Double Down, But Only On The Right Hand

Last weekend, we watched Casino Royale on the beach in Slovenia, just up the Adriatic coast from Montenegro, where the story takes place. I love the scenes at the poker table, particularly the one where Bond goes all in and loses all his money.

And that scene was in my mind when I was reading my friend Jason Calacanis' wonderful post, Yahoo committed seppuku today. Jason can be an amazing writer and this is one of the best things he's written in a while. I particularly loved this part:

The proper move when someone wants something you own badly is to 
invest more in it. “Oh, you like my house and you’re willing to pay
double what I paid for it? Did I mention I just redid the kitchen,
bought the lot next door and put in a newHVAC system?” How much is it
worth to you now? That’s gangster CEO-level poker playing. You raise
and raise while you develop your hand and increase its value.

Jason is a great poker player and he is right that you need to double down on your best bets. But I think he's wrong about Yahoo! and search.

You need to double down on the right hands and the way Yahoo! was playing the search hand wasn't going to end in a win for them. I believe that Google has won the "web search version 1.0" game and the only thing that is left is second place. Yahoo! and Microsoft essentially agreed to share second place instead of fighting each other for the spoils.

We lost a search engine last week but we also gained one. And that's a promising sign. There are new veins to mine in search and that's where you want to make your bets these days. You don't want to compete with Google head on. You want to find a new angle of attack.

Jason goes on to talk about the videogame market. He says:

Nintendo didn’t give up when Microsoft came into the video game 
space–they innovated. Now the Wii outsells the mighty XBOX 50 million
to 30 million. That is how you fight Microsoft: you innovate. Steve
Jobs knows this, Nintendo knows this, and Oracle knows this. Yahoo,
apparently, did not get the 40-year-old memo.

But Nintendo announced a terrible quarter this week. Sales of the Wii dropped to 2.2mm from 5.2mm in the second quarter last year.

The vector of competition in the videogame market has moved from consoles to mobile and social nets. Bing Gordon spent 26 years at Electronic Arts and joined Kleiner Perkins as a General Partner in 2008. Bing knows a thing or two about videogames. His first two investments at KP were Zynga, the leader in social gaming, and ngmoco, the leader in iPhone games. Those are going to be two great investments. Bing picked new vectors of competition and bet on them. That's how you double down on videogames.

So I agree with Jason. Throwing in the towel is not how great companies are built. But competing with an entrenched market leader without a differentiated strategy is also not a winning hand.

Of course, Jason knows that and his Mahalo Answers is yet another vector in the search game, a vector that Yahoo! has a winning hand in. And so that's where Jason's poker game is being played. It's going to be fun to watch it.

Disclosure: The Gotham Gal and I have a small personal investment in Mahalo and the Gotham Gal and Jason were partners in Silicon Alley Reporter back in the 90s.

Reblog this post [with Zemanta]