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Why does Yahoo! buy failed startups? It's the only way it can get good developers

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The acqui-hire isn't bad business

Yahoo bought Rockmelt today, a startup that debuted with a wave of media fanfare touting it as the company that would reinvent the browser for the age of the social web. It didn't catch on, Rockmelt pivoted, and eventually the company faded into obscurity, at which point Marissa Mayer swooped in to purchase it, as she has with dozens of ailing young tech companies since she became CEO at Yahoo.

Mayer had taken a lot of flack in the press for purchasing startups with little traction, many of whom did not even build or invent the technology for which they were praised in the acquisition announcements. But Mayer isn't buying these companies for what they built; she's buying the engineers who built them.

"Yahoo has locked up engineers with two- to four-year contracts."

As Bloomberg Businessweek noted in its recent profile of Mayer, every time she's bought a startup, "Yahoo has locked up engineers with two- to four-year contracts and set them loose to build apps and hire more mobile developers, according to two people familiar with Yahoo’s deals who weren’t authorized to speak for the company."

Wouldn't it just be cheaper and easier to hire programmers on the open market or right out of college? Actually, no. The competition for developer talent in Silicon Valley today is insane. Take this recent piece from San Francisco Magazine describing the day Zynga laid off several hundred employees. Recruiters tried to hire freshly axed programmers in the comment section of news stories about the firings. Other head hunters descended on the bars where ex-staffers were drowning their sorrows and started buying shots and arranging interviews for new gigs.

Things are especially hard on the hiring front for a company like Yahoo, which still has a reputation as a dot-com dinosaur that has been bested by a new breed of tech titan. What Mayer needs most of all is mobile talent, and with Yahoo flush from cash thanks to its Alibaba holdings, she is finding it without having to recruit directly.

It's hard to hire when you're seen as a dot-com dinosaurAs we wrote back when Apple acquired spectacularly failed startup Color, there is a peculiar ecosystem in Silicon Valley. The best programmers often want to be entrepreneurs, so they go out and raise venture capital funding. If their startup fails, the VCs who backed them want to recoup as much of their investment as possible. They work to find a soft landing at a big tech company, which is mostly interested in the talent. This exchange, dubbed the acqui-hire, is what keeps the wheels turning in Silicon Valley.

Time will tell if Mayer's strategy pays off. Yahoo won plaudits and awards for its new Weather app for the iPhone, showing it can produce slick mobile products. While its finances continue to slide, its traffic and user engagement numbers have finally begun to rise, reversing years of declines. Most importantly, the company reported that attrition fell by 59 percent in the second quarter. Perhaps all the new blood at Yahoo is helping to turn around the long suffering morale.