Dec 4, 2015 ยท 6 minutes

There is a dimension of tech beyond that which is cherished by investors.

It is the middle ground between failure and success, between innovation and stagnation, and it lies between the pit of man's fears and the summit of man's knowledge. This is the dimension where activist investors and private equity firms prey. It is an area which we call the twilight zone.

And this twilight zone is where Yahoo has been stuck for nearly a decade now. The company's core operations have been struggling to stay relevant in an online-ad market that was dominated by first Google, and now Facebook. The harder Yahoo raced to catch up, the further it found itself slipping further back in the race – a mythic, archetypal nightmare played out in real time on the stock market.

Yahoo's reality, for a while now, has been this: In tech, there have been three tiers all along. The clear winners, that is, the Googles and Facebooks, which write the rules others must follow. The clear losers, that is, the incumbents and me-too startups that can't adapt to or abide by the new rules and fall by the wayside. And the very, very unclear middle tier – the companies that are clearly not winning but can't be labeled clear losers either because they still see some profit growth and, in a good quarter, some decent revenue growth.

The tech press and most tech investors love the top tier and even the bottom tier. They are coherent narratives you can fit into a headline, or even better, a cell in a spreadsheet. But nobody wants to deal with the middle-tier, which always involves too messy a narrative. The company won't die. But it won't thrive either. It aspires to innovate, doing so in intermittent flashes. Yet things never quite gel, nor do they quite fall apart. And so on.

This is where Yahoo is in 2015. The company said this fall it has 800 million global users. That's double what Instagram boasts, and more than double Twitter's audience. But Instagram is seen as a growth engine for Facebook and there's even more hope for Twitter than there is for Yahoo. Yahoo saw its revenue grow by 8 percent last quarter – and fall 7 percent once traffic-acquisition costs are factored out. Yahoo has posted a GAAP operating loss for three quarters running.

Even if something isn't going wrong at Yahoo, something – or rather, a lot of somethings – is not going right. How do you not better monetize 800 million users? More to the point, how do you not Instagram-ize it? Why can't Marissa Mayer reverse engineer whatever magic wand Sheryl Sandberg is waving over the various properties thriving inside the Facebook family?

The answer to those questions can be found inside the tech twilight zone, where Yahoo aimlessly spins. Most who toil in or chronicle tech innovation are drawn to shiny new things. We devote our attention and our self-curation (now that this, depressing as it is to acknowledge, is a commonplace and time-consuming activity) to those shinier brands. Even so, many of us still hold on to Yahoo accounts in this or that property. And, more importantly, so do hundreds of millions of people outside our sheltered world of tech.

This is the grey glory of the also-ran economy. The less savvy – perhaps because they're older, perhaps because they have no idea what curation means outside a museum – spend a lot of time online. The ones who ask and try to solve conundrums on Yahoo Answers. Who cling from habit to Yahoo Fantasy over FanDuel or DraftKings. Who see Yahoo as a better source of news and weather than local TV. Who turn to Yahoo Mail when other sites demand an email address. Who find Yahoo Finance a useful supplement to other financial sites.

Maybe I'm not so savvy, because I'll cop to the last one. Okay, the last two. My point is, there is a massive, if silent audience of users who still use Yahoo, even if Yahoo can't quite pull any of us in to its revenue stream as well as Google and Facebook can. It's a question that Yahoo Answers will never be able to solve: How can the company get its huge user base to download – and use daily – its mobile apps? The best answer is: Maybe it can't.

Yahoo's trouble is that its board has been loathe to acknowledge the company's status as an also-ran. So Yahoo has chewed through CEO after CEO like a bored old dog tearing apart its beloved plush toys. Now it's Mayer's turn inside the mouth of the beast, as resilient as she seemed at first. In the end, Mayer's triumph may not be saving Yahoo as much as surviving Yahoo. Marc Benioff declared unreservedly this week he'd hire her in a second, and I doubt he's alone.

Despite the unwarranted fanfare that greeted Mayer's arrival at Yahoo, many doubted she'd save what couldn't be saved. Hiring her was like appointing a brain surgeon to administer nursing care to an aging patient. She tried to graft young flesh onto a haggard Internet body, and age, as it inevitably will, won out.

The very thing that helped Mayer during her first two years at Yahoo hurt her in her third year: Alibaba. Yahoo bought a big stake in the Chinese e-commerce company when it was a startup, and the move was so shrewd it helped ex-CEO Jerry Yang feel cocky enough to rebuff a $45 billion offer from Microsoft in 2008.

Alibaba was no also ran, though. And in time Yahoo became a de-facto hedge fund of Alibaba and Yahoo Japan, its second key financial asset. Instead of buying Mayer more time to fix Yahoo's core business, Alibaba and Yahoo Japan eventually became its core business, and the original company Mayer tried to fix became the sideshow.

Analyst after analyst ran financial models and found that Yahoo's market cap minus the market values of Alibaba+Yahoo Japan was equal to zero. Or less than zero. Or $1.9 billion. Or $3.9 billion. Or, really, who knew? Yahoo itself must be a failure, right?

This guessing game is why private equity firms may be circling the company. No credible analysis can look at a company with $5.8 billion in cash on hand and positive (if diminishing) free cash flow and conclude it's worth zero or less. The discount on Yahoo's stock price has in fact more to do with its status as a hedge fund: namely, whether it can find a loophole inside tax laws once it sells its Alibaba shares. Not to mention that the company was never designed to be a hedge fund in the first place, even if that's what investors insist it becomes.

At one point, the most logical outcome for Yahoo post Alibaba was to merge with AOL. That seems less likely now that Verizon owns AOL, if only because there are others who still see value in Yahoo – including News Corp and IAC/Interactive. I'd put my money on IAC.

Tinder aside, IAC has long been the king of the tech twilight zone, finding value in Internet properties after trendsetters have left them to chase shinier things. You may buy into the spurious arguments that Yahoo is worth less than zero. But this aging dog still has some life outside its Alibaba investment. And enough teeth left to chew through another CEO or two.