Marissa Mayer's Acquisition Strategy Will Ruin Yahoo Employee Morale, Says VC

Marissa MayerYahoo CEO Marissa Mayer

Yahoo CEO Marissa Mayer believes her company needs more talented and enterpreneurial engineers and product managers.

(She’s right!)

So, for the last six months or so, Mayer has been acquiring small, failed mobile startups for small amounts of money, turning off their products, and integrating their teams into Yahoo’s larger workforce.

These deals are called “acqui-hires.” 

Usually, they cost about $1 million per engineer.

Mayer has done about 10 of them since she joined Yahoo last summer. Just last Friday, Yahoo bought a tiny little company called Loki Studios.

Yahoo isn’t the first company to do a lot of them.

Google buys dozens of startups for this reason every year. Facebook also hires people this way.

Venture capitalist Mark Suster – who is famous in his industry for selling two companies, and the joining GRP Partners – says that Mayer’s acqui-hire strategy is actually really terrible, because it will drain morale from existing employees.

He writes:

Why Acquihires Hurt the Acquiring Company
How about if we look at it from the “rest of company” perspective.

You have been at Google,, Yahoo! for years. You have worked faithfully. Evenings. Weekends. Year in, year out. You have shipped to hard deadlines. You’ve done the death-march projects. In the trenches. You got the t-shirt. And maybe got called out for valor at a big company gathering. They gave you an extra 2 days of vacation for your hard work.

And that prick sitting in the desk next to you who joined only last week now has $1 million because he built some fancy newsreader that got a lot of press but is going to be shut down anyways.

What kind of message does that send to the party faithful who slave away loyally to hit targets for BigCo?

I’ll tell you what is says.

It says if you want to make “real” money  – quit.

Go do a startup. Get some famous angel or seed money. Get yourself in a big demo day competition. Woo the press. Hire legions of young, impressionable graduates from the top engineering universities. And then come back and sell me your company.

I know many rank-and-file employees. I’ve had the chats with them. You rarely meet people who don’t resent the scores of entitled acquihirees of their company.

Does Yahoo! et al really have to keep up with the Jones’s to build its future?

For the 200 new employees they’ll get through acquihires do they unleash 2,000 unhappy existing employees? Sure, most won’t quit. Because they know that it’s not a slam dunk to start a business and get acquired. But the most talented of those 2,000 will.

What if the $100 million you’re going to spend trying to win this alleged “war for talent” in stead went into big retention plans to keep your most talented employees.

You can’t “Roll Out the Red Carpet When Your Best Employees are on the Way Out the Door” as I wrote in this post. So why not announce big, hairy audacious goals on recruiting the best mobile talent with sign-on bonuses and retention plans? And reward your existing top 10% of employees handsomely.

I’ll bet the ROI would be higher than acquihires.

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