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Yahoo! Going Native in New York

Stocks in this article: YHOO, GOOG, AMZN, EBAY, AOL, TST

NEW YORK (TheStreet) -- For over a year now, Yahoo! (YHOO) has been building a major presence in New York, buying up New York-based tech companies, even renting out a big part of the New York Times building.

I've been backing these moves, both editorially and with my own cash. My cash has done well but now my editorial side is beginning to wonder why.

That's because, rather than trying to create compelling, mobile, cloud-based software services, CEO Marissa Mayer seems to be "going native" in New York and trying to build a media empire. She has been raiding the rest of the Times' building for talent like David Pogue, and is now reportedly after former CBS anchor Katie Couric for a Web-based interview show.

For an old tech reporter like me, it's very exciting. But as a reporter who has studied business models for all his adult life, it's the dumbest thing I've ever heard.

The reason? Content doesn't scale like software. Nothing scales like software when it goes online.

I know it's fun to play dress-up for a Hollywood premiere. I know it's great to be interviewed for the TV. I certainly love my own job in journalism and wouldn't do anything else.

But the numbers don't add up the way they do in technology. Last year's total box office receipts came to $10.82 billion, according to Box Office Mojo. The final figures for 2013 will show little growth.

Contrast that with Google's (GOOG) $60 billion in 2012 revenue. Software scales best.

TV audiences continue to disintegrate -- the World Series had less than half the viewer ratings for 2013 than it had in 1991. And while the big joke of 1996 was the Web sells everything at a loss but makes it up on volume, that's now the hard truth of the newspaper business.

In contrast, online goes from strength to strength. The Internet Advertising Bureau estimates the industry's total ad revenue for the first half of 2013 alone was over $20 billion, and that search engine ads represented $8.7 billion of that.

It's a lesson that's deeply imprinted in Yahoo!'s own history.

Back in the 1990s Yahoo! was king. It did search, in scale, before anyone else. Had it just stuck to its knitting it would be Google by now. But it didn't. It listened to New York, which told it to become a portal, to buy into broadcasting and custom content and all sorts of other things.

And now Mayer is listening to New York again? Don't listen to New York about technology. Listen to Silicon Valley, to people who know and understand technology.

Yahoo! is rich today only because Mayer opened Alibaba's cave. Alibaba, a Chinese site that started as a small business-to-business company but grew into China's version of (AMZN), eBay (EBAY) and a commercial bank under Chairman Jack Ma, took $1 billion from Yahoo! in 2005.

Alibaba is expected to go public next year, in either New York or Hong Kong, and estimates of its valuation start at $100 billion. The fact is, no one really knows what Alibaba is worth. That's why everyone's speculating on Yahoo!.

Mayer has sold down almost half of Yahoo!'s original stake in Alibaba, and has agreed to sell down more, in order to enable the IPO. (Yahoo! currently holds about 24% of Alibaba.) The cash let Mayer go all Carrie Bradshaw on the New York tech scene, and 40% of the remaining equity will be sold around the time of the IPO.

Take away Yahoo!'s gains in Alibaba and the company is AOL (AOL). That's what its organic results look like -- no growth on the top line, and bottom-line growth made possible by cutting costs.

So while you guys are chatting, I'll be across the street, cashing out.

At the time of publication, the author owned 200 shares of YHOO and 20 shares of GOOG.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Dana Blankenhorn has been a business journalist since 1978, and a tech reporter since 1982. His specialty has been getting to the future ahead of the crowd, then leaving before success arrived. That meant covering the Internet in 1985, e-commerce in 1994, the Internet of Things in 2005, open source in 2005 and, since 2010, renewable energy. He has written for every medium from newspapers and magazines to Web sites, from books to blogs. He still seeks tomorrow from his Craftsman home in Atlanta.

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