YHOO - a contrarian view

Comments (Archived):

1. I don’t think it’s that contrarian — it’s just that there’s a huge echo chamber effect happening.Yes, YHOO is down relative to the S&P and GOOG (and AAPL which I didn’t meant to include). But that is as much due to uncertainty as it is disapproval. Most people fear uncertainty; few look at it as a market opportunity, especially when YHOO is trading up >10% since the day before the MSFT offer.

2. There needs to be more cuts and attrition.Ash did a great job at Y! back when the company was 100 people (and even 500 or 1000). But he was really never a “see a need, see user pain, product guy”. I have no idea if he can manage in a company that’s 14,000.But Y! won’t survive at 14,000 (GOOG won’t thrive at 18,000 but that’s another story).

   1. Erik – what do you think of my long held belief that a breakup of the company into a number of smaller companies might unlock more value?

      1. I think they should have sold the search business and let MSFT fail at that (because GOOG is going to win that one).A lot of the potential value comes from being able to integrate verticals with communication and community tools. That’s harder to do if it’s all split.

         1. Good point

         2. not a good pooint.you have to have a community tool before you can integrate one.where’s Yahoo’s Facebook ?you need new blood that can pull a Facebook, integration comes later.also, if they had a Facebook kind of composite applications system, integration would be a non-issue.so, back to square one. new blood.

            1. Y! has lots of community tools. Y! has the pieces required to build a facebook.The problem is that there’s way too much internal friction to do integration. There are too many fiefdoms. There are too many people who can say no. There’s no one person who can say yes.Massive cuts are imperative.But if you gave the assets Y! has now to the team that was working there in 1997, they’d kick facebook’s ass.

            2. that’s not the way integration of this scale works. it’s not solely about technology.make every incumbent team export apis conforming to an internally defined standard.start a new group with new blood who can create a composite applications system, consuming apps according to the aforementioned standard.back to square one. new blood.

            3. I don’t think we’re disagreeing very much here. It’s not about technology, it’s about attitude and will.The current team won’t cut it. New blood is necessary. The 1997 Y! team was far more nimble and had a totally different mindset than the 2008 team. There’s essentially no one left at Y! who was there in early 1997 (my guess is the number is under 10 (counting filo and jerry)).We beat excite, lycos and seek by being nimble and integrating our properties acquisitions faster and better. That changed around the time of geocities and BCST.They buy companies now and their products are never heard from again.

            4. The loyalty of Flickr users for example, is surprising.The downside of Butterfield leaving is that they have to find someone who cares as much as Butterfield did.Not about Yahoo, not about Flickr, but about his users and their photos.On that one, I agree with Fred, spinning them back off should work better, provided they craft a standard before doing the great split, and there’s a new blood team in command of the integrated system.An awful lot of work, but it’s possible. Much more possible than doing it under Microsoft, or anywhere else.

      2. I thought that would be a good idea, but I’m not so sure any more. It would certainly please shareholders, because Yahoo is worth much more than that, but it wouldn’t help Yahoo in growing. They have synergies that should be used.It would be more important to split up Yahoo internally in separate groups that are as independent as possible. They should trim the useless executive ranks that just slow down everything.Flickr doesn’t need Yahoo a lot, but it makes sense to keep them internally, because they can profit from Yahoo’s ad sales unit.The content business (Yahoo Finance, News, Shine, etc.) should be seperated in a business content unit, a personal content unit, etc.Mail (+ Zimbra) and Messaging should be combined to one “social communications” unit. (I think they already are, but they have a lot of other useless stuff in that unit, too.)I doubt they can do a traditional social networking move, without spending a lot of money on an acquisition. Social networks aren’t something where success can be planned or bought – that’s the reason why most social networks from big corporations fail most of the time.They should make Yahoo Mail more social, but in tiny steps. It would be a good idea to include profile pictures into the mail header, for example. That would give e-mails more trust easily and give people a reason to use Yahoo Mail. I’d even suggest something crazy like move from a online-only approach and support Thunderbird (or so) and integrate Yahoo Mail prominently, develop unique features, etc. Many people still prefer client software – I just switched back to Thunderbird from Gmail’s web interface and Zimbra.And: They should sell parts of their business.- If Microsoft wants to become relevant in search, they need a WAY better search engine – Yahoo could provide that and make a few billion in that process.- Web hosting – WTF? It so doesn’t fit into Yahoo’s portfolio.- Whatever is sellable but not profitable.- Whatever is tiny and has no growth opportunities.These units should be independent, there should be no need for integration unless the teams independently decide to do that. No team should be held back if something could “damage another business unit” (like the Windows Live-team can’t release their online office, because it could damage the and Office-cash cow).Also, Yahoo should try to grow in Europe. Europe is a valuable market, and it’s always a few years behind the US, so it’s easier to tackle. (Small acquisitions would be a good way to start here.)

