I am writing this on a Sunday afternoon – probably the week before the axe starts to fall on peeps at Yahoo. If not this coming week than the week after. It is inevitable – the only major thing Scott Thompson can do to show that he is serious about turning around Yahoo is to trim the fat. Any other move is pure fluff cause Yahoo is bloated, top heavy and needs to be shaken up.
Before I dig in more let me first state a few things. I worked at Yahoo for over 2 years. I was involved in both product, the APAC businesses and dabbled with corp dev some. I was not a bigwig, I didn’t/couldn’t change Yahoo and I will always value immensely my time at Yahoo. I knew going into my gig at Yahoo that the company was a sinking ship and I never thought someone like Carol could turn it around. I am not sure Scott can turn it around. It may not be able to be turned around but at the very least the costs could come in line more with the declining revenue as a nice place to start showing the world that the company is seriously trying to right a sinking ship.
I also want to explain the image a bit. Yahoo suffers from a lack of forthright, confident decision making. Just imagine a small startup where no one makes a decision. Devlopers do what they want. Marketing people do what they want. Business development people do what they want. Corporate development people do what they want. And the list goes on and on. Well – in some sense that is the current state of Yahoo. So some folks I used to work for, people who got shit done, coined this phrase: Fuck you, I’m the ‘D’ on this. ‘D’ = Decision Maker. Yahoo suffers from a glut of top down decision making. I remember going to meetings where we discussed how to make plans. In fact many product people where tied up for most of 2011 working on 2012 planning. Planning that was probably a colossal waste of time and money since the guy who spearheaded that level of planning is already out of the company.
So I will give Scott Thompson this – if what he is doing is finally making some hard decisions – if he is playing the big ‘D’ and part of his answer to what plagues Yahoo is that there are too many people – I would agree with him. Problem is the rank and file have been leaving all along and most of the hires have been more management. I can’t begin to count how many new execs have been brought in from MSFT over the past 2 years – all of whom, great people aside, have been doing more planning than doing. We used to joke that although MSFT didn’t actually buy Yahoo – for the most part MSFT was running Yahoo.
The core issue with Yahoo is that it only really makes money from ads. It used to make money from search and ads but now it is mostly ads. Yahoo gave search to MSFT. What baffles though is that not enough costs were rung from that deal and the Yahoo search experience is worse that it used to be. Around the globe Yahoo had a fairly healthy business in search ads but ever since the MSFT deal that whole division is monetizing much worse than before and losing touch with the customer. I have no idea if Yahoo or Scott can unwind that deal but at the very least it could cut the rest of the search team, search research and tiger team to save more of the costs from the deal. The amount of people working on search experiences is still way too high. The reality is, if Yahoo outsourced search it should really do it. Get rid of all search related employees. Put a search box up and when a user clicks the button the rest is done by MSFT. Then you might see some savings from the deal but let’s face it – the revenue will never be the same as it used to be.
On the Facebook lawsuit I think few people see the between the lines jockeying. Yahoo and Facebook did a deal some time back for the fb login, frictionless sharing and data sharing. In hindsight the deal might have been the right thing to do but somehow the deal never bore fruit for Yahoo in the same manner it did for FB. This is usually the case when corp dev, bd people call the shots with lawyers without thinking through the long term ramifications. Yahoo got single sign-in, which is great, and Yahoo users were able to share more easily on FB – worked wonders for Yahoo pageviews but FB got to easily export Yahoo address books and gleaned all the resultant data. Anytime Yahoo product managers tried to export the other way around or use the data we usually found that the agreement did not support that or that FB got to personally veto the Yahoo product idea. So FB got the spoils, Yahoo lost social and made FB even stronger in the process. My guess is Yahoo wants the deal looked at again while threatening with patents – sure this is a shitty strategy but such is life once you start losing.
