That’s the thinking of Nicholas Carlson, a journalist whose book Marissa Mayer and the Fight to Save Yahoo! explores the company’s struggle under its charismatic new chief executive, appointed in 2012 to try to turn around a business that seemed to be sinking into despond.
The risk to Yahoo, now in its 20th year, is that once its shareholding in China’s Alibaba is subtracted from its overall capitalisation, you’re left with zero, or even negative, net value. Obviously that is not quite the case - the company is profitable and generates cash, but it indicates that Mayer faces an ongoing uphill struggle.
Adam Cahan, Yahoo’s vice-president of mobile, was already there when Mayer arrived following the acquisition of his company IntoNow in 2011. Mayer faced two intertwined problems: Yahoo’s relevance was dwindling because it was still stuck in a desktop age, showing big banner ads to people checking their email, even while the world had gone mobile. Further, its internal culture was too inward-looking.
According to Cahan, Mayer shifted the focus to mobile, and on the people who were doing it - Yahoo’s users. “She talked about where she saw a platform shift - very specifically, that users were going to mobile and Yahoo was underinvested in mobile. She took time to say how many people are focused on mobile - which was 50 out of between 12,000 and 13,000 developers.”
As Cahan describes it, Yahoo was essentially dithering over mobile in 2012. “There was the worry about cannibalisation - it took away desktop ad revenues, but nobody was going to make money in mobile because the display ads were too small; even Facebook didn’t advertise on mobile then. There just wasn’t a business model on mobile. And secondly, there was the technical debate: should we build in HTML5, or native apps? Not a lot of progress was being made.”
“Marissa came in and was incredibly insightful,” Cahan says. “She focused on the users. She said ‘look, the users are going there [to mobile], so we have to go there and monetise it later’. And as for the arguments about technology - if you cut through it, it boiled down to HTML5 being a benefit for developers, but native apps were the highest-performing. Marissa said ‘focus on the users. We aren’t here to solve developers’ problems’.”
Mayer is Cahan’s direct manager and he says she brings three qualities to the work: “A tremendous amount of user empathy - so, for example, she’d say ‘why do you have pull-to-refresh? Why not just refresh automatically?’ And she has this pattern recognition - so she’s not just data-driven, there’s testing plus intuitive insight. Finally, she has tremendous decisiveness.”
Mayer created a new group called mobile and emerging products, oversaw the acquisition of Tumblr for $1.15bn, and drove the development and release of new mobile-focused apps for Android and iOS.
She also focused the company on new fast-growth and potential high revenue sectors - mobile, video, native apps and social, which were shoehorned into the acronym “MaVeNS”. Mayer makes much of the “Mavens”: presenting Yahoo’s most recent quarterly results in January, she insisted that the 4% decline in display ad revenues will eventually be offset by “the strong growth in our Mavens business” and that those businesses are “not cannibalistic” to traditional PC advertising (on the desktop).
Yahoo’s identity crisis: media, or tech?
Cahan says that Mayer also changed the culture. Before she arrived, “Yahoo was very inwardly focused. Marissa, by focussing on the users, made it externally focused. And that shifted the nature of the culture and really amplified some of the cultural elements that were there. Yahoo has a tremendous culture of collaboration and joy and fun, which maybe comes from our name.”
To anyone who has followed Yahoo’s travails over the past few years, Cahan’s suggestion that the halls rang with collaboration, joy and fun will sound odd. Yahoo had been manifestly dysfunctional for years, getting through five chief executives between 2009 and 2012 - partly because it had always struggled with the question of whether it was a technology or a media company.
Begun in March 1995 by Jerry Yang and David Filo, Yahoo was initially just a directory for the nascent web: it would tell you what the “cool site of the day” was, and let you find existing sites via a tree-structure directory. In a time before search engines, when you could enumerate the number of new sites per day, that was feasible.
