Saturday, February 20, 2016

What Manchester United Can Learn from Yahoo

These are dark days for Manchester United fans. Darkness is relative, of course - the club remains an icon of sporting history, with a passionate fan base second to none. But, as the line from James goes, "if I hadn't seen such riches, I could live with being poor." The team's desperately abject performance in a loss to FC Midtjylland underscored the poverty fans have become accustomed to. For United fans, there is perhaps no greater fear than the looming possibility that a cycle of greatness has ended, and the club is on its way to become the new Liverpool - a mighty club rendered irrelevant, forced to watch as its great rivals chip away at its success. 

I spend a lot of my professional life trying to understand when sentiment has swung to extremes in financial markets, trying to be even-keeled when panic appears at odds with positive fundamentals. In an age when sports fans take to Twitter with vicious speed, demanding management and personnel changes at every little blip, my attempts to be sanguine are frequently challenged. While Man City's capture of Pep Guardiola is a knife to United's ambitions, I do think some are being too quick to anoint Guardiola's future City side as champions. But sometimes public opinion is spot on. I can't really explain why the Louis van Gaal era has shuddered to a halt so abruptly (to be honest, it never really gathered steam, despite the occasional flicker of promise). But it's safe to say the last few months have been truly hard to watch, both as a Manchester United fan, and a fan of the game. An excellent, if depressing, post by Paul Gunning perfectly captured my sentiments. And as the spectre of "Liverpoolisation" lurks ominously, I thought this week of another fallen giant of yore - Yahoo.

I'm not a tech analyst, so I haven't followed the demise of Yahoo in gruesome detail. All you need to know, however, is that the stock market currently ascribes negative value to Yahoo's core business. If that sounds crazy, here's a little piece by the New York Times explaining what that means. Basically, the stock market is saying that the only thing valuable about Yahoo is its stake in Chinese e-commerce behemoth Alibaba. Even if the market has gotten the valuation wrong, it's a damning indictment of Yahoo.

Where did Yahoo go wrong? Venture capitalist Paul Graham wrote a piece in 2010 taking a stab at the root causes. I highly recommend it - it's both short and fascinating. He identifies two major issues, easy money, and Yahoo's ambivalence about being a technology company.

First, the curse of easy money: "By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy [banner] ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was investing in." The story ends with Yahoo neglecting its search business because of its booming banner ad business. What it failed to realize was that the search business was far more sustainable, and that Google was eating its lunch there. 

This leads to Graham's second point, which was that Yahoo was ambivalent about being a technology company. Yahoo insisted on calling itself a media company, with negative consequences. "What Yahoo really needed to be was a technology company, and by trying to be something else, they ended up being something that was neither here nor there. That's why Yahoo as a company has never had a sharply defined identity...The worst consequence of trying to be a media company was that they didn't take programming seriously enough... In technology, once you have bad programmers, you're doomed."

Which brings us back to United. The club has increasingly positioned itself as a "global brand". Similar to Yahoo's loss of identity, Manchester United seems to have forgotten that it is first and foremost a football club. CEO Ed Woodward has proven himself adept at signing bumper commercial deals for the club. Yet the tail seems to be wagging the dog more and more. Recent reports suggest that Wayne Rooney could be on his way to China, assuming the club can "offset his potential departure with an eminent replacement their global partners would approve of to promote their products." Pause and let that sink in for a second. If that is true, it is diabolically misguided. The decision to replace a senior player should be driven entirely by footballing considerations. Yet Woodward's apparent obsession with "marquee players" seems to be spurred by commercial incentives, and possibly his desire to solidify his reputation as a deal-maker. A bit too much of the investment banker, then, about Woodward. 

Perhaps easy money has tainted United the way it tainted Yahoo. The circumstances are different, of course: this isn't the Internet bubble, and I'm sure Woodward works very hard to sign those commercial deals. But the focus on "global superstars" worthy of a "global brand" is unsustainable. Commercial partners appear to be salivating to capitalize on United's global cachet, but that won't last long if the club's leadership neglects the footballing core of the club. Furthermore, rather than hawking the brand at every turn, I believe it makes more sense to think of Manchester United as a luxury brand. The best luxury brands are obsessed with maintaining their aura, which is their greatest asset. Similarly, the fanatical support of a global fan base is a valuable asset that should be treated with the utmost care. I cringe when United players are forced to promote movies on their Twitter feeds. Don't get me wrong; I of all people understand there are commercial considerations. But Manchester United the commercial juggernaut is at serious risk of killing the golden goose that is Manchester United the football club that produced Charlton, Best and Law. 

Ultimately, there is only one group who can change the club's direction, and that is the Glazer family, who control its ownership. I've cautioned in the past about blaming the Glazers for all of United's ill fortune, while being critical of the club's ownership structure. But we've reached a crucial juncture for the club. While the Glazers may never understand the importance of the club to fans around the world, I can only hope they have an interest in protecting the long-term value of their investment. If they fail to grasp the seriousness of the situation, it may be a long time yet before United fans can reclaim the riches of the Alex Ferguson era.

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