It’s almost two years since I have written a blog, but in the last few days several people have asked my opinion of Microsoft’s bid to buy Yahoo!, so it seemed like a good time to start writing again.
I worked at Yahoo! from March of 2003, after they acquired Inktomi, until July 2007, when I left to attend business school in New York. During my four-plus years at Yahoo!, I worked in several capacities from engineering on the search engine to product management for various search products such as search submit, then core web search, and later Yahoo! Answers. As we struggled to compete with Google, I tried to figure out what was holding Yahoo! back.
I believe that all of Yahoo!’s major problems stem from two points:
- Identity crisis — Is Yahoo! a media company or a technology company? A content producer or a search platform? Management never gave clear direction on either of these questions, so lower-level employees were left without the basic guidelines they needed to make good decisions.
- Bureaucracy and a culture of risk aversion — Yahoo! isn’t slow to ship products because of a lack of creativity or a lack of technical talent. New, creative, powerful prototypes are built all the time, but many never see the light of day. Yahoo!’s culture had developed in a bizarre fashion, whereby any manager at any level had enough veto power to grind projects to a halt, and almost nobody actually had the authority to push a project forward. This meant that even the smallest change required weeks or months of internal politicking and persuasion with dozens of people, each looking at the project through a different lens and trying to expand its scope to achieve an additional goal. I remember a seemingly small project that listed over thiry people on its team when it launched.
Making Yahoo! part of a larger, more diversified company will not solve either of these problems. These problems can only be solved by focus and a radical shakeup of middle management, such as the one proposed in late 2006.
Compounding these organizational challenges are technical issues that would stifle new product development for at least a year. It is reasonable to assume that Microsoft would pressure a newly-acquired Yahoo! to port its existing infrastructure from BSD and Linux to Windows-based servers. This would be a herculean effort with no gain save its marketing value, and it would likely result in embarrassing outages, just like the last time Microsoft tried to do something similar.
So who can fix Yahoo!, if not Microsoft? I think the company needs an outsider CEO who can come with a fresh point of view and make hard decisions about where to invest and where to cut, define a single vision, cut the bureaucracy, and instill a culture that encourages risk-taking. This will mean volatility and uncertainty in the short term, but it is the only viable answer. Yahoo! has favored stability over risk for the last several years, and its reward has been a predictable, consistent decline in market share, brand equity, and revenue. From here it can bleed to death alone, bleed to death as part of Microsoft, or face uncertainty and try to capitalize on its last chance to be a disruptor. I suspect that Yahoo!’s board knows all of this, which is why they are frantically searching for other options. If they succeed in staving off Microsoft, and they install new management that actually takes radical action, there is no reason they can’t make Yahoo! into 50, 60, or 70 billion dollar company.
5 comments ↓
It’ll be interesting to see Mugro$oft replacing all Yahoo!’s Linux/BSD boxes with Windows
I’m with you, John. The prospect of doubling the beauracracy around here by tying us to a money-losing division of an even larger corporation doesn’t make sense. Keep up the blogging. I like the template BTW, very BusinessWeek.
As an outsider, I never got their quest for search which sucked from the start when compared to Google. I remember when Yahoo was neck and neck competing with Google. How quickly that game ended.
But what was the canary in a coal mine for me, was their blatant disregard for talented, creative, productive people. It seemed like some incredible executives were getting canned …for bizarre reasons.
An environment of fear, lack of risk-taking as you so ably write, decision by committee and the easy discharge of great and loyal talent has diminished Yahoo. Ah, the big corporate dilemna.
Much better to focus on the interesting, new companies.
Hi, interesting posting. I too worked in Yahoo for some years, at a fairly high middle manager level out of the European office in London (coming into the company as acquired). It’s a weird gig they have: In ceratin departments I counted 12 levels from floor to Terry Semel. I kept spending my time in meetings.
I also know people working for Google, and the conclusion after many a beer is: At Yahoo it’s incredibly difficult to push a project through (but if you succeed it will reach the end user). At Google it’s fantastically easy to push a project forward and make the pilot (but you then have to get through Sergey and Larry to get in online, so maybe just 1 out of 500 projects will ever make it to the end user).
I don’t know what is more frustrating…
Anyway: My take on Yahoo: Split it up so that each product sits within an independent company with full responsibility (and bonuses) for earnings. Then keep a lean holding company (much as IAC?) to encourage and point to win-win cooperation deals between the companies.
I really cannot see them being run by MS….
IMHO, it was failure to manage personnel growth that killed Yahoo. After the layoffs of 2000 or 2001, they had roughly 2,800 people. When I left in June 2005, they had 14,000-plus.
Some of the staff came from acquisitions, but it’s *extremely* difficult to manage that degree of growth. You need experienced adults with battle scars who can make decisions, insist on clear lines of authority, and balance between the participatory democracy of a startup and the hierarchical decisionmaking of a large company.
Yahoo had none of those. And as Helen notes, it made bizarre personnel decisions. My boss fired me (first time in my life) and left 3 days later to run the direct competition; you might think HR would have considered that an issue. Nope.
Another flaw, highlighted by the notorious “peanut butter memo”: Chronic under-resourcing. A mentor explained to me, “When you’ve got 40% annual profit growth from now through infinity baked into the stock price, of course there are never enough resources.”
It takes time, smart thinkers, and good coders to build products. Yet the one budgeting process I sat through tossed our built-from-the-ground-up revenue & cost projections out the window for growth almost twice as high, with the dictum, “Make it work.”
Will Microsoft be able to fix any of this?
Hahahahahahahahahahahahahahahaha!
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