That quickly became unfeasible, and Yahoo shifted to being a portal for news, weather, and (from 1997) email. In fact email remains the principal reason for people to visit Yahoo; there are around 280m accounts. Once there, users ads and are led towards other parts of the site.
But was Yahoo about selling ads, or about cutting-edge tech? Its purchase in 2005 of the photo-sharing service Flickr and link-sharing service Delicious suggested it was about user-generated content - a technology site. Yet it focused on display ads and TV-style services, hiring former Warner Brothers chair Terry Semel in 2001 in a move that seemed to say Yahoo was competing with Google by distinguishing its media credentials.
As Tom Foremski points out, being a technology company means that a single programmer’s work can boost the company’s profit for years. In a media company, one person’s work gets noticed perhaps for a day, and then vanishes in the stream of fresh news.
The difference in emphasis had had its clearest expression a few years earlier, when Larry Page and Sergey Brin visited Jerry Yang to demonstrate their search technology in the hope that Yahoo would buy it. They showed Yang how “Backrub”, as it was then called, could find the desired search result in the first page.
Yang turned them away: “We make our money from people being shown ads, so we want them to click through a couple of pages,” he explained. Page and Brin sought seed capital instead; the rest is Google history. Yahoo has also missed out on chances to buy Facebook (it tried to lower the price), YouTube, Twitter and LinkedIn.
“In the beginning, Yahoo was the user-friendly interface to the web,” Carlson told me. “It was a Disney-like friendly brand that provided things people wanted, all in one place - from calendars to file-sharing to shopping for flowers.
“But over time, people began to trust companies that did one thing well: eBay for auctions, Google for search, and so on. When she came in, Mayer said ‘let’s get Yahoo back to the future’. Make products that people want to use to do everything on the web, which I think is a big mistake,” Carlson says.
Mayer made Yahoo’s apps good, but who for?
The author thinks that her aim to “ride the paradigm shift” to mobile in 2012 was misplaced. “Apple and Google had been doing that for longer already. This is a different world where people trust no-name brands to do something - Uber, Snapchat, Meerkat. I don’t think it’s working extremely well [for Yahoo]. When [Mayer] got there, they didn’t have any good [mobile] apps, and she spotted that even those they did have were extremely poor. She made them good and up to industry standard. But on ads and usage - people don’t use them.”
So what are Cahan’s milestones for the next five years? “One metric is growth - returning this iconic company to growth,” he says. “The Mavens are seeing 100% year-on-year growth. The question is when will we see the growth businesses, which are growing at 20% annually, exceeding the traditional legacy business, where the display ad business is seeing 1% to 2% growth.”
In 2008, Microsoft made an unsolicited $44bn bid for the company. Yang, then chief executive, rejected it despite it being worth almost two thirds more than the company’s market value. He defended the move to the board on the basis of internal projections that suggested the company would be worth far more quite soon. Instead, the global crash came and Yahoo’s value plummeted.
Staff now trust management
Yang was fired and replaced by Carol Bartz, an experienced and blunt outsider who cut costs and tussled with the board, and was then replaced in 2011 as the board rifled through Tim Morse, Scott Thompson and interim chief executive Ross Levinsohn before the surprise appointment of Mayer in July 2012.
Veteran journalist Kara Swisher had a string of stories so insightful on Yahoo’s internal ructions it sometimes seemed she had been inside the boardroom. Since Mayer joined, the big stories have dried up, largely due, she says, to Yahoo being less interesting, doing few innovative products yet having improved morale among developers.
Cahan says before Mayer, the company wasn’t “transparent” - that changes weren’t communicated through the company, and it was hard to get information from executives. That, he suggests, is why journalists like Swisher had a field day: people whispered and leaked to see the reaction, and find out more from counter-leaks.
Mayer, though, installed a number of former Googlers in senior positions. Every Friday afternoon there is an “FYI” session where she and other executives can be quizzed by staff - a replica of the Friday canteen sessions that Page and Brin used to run before Google floated.
