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Under Mayer, Yahoo Buys -- But Will It Ever Divest?

What to do with orphan units at Yahoo? Maybe nothing, but here's my suggestion.

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In the third quarter of 2013 alone, Yahoo purchased eight companies, including Xobni, Lexity, Rockmelt, and essentially whatever small startup that venture firms managed to entice CEO Marissa Mayer with to meet her ongoing need to inject innovation into the Silicon Valley Internet giant.

The kinetic CEO has been back at it in the fourth quarter, with more recent acquisitions of Evntlive, a live streaming of events platform; Ptch, a mobile photo and video editing app and language; natural-language processor SkyPhrase; cross-platform video-streaming startup QuikIO; and PeerCDN, a startup that aims to reduce bandwidth costs.

I left a few out, but coming on the heels of content deals with high-profile news star Katie Couric and discussions with entertainpreneur Ryan Seacrest, the latest theme at Yahoo M&A after its previous mobile spree: Video sure is important, too!

But — while it’s all fun and games and hugs to fork over dough to relieved VCs to rescue struggling though promising startups — what’s not so important at Yahoo these days is perhaps just as interesting.

There’s been precedent, such as when Yahoo sold its HotJobs site to Monster for $225 million in early 2010, after a decline in performance.

There are other parts of Yahoo that would fit that bill too, including its small business offering and, perhaps most interesting, units such as its Yahoo Answers, which numerous sources inside and outside point to as the kind of lagging units that are perfect for sale.

In fact, sources said some private equity firms have been interested in buying the Q&A service.

The inquiries, said sources, have centered on a deal that would include traffic agreements on Yahoo for any party that would acquire the property, which provides answers of all kinds of topics to its users, and invest in it.

To be clear, according to internal sources, Yahoo has not engaged in discussions to do so recently, nor does it seem to want to sell it off, although it had seriously contemplated such a thing under previous Yahoo regimes.

But Answers is a perfect example of the kind of asset that Yahoo could move off its balance sheet, sitting like a poor cousin next to other major area of focus at the company under Mayer, most especially mobile and video.

Considering divesting itself of such properties that have become clear orphans — a term used by private equity to describe divisions of big companies that do not get enough time or attention — is not a big surprise for any large company.

And in many ways, Answers fits the bill.

Launched in 2005, it still hosts tens of millions of queries a month, and he quality of the service has been much mocked online, due to weak questions and answers. Yahoo Answers is now run out of India, under the purview of Hari Vasudev, head of Yahoo India R&D, who also runs Yahoo Groups.

Despite a redesign announced in September, which has also happened at several of its international sites, numbers are declining. According to comScore, U.S. monthly unique visitors were 63.9 million in October, down from 68.9 million a year before. The declines, said several internal sources, were due to Google’s continuing algorithm changes to improve results and dispense with junky content.

Even if the redesign manages to improve traffic, sources inside the company said Yahoo Answers revenue has never been strong. Several years ago, when traffic was higher, it did less than $20 million in sales, said several sources inside the company.

Among the many options that private equity firms have sketched out is somehow merging Yahoo Answers with other similar services, such as Quora, the more sophisticated and innovative answers service started by former Facebooker Adam D’Angelo. Sources close to the situation said that Quora, as well as Q&A site Answers, were both approached by at least one private equity firm about a possible merger with Yahoo Answers post-spinout.

Neither showed interest, said sources. Besides the low quality of Yahoo Answers and its longtime neglect within the company, one source pointed to the “mothership issue.”

“If you spun Yahoo Answers out, it would be cut off from traffic driven off the Yahoo front door and mail,” said the source. “It’s worthless without the traffic relationship, but hard to structure that type of deal.”

There are other options, such as simply shuttering and replacing Answers in a commercial deal with a current competitor like Quora. In that scenario, Yahoo could get rid of operating expenses, sell the ad inventory and split the revenue depending on who generating the traffic.

But that’s just back-of-the-envelope thinking, since — though it has been the case in the past — Yahoo Answers does not seem to be for sale this time. And, as many who have contemplated parts of Yahoo to spin off, there is the persistent problem that all of its content properties are so dependent on its mail and home page traffic that any unit is hard to separate out.

But what is, if anything, ever broken free will be an interesting indicator of the year ahead for the company.

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