Yahoo! Why Hire When You Can Acquire?

Thirty million dollars – 90 per cent cash, 10 per cent stock. That’s what Yahoo is rumoured to have paid for Summly, the popular news reading app created by 17-year-old Brit, Nick D’Aloisio, which converts long form journalism into pocket sized summaries for your mobile phone. But Yahoo has no intention of selling the app in its current form. Instead, the company has pulled it from the Apple store and hired D’Aloisio to help incorporate the algorithmic technology into its own mobile products.

That’s what had tech media buzzing on both sides of the Atlantic last week. But there’s a more nuanced story unfolding around D’Aloisio that suggests he – the “well-spoken and adorkable” programming whiz kid – is doubling as the star of a bold new public relations campaign. Summly, shmummly. D’Aloisio makes Yahoo’s acquisition a truly enticing story, one that will drive value for the company as it strives to be seen as a mobile leader.

The folks in Silicon Valley have a name for acquisitions like Yahoo’s:  “acqhires” (“acquire” and “hire”). Large tech companies “acqhire” smaller companies by purchasing them for talent or a cool concept, rather than a product or assets. (Rex Hammock coined the term to describe Google’s acquisition of in 2005.)

According to Kara Swisher, this has been Yahoo CEO Marissa Mayer’s plan all along. Mayer has snatched up “a range of small mobile startups since she took over nine months ago” and “talked about the need for Yahoo to focus on the mobile arena above all.” Swisher quotes a source close to the Summly deal: “Nick [D’Aloisio] will be a great person to put in front of the media and consumers with Mayer to make Yahoo seem like it is a place that loves both entrepreneurs and mobile experiences, which in turn will presumably attract others like him.” Check him out with English actor, author, and Summly investor, Stephen Fry.

All of this begs the question: Why acquire when you can simply hire? The answer has as much to do with Silicon Valley’s tech economy as it does human DNA.  “It’s cheap and sexy to build a start-up and relatively easy to find seed money,” says Liz Gannes of All Things D, “so many great hires are locked up outside of larger, more successful companies.” To unlock that talent, companies are offering start-up founders and their investors a face-saving exit strategy – namely, acquisition. It’s far better to “sell” a start-up than defect or shut it down. Plus, doing so makes it possible to reduce taxes if compensation counts toward long-term gains. University of North Carolina law professors John Coyle and Gregg Polsky have written what appears to be the first academic paper on the subject.

Then there is the publicity. Unbelievably young, entrepreneurial, innovative, and a child of the mobile world, D’Aloisio embodies much of what the Yahoo brand aspires to be. Fetching golden headlines – “He Has Millions and a New Job at Yahoo. Soon, He’ll Be 18,” wrote The New York Times – doesn’t hurt either. Which is why Summly, despite whatever you’ve heard about its real value, might be Yahoo’s most clever investment this year.