What Yahoo Should Have Said to Wired

Several readers and Battelle have noted Fred Vogelstein's Wired story on how Yahoo! fumbled the search ball, as well as Yahoo's lengthy response.  Battelle suggests that this story will mark the bottom.  As a shareholder, I certainly hope so.

I still believe that it's time for Terry to step aside, if only to propel the company past the paralysis that comes with having open senior management positions (2), an impending CEO-succession power struggle between Sue Decker and whoever the company brings in to run the other major operating group, and thousands of employees justifiably worried about who their bosses will be and what the future will hold.  And then, of course, it's time for Panama to not only start allegedly impressing customers but accelerating revenue growth.  If both of those things happen, Fred's Wired story will, in fact, mark the bottom--and Yahoo!'s stock will significantly outperform Google's for the next two years.  If not, get ready for more of the same.

Yahoo's response to the story, predictably, describes how much benefit the company has derived from the Overture acquisition, how hard it has been for the company to develop Panama on the fly, and how strong the company's position is in graphical advertising.  What was left unsaid, however, and what demolishes the company's credibility every time it tries to defend itself, is the following:

Five years ago, despite troubles in the Internet advertising market, we were the dominant global Internet leader, and Google was a little-known pipsqueak.  Despite our brand, reach, and market share, however, we failed to recognize the awesome power of the new search business.  Whether this failure was the result of an obsession with more traditional forms of media, the distraction of trying to survive the first dotcom bust, or just poor execution is a topic for historians.  Regardless, our failure opened the door for a major new competitor, and in five short years, we have gone from runaway No. 1 in our business to a distant No. 2.  In the process, we have cost you, our shareholders, at least $100 billion.

Yes, I realize that no company would ever say anything like this (and that Yahoo has accomplished a lot).  But I would welcome a bit more acknowledgement of "Yes, we blew that round--and hats off to the folks at Google, who cleaned our clocks."

Comments

[disappointed with henry]

Henry,

Sometimes I wonder whether you have any idea about what it is like to run a large public company. There are good years and bad years, its a fact of life. Just because a company has a bad year, does not mean that you should start calling for the CEO's head. Terry Semel joined Yahoo! when it had hit hard times and helped lead its transformation into a global marketing powerhouse with a sustainable business model. There are plenty of great technology companies that have had good runs and then hit bad patches eg Microsoft, Cisco, and I don't hear you calling for Steve Ballmer or John Chambers to step down. Dispruptive technology is a constant fact of life. As an investor in the sector, if you can't live with that, you should get out because changing management when times get tough is not always the answer.

A former Blodget fan.

[Henry Blodget]

Thanks. Agreed about the challenges of running a public company. Even your response (had Yahoo delivered it) would acknowledge a bit more of an "oops--we blew it" than Yahoo has so far acknowledged.

My suggestion that Terry step aside is based in large part on the fact that he will presumably soon retire anyway. Yahoo is not a company that is at the end of a big market cycle (like Microsoft today). It is a company that, like Apple in the mid-1990s, is at risk of being rendered irrelevant by a fearsomely strong, rich competitor. The next two years are critical for Yahoo, and the company can't afford any sort of lame-duck phase.

[chircu.com]

What's the problem with Semel? When he came on board, he did so by acquring a lot of YHOO in the open market. Last year, he sold a lot of YHOO. Maybe he's signaling something himself.

On the other hand, Yahoo brought in a media guy whose solutions borrowed all heavily from media. That was fine and dandy while it lasted, or until Google made a difference. To better evaluate the situation at Yahoo, consider the amount of crappy ads on Yahoo and connect that with the state of the "traditional" media. Now, it's time the dialectic between hammer-tery and nail-yahoo was over, unless Semel can prove he knows more than media.

[rob]

Despite Yahoo's gains today on the market and the announcement of the February 5th release of a new quality-score based ad rank system, the company is no longer relevant.

Panama is two years too late and will create more short term problems than solutions.

Furthermore, I work very closely with large companies that advertise on YSM and I have personally seen Yahoo's share of revenue and search traffic decrease considerably over the past 6 months.

I wish them the best and hope they can pull out of this tailspin. I don't think we've seen the bottom for Yahoo just yet.

[TallTroll]

Rob, I think you're overstating the case a bit here. Yes Panama is late, yes the switchover is going to hurt, but ultimately, they had no choice.

Also, given how many people Google has narked with their recent "Quality score" shenannigans, there is considerable pent-up demand to move budget to an alternative platform. If Yahoo can manage to resolve their historic problems with Panama, they may see a considerable movement of advertising spend to them, from Google.

If that happens, and they can fix YPN (and ROLL IT OUT TO NON-US TERRITORIES TOO!), they'll see another big boost as people switch away from the annoying-but-there-aren't-any-real-competitors AdSense product, which accounts for something like 50% of all revenue at Google.

Google are far from unassailable, and Yahoo could still come back strong. That would require that senior management at Yahoo actually get a grip on what the REAL issues facing Yahoo are, and address them, and quickly