3. Bravos, Fred! Well said. Yahoo! has a leadership problem and this turnover represents an excellent opportunity.

4. In my experience, people at Yahoo already work really hard. That’s not the problem. They’re also generally bright. I don’t think that’s the problem either. The problem is the culture, which is fundamentally bureaucratic. People beat their heads against the wall trying and succeed in spite of it, until they eventually get worn out by the useless wheel-spinning and jump at the first alternate opportunity.Without radical action from the very top, new executives aren’t going to have the power to change the company’s deeply-rooted cultural defects. Personally, I think Yang should identify the 5-10% of employees who call the most useless meetings and fire them. He should then tell the remaining employees that they’re going to do exactly the same thing for exactly the same reason at that time next year. Combine that with clearly-defined (and enforced) decision-making authority, and the company will turn itself around. (The overall strategy’s not bad, it’s the execution that’s the problem.)But I figure the odds of this are extremely slim – and with Yang in charge, zero. He needs to be replaced by a tough, maverick outsider – I’d nominate Mark Cuban.

   1. From what I’ve heard 2nd hand, so grain of salt, there’s a lot of fiefdom protection going on. There’s little collaborative spirit, no risk taking, no innovation. If someone else inside Yahoo has a solution that might be good for your Yahoo product it’s really hard to get access to it.Compare this to Google where you have all kinds of synergies (sorry for using that word). I heard Paul Buchheit speak at StartupSchool 07 and he said that it was tremendously helpful to have access to Google’s scaling knowhow, infrastructure, and happy problem solvers when creating GMail.

   2. Mark would be terrible. YHOO does not need a CEO who has his own PR staff. If you want an old BCST person, Todd would be a better choice.But I don’t think either one of them would a particularly good fit.Decide what you want to do (not search). Focus on the user and their problems.

5. I think it’s a bad sign that the founder/creator types are leaving, but who knows, maybe they weren’t suited to being employees. I’d find it hard to give up control and play nice with corporate politics if I was an acquired startup founder. However, nobody worries (yet) when founders or internal app creators like Paul Paul Buchheit leave Google.What’s really worrying is that the MSFT bid was like a Great White taking a big chunk out of a seal. Once the seal bleeds out the shark (or another shark) comes back for easy pickings. Big acquisitions kill morale on both sides, but more so on the receiving end. Innovation stops and people start looking for other jobs and/or digging in to protect themselves.

6. Yahoo does have plenty of good people but do suffer mightily from poor leadership and terrible product vision.

7. Others here are saying that if Yahoo had the team of 1997, they’d do great. Yahoo had a lot what’s currency today before it was currency: social networking (Yahoo 360), bookmarking (MyWeb), email and, of course search.The problem, from my perspective, was in the execution and sometimes the marketing. The email product was good for its time, but hasn’t been updated in ages, and is still very glitchy. Small business email, paid, doesn’t have the functionality of Gmail or many other services.Web building services are more expensive and less functional than others who’ve overtaken Yahoo in functionality as a host. (A site I have there recently was very slow and it was only after I called — 45 minutes on hold! — that I found out they’d been having server issues. Then the told me they’d escalate the site.)I don’t know what team it was in ’97. But I do see tons of great ideas and opportunities that were not seized on.

8. Hi Fred,On the one hand I agree with the naysayers as these departures are a big wrench, pretty much all the people mentioned bleed ‘purple’ – it is quite literally a culture shock. But from a business point of view I agree with you. many of the ideas and the energy that these people brought arent moving the needle fast enough. And with the changes at the top it gives the opportunity to other people to show their mettle and get on.Butterfield, Horowitz, Fake and Schachter all made valuable contributions, but they are what Bob Cringely would have called first wave people, Yahoo! is a large corporate not a start up and needs the mix of the first wave vision but also solid execution and the people to make that happen.I would go further and say that more people should be encouraged to leave to reinvigorate the business.

9. Yahoo has such an amazing history that it would be hard to keep it from going forward. Hopefully this shift in leadership will not destroy the company, like so many thinkhttp://www.fundinguniverse….

10. I think many folks would agree with your view, Fred. We were discussing the exodus at work and said the same thing. Yahoo! does have capital, an audience, and tons of exposure still. All it’s lacking is a team that will apply a firm strategy and help the bewildered employees get on board with it. There’s money in them, there hills!

11. Fred, I’d combine your post with the excellent Silicon Alley Reporter post about solidifying the ranks of management at Yahoo!.http://www.alleyinsider.com…Basically, the management at Yahoo needs to change their approach from business as usual to the intensity of a turnaround. In turnaround environment there is a sense of the fixed term of the activities (2-3 years), the scope (no sacred cows) and the outcome (spoils for those willing to take risks). That’s a very different attitude from a simple re-org.

