Marissa Mayer's Startup Shopping Spree Is Over Before It Began

Yahoo CEO Marissa Mayer

Photo: Owen Thomas, Business Insider

That’s the sound of a wallet slamming shut.Marissa Mayer has announced that Yahoo will be returning most of the cash from the sale of its stake in Alibaba, the Chinese e-commerce company, to shareholders.

That means it won’t be going into the hands of venture capitalists and entrepreneurs who might be eager to sell companies to Yahoo, as many hoped when Yahoo said it was considering keeping the cash.

Over the past decade or so, Yahoo was a great buyer of companies, acquiring Inktomi and Overture to push its way into Web search and buying a passel of adorably named startups—Flickr, Delicious, Upcoming, and so on—during the Web 2.0 era.

In more recent years, it’s bought a lot of ad-technology companies.

But as of the second quarter, Yahoo only had $2.4 billion in cash and cash equivalents. That’s a pittance compared to Google, Apple, and Microsoft. Even eBay has more cash (and it’s been actively buying startups). Yahoo’s stock still hasn’t moved out of the teens, meaning it’s not a great currency for acquisitions.

The $650 million that Yahoo will keep from the Alibaba deal doesn’t move Yahoo into the big leagues, cashwise.

Yahoo still has its stake in Yahoo Japan. But a source familiar with the ongoing negotiations to unwind Yahoo’s investment in the Japanese Internet portal tells us there’s still no real progress. So that payday is a ways off, and Mayer can’t count on it coming in to fund any deals in the short term.

One reasonable explanation: Mayer and her board may have looked at the field of potential acquisitions—Foursquare and Yelp often come up—and decided they were still too expensive and wouldn’t move the needle on Yahoo’s core business.

That’s not saying Yahoo couldn’t do some deals. But they will likely be small and focused on talent, perhaps bolstering Mayer’s bold bet on Yahoo’s in-house ad technology.

In the meantime, Mayer is spending the resources she has on making Yahoo a better place to work—busting bureaucracy, buying smartphones, and banishing cafeteria bills.

If she can create an environment that can attract talented coders and designers who will invent brand-new products, she may not have to buy that many startups.

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