However this is the norm with most of the BD and Corp dev deals at Yahoo. There are a handful of great deals – the original Taiwan deals that made Yahoo the powerhouse that it is in Taiwan today, the alibaba deal which is still a great play, the Japan deal, the Yahoo 7 deal, The maktoob deal and there are others but there are way more bad deals than good ones. Anyone remember the Zynga deal? Waste of time. Zimbra? Xoopit? Dapper? Inquisitor? You can read the list here: http://en.wikipedia.org/wiki/List_of_acquisitions_by_Yahoo! . Very few of these deals made Yahoo a better, more able company but when you have corp dev people doing their own thing regardless of how it fits the product or business needs – then it makes sense to see a list like this. I once heard a corp dev guy say his job would be measured by how many deals he did – not how many he deals he did that actually grew the bottom line. I won’t even get into how the corp dev deal team handled integrations. It’s too painful to write about.
On to display ads. Yahoo used to be amazing at it but now the biggest innovations are signed out pages or full page takeovers. Have you seen the ads in the IMAP email? I am wondering why I should be seeing them since I actually pay for my mail account. The ad division in Yahoo, some 900 strong, has not created a new ad innovation in years. Adsense is easier and cheaper, FB is going to kill it with social ads, and the mobile world is changing the game for how ads will be served, measured and monetized. Yahoo hasn’t done one thing in mobile ads but yet Yahoo’s main ad drivers are ads in mail, front page and with some other communications products that as people start using these on mobile – Yahoo has very little options for monetizing them.
This points to the other huge problem at Yahoo. Mobile is killing the goose that laid the golden egg. The better Yahoo does at mobile with email, comms products, media products and so on – the more the revenue will decline. There is no space to put display ads, there is no room for takeovers and as users demand products that work well for mobile – they are less forgiving than they are on the desktop. Livestand is an example of Yahoo correctly realizing how import the tablet market is but yet creating a new experience like this from scratch within Yahoo is hard to do. This is where an acquisition might have actually made sense but this is where Yahoo won’t spend the amount of money it will take to buy a market leader.
Yahoo has assets. It has a brand. All of them are dwindling faster than anything new is emerging from within Yahoo to make them better. On a closing note – I get kind of sick of hearing about how Asia will save Yahoo. There are only 4 things worth bucks at Yahoo in Asia. The Yahoo 7 business which is a JV that adds revenue to Yahoo’s bottom line. Yahoo could sell the portion they don’t own. Or they could float the JV. This is the one JV that still is on friendly terms and is a good business but Sunnyvale hardly pays attention to it. Yahoo Taiwan is a great, but a dwindling business with high head count that could be carved out. Wretch and the ecommerce biz are kicking but FB will slowly take out wretch and the ecommerce biz needs a reboot before new entrants take them out. Sure Yahoo TW is top of the charts today but it will lose ground just like Yahoo Korea did but either way none of these are big enough to carry Asia for the long haul. Yahoo Japan is a huge business but probably won’t grow much more and the business is no longer symbiotic – the Japan teams offers little to Sunnyvale and Sunnyvale sees them as a burden for the most part. Time to sell. Alibaba – one could write a novel about this. Jack Ma wanted Yahoo out of his way – that is why he did the deal. The deal is worth billions and Yahoo only put about 700 mil cash in. So on paper this is an amazing deal but Jack has to want to sell or they have to kiss, make up and try to build a better business together. I see neither of these happening in the short time. This is the only value in Asia. Southeast Asia is a tiny – barely break even business for Yahoo. Yahoo India is losing ground to google,facebook and the local players on a daily basis.
So long story short. The big money is in the US and probably Europe due to ad monetization maturity and the strength of the media business. Asia is huge but lightyears away from making the kind of money it woud take to turn around Yahoo.
I am sure layoffs are imminent. My guess is that Yahoo could easily cut 20 to 25% of it’s staff without actually cutting much of its capabilities. Many of us used to joke that Yahoo could put google adsense on a lot of it’s content properties and probably make more money – especially once you get rid of the ad tech people, sales people and client support people. Sounds crazy but it’s probably true.
Yahoo is an amazing company. For those still there I hope this time around is the trick. For those that get laid off – there is plenty of work out there but I know getting laid off sucks. To all of us still watching, caring from the outside – let’s hope whoever is making the big ‘D’ – makes the right decisions.
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