12. Yahoo is a publicly traded company. Many of their executives and employees have benefitted greatly from this. Now Wall Street has lost faith. They don’t care that Yahoo has 500M users worldwide. They don’t care that Yahoo is finally about to embrace social concepts. They don’t care that they are about to open up API’s for developers. They only care about one thing: their stock price. I’m not even going to get into a debate about this. All I’m doing is trying to point out that “talk is cheap” and Yahoo is failing to inspire investors. I firmly believe that Sue Decker needs to go. She doesn’t have the product vision to run the company. Heads need to role before Yahoo can be fixed.

13. Can I please tell you what I think of YHOO?It has a thriving culture of international criminals abusing its service and no one able seems to be caring about it. The YMessenger product, which is one of its potentially core-most assets is entirely neglected under the command of Sarah Bacon, the product manager for that product. I see useless features being released against the wishes of its users. Advertising is entirely mismatched with the context of a conversation. Silly IMVironments are likely generating zero return on investment to the advertisers.I witness incessant identity theft attacks through that system running amok with impunity. I get 419 Nigerian scam attempts dozens of times daily.Just last night, I was talking with one such scammer. He was incredibly good. I enjoyed leading him on for 3 hours. Just about everyone else would have been out at least $3000. These are ruthless organized criminals and they must be stopped!I have about several years of logs of such attempts.These attacks are not complicated to stop. As it is right now, this contributing to a massive leakage of users from one of the world’s best IM systems.Sarah, if you are reading this (and if not, why are you not plugged in enough to see posts mentioning your name?!), let’s do lunch next week and I’ll tell you how to fix this problem once and for all.If the users abandon an IM system, which keeps a market leader’s brand in front of their eyes constantly, they may eventually switch to the portal of another IM provider. AOL, iGoogle, or even Live perhaps?Wake up Yahoo! I am your user since when I could download you from a Stanford ftp site.Read your own blog comments from YMessenger users. They don’t want new features. They want ancient bugs fixed! They want the end of pornography-peddling bots. They want to stop being attacked by criminals. All new announcements are met with a wave of posts from angry users who really want Yahoo to succeed. Fix the ancient product. Maybe that will stop your user exodus.I am a Yahoo-identified Yahoo! Messenger Power User (YID wiseleo) and I am really sick and tired of this problem.And, yes, monetize your IMs already! Give me context-sensitive ads on the right of my chat stream relating to the conversation I am having at the moment.

14. Amen.

15. The problem with YHOO is too much “leadership” and too little ownership. When YHOO grew to the point where employees and executives worried more about their career growth than about the growth of the product they became troubled. When the product is great people can only name a few of the executives because the focus in on what is actually important – making a great product and lots of revenue. YHOO needs to get back to a place where people discuss their business instead of the soap opera of their people.

16. I agree with you 100% !!…I liken it to this country…a constant stream of new immigrants, both legal and illegal, continuously regenerating the place, pushing upward to better themselves and their families, bringing entrepreneurial spirit in – almost by definition – (they are not from here, no foundations, no preconceptions, no ‘baggage’), not relating to their surroundings as a given. All this makes this country a dynamic interesting productive and creative place (Look at it this country in comparison to any country in Europe, where immigrants are always looked at with a xenophobic eye and they still have a hard time integrating, assimilating and rising – this stifles innovation and upward mobility there). It’s the same for companies. Even Google is getting some of the same media treatment with the perception that ‘people are leaving’ as a sign of “something”… in reality it seems that Google is unfazed by departures of veteran employees and probably sees it for what it is: a great cultural advantage, a natural process of regeneration that will keep the company fresh, keep it from becoming a bureaucracy where people punch the clock and look for job security instead of a competitive vibrant creative place. If I were Jerry Yang – I would encourage a full regeneration of his leadership and veteran employee base in the next 24 months. In fact this is Yahoo!’s only chance to emerge from its current crisis.

17. Fred,I’m curious: are there any examples of mass exoduses at Fortune 500 companies that led to major turnarounds in 5-7 years? I ask not because I doubt your analysis, which strikes me as logical, but because I just don’t know that fact.

    1. Maybe dell and hp?

       1. Indeed,

18. If all these folks needed to be replaced, then if they all *jumped* rather than being *pushed/shoved*, the problem is with their bosses, and hasn’t changed.

19. I agree in that Yahoo is its own entity. Mergers can be messy and Yahoo works for what it is. Its mail and news UI is a leader and it would only be hurt by being lumped with MSN or Google. Yahoo should try and stay independant for now.