agenda to the struggling Internet giant. They have good reasons for thinking that. Mayer has been an advocate for openness. As a fellow "young global leader" and a co-panelist at Design Life Digital, we’ve had a firsthand chance to hear her thoughts on the virtues of open innovation.

She praises quick releases over perfection, ideas from everywhere—not just from the top—freedom for employees to pursue own projects (the famous one-day-a-week rule), sharing of information, the primacy of the users, and the value of liberating data.

All this probably sounds like heaven if you are a young, recently graduated engineer from a top school considering where to start your career (and to be fair, this might be the real target audience for those remarks). But as a shareholder of Yahoo!, this is surely not the journey you would want your new CEO to take. The stock has been low since the company dodged Microsoft’s $47.5 billion offer ($33 per share), in May 2008, trading below $20 since September 2008. If Mayer’s beliefs became the guiding principles of Yahoo!’s future, it could go even lower.

Yahoo! has a number of troubles, but closed innovation isn’t one of them. If anything, Yahoo! has listened too much to everyone. The company has done way too much, over-innovated, tried to be everything for everyone, buying up companies here and there based on user feedback. What the company has lacked is a clear direction forward from stubborn, single-minded visionaries at the very top, who make the right calls and focus on what strategically matters. Open innovation, in the broad sense that Mayer promotes, is more the cause of Yahoo!’s problems than the cure.

But Mayer is smart. If she takes the right lessons from Google’s success, she’ll recognize that open innovation isn’t much more than a PR tool. Why? First of all, Google’s real success has very little to do with open innovation—and since Larry Page took over as CEO again, the company has moved further away from that approach. Bear in mind that the vast majority of Google’s revenue is from search-related advertising, an idea Google’s founders thought up during their university years. Despite its phenomenal success, Google remains a one-trick pony. Its strength is the ability to keep its main focus on its search engine and search-related services. None of the beta experiments, the free-thinking Fridays, and all the other innovation-yielding exercises has resulted in significant new revenue streams. It surely has improved the services and been good for the Google brand at computer science faculties around the world, but it hasn’t been that good for business—at least, not yet.

Marissa Mayer speaking about open innovation, alongside Jens Martin Skibsted and Fast Company’s Linda Tischler.

Plus, most of the new services that came out of all this were closed down after Page reclaimed the helm. Since then, Google seems to be going back to its roots of setting ambitious disruptive goals from the top. Google Glasses is a good example of one such strategy; disrupting the pay-TV market is another. Page is focusing the entire organization on those projects in an effort to elevate the company.

On the other end of the spectrum, there’s Apple, a company that has made its mark by being fiercely focused. And Apple, of course, has significantly outperformed Google in recent years—the company is now about twice Google’s size. And contrary to Google, most of Apple’s revenue comes from products and innovation that didn’t exist just a few years ago. Apple is, in other words, undisputedly much better at innovation than Google is.

In an earlier post, "User-Led Innovation Can’t Create Breakthroughs," we described how this top-down innovation method is similar to how most creative companies—Ikea, fashion companies, and movie studios—operate. So if you are a shareholder at Yahoo!, do yourself a favor and compare the revenue from Apple and Google and decide whether you want Mayer to pursue open innovation or not. It’s really a no-brainer. What Yahoo! really needs is a razor-sharp focus on very high-potential areas that can generate $10 billion+ in revenue within a five-year horizon. That’s the sure-fire way to get the stock price back up. And that focus should be directed only from the very top.

Written by Jens Martin Skibsted and Rasmus Bech Hansen.


Rasmus Bech Hansen
is the London-based strategy director at venturethree, a global brand consultancy. He writes on how brands can do well by doing good and has helped to relaunch the United Nations Global Compact brand, the world’s most successful CSR initiative.

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