The culture of leaking has been replaced by one of trust, Cahan says. “If you’re in a company where you don’t trust the leadership, then often you don’t feel proud of being at the heart of it. And people respond by leaking.”
After Alibaba and Yahoo Japan, is there any other revenue?
Yahoo’s key problem is true of many media companies - its desktop-based display business is wilting, but the mobile side of the business isn’t growing fast enough. But Yahoo is buoyed by a stake in Alibaba, the Chinese e-commerce company that recently floated in New York and is worth more than $200bn (Yahoo is worh $40bn). Selling its stake in Alibaba will generate a windfall of almost $200m by September 2015 - about 20% of Yahoo’s predicted annual profits.
One-off sales and licensing of patents and intellectual property in Yahoo Japan, of which Yahoo owns 35%, will make up another large chunk of revenues. In fact Eric Jackson, at Forbes, calculates that leaving those numbers off, Yahoo will only make an operating profit of $590m from its core business - in its website and apps - this year.
That erosion of profitability - obscured by its stake in Alibaba - has many on Wall Street worried. One activist investor, Starboard, has been pressing for a merger with tech/media company AOL.
Mayer might be forced into a marriage because she has not taken radical action to cut costs. Marc Andreessen publicly told her in 2012 that she should cut the headcount by about 10,000 to get costs under control and focus the company.
She did not take his advice. “Mayer forewent that plan, and introduced ‘quality performance reviews’ which are close to stack ranking [as used disastrously at Microsoft], to try to control costs,” says Carlson. (Stack ranking assigns a rank to the performance of each employee in a group; the lowest-performing are usually let go.)
“Now Yahoo has as many employees as it ever did, though probably fewer overseas. The cost per employee is still very high.”
He says Mayer is instead taking the wrong approach - “messy morale-draining layoffs where a few go every week. If you’d asked me six months ago … I’d have said morale was much higher, and the products better than when she joined. Now I would say the products are better, even if they’re not popular, but I get the feeling morale is being drained … they aren’t communicating with employees about these cuts.”
“She has to tell a story that Wall St believes within the next few quarters, or Yahoo will be a tasty acquisition target.” It generates $1bn in cash every year, Carlson points out: “a strong legacy business”. That could be one reason why its shares have risen by 10% over the past 12 months.
Will Yahoo get the Apple search deal?
Meanwhile Mayer has notably increased Yahoo’s visibility, and revenue, through its deal with Mozilla to make it the default search on Firefox in the US. Another enticing prospect lies ahead: that she will persuade Apple to make Yahoo the default search engine on the iPhone, replacing Google, which has been there since the iPhone’s inception in 2007. The contract is up for renewal in the summer. Apple has already dropped Google Maps and YouTube as default services; might Yahoo get the gig?
Swisher comments: “If she gets something like an Apple search deal, she will have done a Hail Mary” - the phrase for a desperate long-range pass in American football to win the game. Sources inside Apple do not sound encouraging. But then, it didn’t look likely that Yahoo would outbid Google for Firefox either.
Carlson, however, thinks hopes of a sudden revival are probably overplayed. “Everybody wonders why it can’t turn around like Apple did back in 1997. But the thing is, Steve Jobs did what Mayer didn’t do. He cut products back to four, and he cut the workforce, and controlled costs, in one big swoop. She hasn’t scrapped products, hasn’t controlled costs, hasn’t improved morale long-term and hasn’t done drastic cuts that are needed long-term.”
His pessimistic view is that Yahoo will be undervalued by Wall Street, and then grabbed by a private equity company - as Dell was a couple of years ago - for its cash-generating capability. “It could be that nobody can fix Yahoo,” he says. “She may have just walked into a meat grinder.”
But why? “Yahoo solved a problem of the early web being confusing. But the web outgrew that solution, and people tried new things.” Carlson pauses, and adds: “It doesn’t solve a problem better than anybody else solves it today.”
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