Yahoo! may be up for sale after firing Carol Bartz, its chief executive of just 18 months. Once one of the internet’s most valuable properties — and the target of a spurned $44.6-billion takeover bid from Microsoft in January 2008 — the company said in a statement it is carrying out a “comprehensive strategic review” to “position the company for future growth”. But an insider speaking to the Wall Street Journal said the company is “open to selling itself to the right bidder”.
Although the company has hired a team of headhunters to find candidates to take over the job, having temporarily installed Bartz’s deputy, the chief financial officer, Tim Morse, in the top role, the mood inside and outside the company suggests it faces the most serious challenge to its existence in its 17-year history.
The problem for Yahoo! is that it is being eaten alive by two upstarts, Google and Facebook, who are absorbing the advertising revenue it used to rely on. Bartz took over in January 2009 and was brought in to stabilise the ship after the debacle of its refusal to accept Microsoft’s bid (which valued the company at 62% more than its stock price suggested). Its second-quarter results were its worst since 2005 and Henry Blodget, the former Wall Street analyst turned pundit, suggested on his Business Insider website that the firing of Bartz probably indicates that the current quarter is going no better — and possibly worse as companies chop their advertising budgets as the economic weather clouds over.
The fact Bartz sent out her email telling staff of her abrupt departure from an iPad is telling: she would not have been using the web interface (where the company might have garnered some ad revenue) but Apple’s own app, interfacing directly to Yahoo!. The internet company that once looked like the future, while its Cupertino rival dwindled, is now seeing its business leak away.
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When appointed, Bartz set about slashing costs and staff — a move that made her instantly unpopular among the long-time “Yahoos” — but was unable to revive the company’s revenues or profits. Since she joined, revenues have fallen more than 25%, and although profits have almost doubled, they are still below the peak seen between 2004 and 2006.
Those are telling dates: Facebook had only just begun, and Google only went public in mid-2004. Since then, everything has worsened for the company as those two rivals take more of the advertising revenues it needs.
And that also shows the key weakness of internet companies that unlike those with direct “customers” such as Amazon, eBay, Apple or Microsoft, must rely on fickle advertisers for their income: if the eyeballs stray elsewhere, the advertisers will go too. That has begun to happen to Yahoo, and there is no obvious reason why it should stop as Facebook passes 700-million users and becomes the main site on which people while away their spare time.
Bartz, a high-profile former chief executive of Silicon Valley software company Autodesk, had a reputation as a fierce manager with a proclivity for swearing. She had few fans inside the company as she slashed staffing: the jobs and career site Glassdoor found that her approval rating among current and former Yahoo! staff was only 33% in the most recent quarter, down from around 54%. By contrast when Jerry Yang, her predecessor, left he had a 43% approval rating. The average for chiefs on the site is 62%.
Of course being chief executive is not a popularity contest, and Bartz had to make unpopular decisions. But Yahoo! now looks like the internet equivalent of a failed state. Perhaps the next person to be appointed chief executive of Yahoo! should get a revolving door installed in the office. The successor to Bartz — fired ignominiously in a phone call made by her chairperson Roy Bostock, who only two months ago said the board was “very supportive” of her — might wonder quite what they can possibly do that will satisfy the shareholders.
The obvious answer — make the company grow its revenues, profits and market share — now looks out of reach. It’s hard to think of anything that Yahoo! does that isn’t done as well or as simply by others. If Yahoo! were a country, it would be Japan: a former economic superpower that is now seeing its power and influence dwindle, while it swaps leaders in an endless game.
No benefits
Japan is slightly ahead of Yahoo! there, being on its sixth prime minister in five years; Yahoo! trails, as the next one will only be the fourth in four years — after Terry Semel, who left in June 2007; co-founder Jerry Yang, who was the chief executive who oversaw the disastrous rejection of Microsoft’s ludicrously overpriced bid; he was ousted in January 2009 in favour of Bartz. Yang rejected the bid because Yahoo! had devised a set of internal forecasts suggesting its business would grow fabulously, beyond what Microsoft was offering. Then came the financial crash, and Steve Ballmer, chief executive of Microsoft, walked away from the deal. Bartz came back to him to tie up a search deal in which Microsoft is paying handsomely to power Yahoo’s search with its Bing search engine; but the deal is losing money for Microsoft, and bringing Yahoo! no noticeable benefit.
Though the stock jumped at the news of Bartz’s departure, rising by 7% and adding $1-billion to its value, the mood inside the company, where Bartz had found little favour, was barely leavened. And outside, analysts were unimpressed by the temporary replacement of Bartz with Morse, whom she recruited from computer maker Altera when she joined. “We think this is the right move, but sadly a year too late — Yahoo!’s business has already been damaged,” Global Equities Research analyst Trip Chowdhry wrote in a note to clients. “Both Carol and Tim should have been fired together as they both have damaged Yahoo!’s business and repairing it will be extremely difficult,” the analyst added.
Bostock said, “The board sees enormous growth opportunities on which Yahoo! can capitalise, and our primary objective is to leverage the company’s leadership and current business assets and platforms to execute against these opportunities.
“We have talented teams and tremendous resources behind them and intend to return the company to a path of robust growth and industry-leading innovation. We are committed to exploring and evaluating possibilities and opportunities that will put Yahoo! on a trajectory for growth and innovation and deliver value to shareholders.”
But if Bostock can see enormous growth opportunities, he would do well to share them with the rest of the world. Nobody examining Yahoo’s business at the moment can point to anything that it does better than anyone else, except possibly having a lot of people who visit its site.
Bartz was brought in to steady the ship, as Yahoo! struggled to stabilise its revenues and profits in the face of a rapidly changing internet landscape. Its problems, though, may be too deep-rooted to allow any simple solution. Like Japan, Yahoo! is stagnant as rapidly growing rivals take over what it used to be able to call its own. In this scenario Google and Facebook are China and South Korea: more energetic, faster-growing.
Yahoo! has no obvious money-generating elements beyond its many advertising-filled pages; it is a billboard for the internet. Bartz struggled with this too. When she visited the UK for the first (and only) time as chief executive in April 2010, I asked her bluntly: “What’s the point of Yahoo!? What does it do that nobody else can?” She seemed to struggle with the question; everyone does. In another interview she suggested that Yahoo! was “people’s home on the internet”. But Yahoo! is 17 now. And that’s the sort of age when people leave home.
What can Yahoo! do to change its fortunes? Some have suggested that it should try to be more like AOL, a content generator under new chief executive Tim Armstrong, and make a bid for the online TV company Hulu. But that is US-only, and won’t transform Yahoo’s fortunes elsewhere. —