Tuesday, March 26, 2013

What did Yahoo Buy? Problems and Opportunities in Learning from Others

Wall Street Journal reports that Nick D'Aloisio, who is 17 years old, has sold his company to Yahoo Inc. for an undisclosed price that is rumored to be above 10 million dollar. Nick D'Aloisio started work on the free newsreader app Summly when he was 15, and it became a successful tool to quickly read news summaries. Yahoo has now closed down Summly. Puzzling, you might say, because Yahoo might have continued to operate it instead. So did they just buy a competitor in order to kill it? Are they taking a pause in order to re-launch it?

What we have heard so far is different, and interesting. Yahoo will be using the Summly technology in other products. Nick D'Aloisio also plans to work for Yahoo for a while. So the purpose of the acquisition is to transfer existing (and very novel) technology to work groups that make and maintain a variety of Yahoo products, and continue to benefit from Nick D'Aloisio's innovations for as long as he works for Yahoo.

OK, but will this work? How good are companies at transferring technologies internally? There is a lot of debate on this issue, and much of it has been on the barriers against such transfer. NIH means “Not Invented Here” and refers to how firms and work groups can be very slow in accepting superior ways of doing things, if they were made by others. Unsuccessful transfer is also common, with firms trying to transfer technologies but not understanding them well enough to get the same performance everywhere. The “copy exact” rule, supposedly from Intel, is a way to try to get the same performance in each transfer by copying not just what engineers think is the essence of the technology, but also a host of superficial features that might actually have some unknown effect.

Now Henrik Bresman has published an article in Academy of Management Journal suggesting that internal transfer processes are richer than people have imagined, and that we may have underestimated how frequent and beneficial it is. His point is that we usually see a transfer as occurring when one technology or practice is moved from one place to another, and produces a similar (good) result there. That's too simple. An important step in transferring is translation: the work group who receives the practice has to understand it, with the help of the unit that gives it, and often the translation step means that both groups come to understand the practice more generally. The receiving unit can then do something different than the original practice, but based on it, and will benefit from that. If we look narrowly at technology transfer, no transfer has happened. In fact, transfer has happened. That transfer may even help the giving unit understand the practice better and use it better next time around. What is transferred can be the actual technology, it can be a modification of the technology, it can be knowledge on when not to use the technology, or it can be the principles behind the technology. What are the chances that some of the research reporting NIH effects has missed these transfers? I would guess they are high.

How relevant is this research to Yahoo? It should be very relevant because Henrik Bresman studied in-licensing work groups in a pharmaceutical firm, and they transfer technology in a very similar way as the technology transfer that Yahoo is now preparing for. If I were a Yahoo manager I would look closely at Bresman’s article. I am guessing that Yahoo is already expecting to learn from the Summly technology in multiple ways, not just by copying exact. The acquisition price will be justified if they manage that.

Efrati, Amir. 2013.  At 17, App Builder Rockets to Riches From Yahoo Deal. Wall Street Journal Asia, March 26 2013.