Analyzing Yahoo and Marissa.
(part one — history)
“A leader is someone who creates breakthroughs. Otherwise you’re a manager.”
- Tony Robbins
It’s getting louder, the drumbeat of activist investors, angry shareholders and industry observers like me who are chanting for someone, anyone to take some action at Yahoo. It will happen soon; by 2017 there will finally be no Yahoo as we’ve known it for the past 21 years.
Marissa Mayer and Yahoo, what a combo. The last 4 years have been an awkward denoument to the story of a company that once ruled the web, peaked early in its life and then meandered along for 16 years like a lost child.
The current mess that is Yahoo has been a long time coming. The board chose Mayer as CEO in 2012 for a lot of good reasons. After several years of a revolving door of CEOs that didn’t stick they needed someone completely fresh, new, confident, connected to the future. But they also chose her for many of the wrong reasons.
One of Marissa’s best skills was negotiating an unusually lucrative compensation plan for herself with protection from termination.
These factors (that compensation plan coupled to Yahoos horrible performance) are now forcing Marissa and the company to make some drastic moves to fight off liquidation. Their major investors are circling around the remaining assets and cash and they can smell blood.
For over a decade Yahoo has been a continuing story of decreasing market share, drastic changes in strategy, mass exodus of senior management, the increasingly loud drumbeat of angry shareholders. I’ve seen this many times before in my decades working in Silicon Valley, I know how it will end.
The current situation is not all Marissa’s fault — she inherited a pretty fractured company, but she is responsible for squandering the opportunity of her lifetime.
History — The Kings of Silicon Valley
Yahoo has been a company I’ve tracked since their beginning. I still have my Yahoo email from over 20 years ago out of loyalty, although I never use it anymore. Let’s go back to the early days for a minute.
Yahoo was a company that created many firsts for the web in its early days — they pioneered search, web directories, web portals, storage and networking and many more innovations. From 1995 to 2000 they could do no wrong, becoming the most popular starting point for web users.
During that time, Yahoo was seen as a phenomenon, admired and envied by the rest of us in Silicon Valley. Jerry Yang and Dave Filo were thought of as wizards, the perfect management combination — young, complimentary, Stanford bred, humble, hard working, techy. Yahoo rose like a rocket over the valley lighting up the Santa Clara Valley.
Yahoo seemed to touch everyone and everything around it and proved that Silicon Valley was rising yet again in the mid 90s. It also, along with Netscape, brought the idea of “fun” and “cool” to a new level in a very staid Silicon Valley, which was the beginnings of the image we see today for techno-nerds.
I was in Silicon Valley at the time building a software startup when Yahoo rose in a steep exponential curve from 1995 to 2000. We all watched in awe as their stock continued to rise and their footprint around the valley increased. Their name become a household word. Yahoo!
The fantastic rise of Yahoo was accelerated by all things good and bad about the dot com rise it helped spawn — super-rapid growth of the web along with over-valued new companies, known as the dot-com bubble. As a cash rich leader it helped to pave the way for many other companies, and pioneered new software technologies and network optimizations.
It created the first stable bridges between the tech and digital media worlds. It was cool. They even had a neon billboard in Times Square (still do).
During its first 5 years Yahoo also made 15 acquisitions, which added to their instability and risk. This was all fine until April 2000 hit; after that these properties with their added senior management and typical post-acquisition politics caused irreparable damage to the company.
In March of 2000 Yahoo, like most others in the space, felt invincible. They had cash, market share, growth and an awesome brand name. More important, Dave and Jerry were the pride of Stanford, the symbol of sophistication and culture in the peninsula area. Along Hewlett and Packard, they were making their contribution to the history of this great place..
The Two Crashes
Sadly, the events of 2000 changed everything. The chickens came home to roost on Silicon Valleys head. There was “dot-com bust” carnage everywhere. It hurt everybody, but none as visibly as Yahoo. They derived too much of their revenue from many of these unstable dot coms, breaking a cardinal rule of scaling a business.
The April 2000 and September 2001 financial crashes crippled the company twice and they never completely recovered. The market cap went from over $130 billion down to under $10 billion in those 18 months. Employees that had significant stock options there during that period went from euphoric to depressed and angry. Billionaires became millionaires, millionaires became salary dependent again. People were fired or quit.
In 2001 the mass exodus of Yahoo employees through layoffs and resignations was felt all over the valley, thousands of ex-Yahoos. CEO Terry Koogle offered to leave and the board accepted his resignation.
I was negotiating an acquisition of my company by Yahoo in 2001. We weren’t a dot-com, but close enough. I spent a lot of time on the Yahoo campus, played lawn bowling, met the founders and other executives. Dave Filo said our product was “f***ing awesome!” All was good.
But I could also feel the tension, it was think in the air. Direction changes, shuffling executives, other acquisitions caused the deal to fall apart. As we were negotiating our deal their stock price kept dropping. They actually called me on at 10 am on 9/11/2001 to cancel the deal. It shocked me that they were actually working that morning and that they felt they could make a rational decision on that day. Such was the atmosphere at Yahoo then. Quiet panic.
Since that time period we’ve all been watching Yahoo try to reconstruct itself to something like it used to be. There have been countless management changes, strategy and direction changes, identity crises and a slow decrease in its relevance on the web. As Google and Facebook have taken over as the new kings of search and social and media Yahoo continues to fade. One of their executives described it to me as a slow motion car crash.
2001–2012 = 5 CEOs
Google and Facebook and Amazon and Apple and others have had slower, more steady rises over the past decade, they maneuvered themselves out of the same obstacles that Yahoo faced. Why couldn’t Yahoo do the same?
Ironically, Yahoo could have acquired both Google and Facebook early on. During one of it’s many misguided CEO regimes, Terry Semel passed on both acquisitions.
In 2007 Semel left and Jerry Yang stepped back in. That only lasted 2 years. Then they went through four more CEO changes over three years, none of which fixed their growth and positioning problems, while creating a soap opera of crazy events. The company made every mistake possible and the board did very little.
Meanwhile the other web giants kept marching ahead in their strategies, increasing their footprint, market valuation and panache. Google was cool, Facebook came on the scene, Twitter. Yahoo somehow no longer was relevant. So they needed to make a big statement.
So they acquired that statement —the “perfect” answer. Marissa Mayer, a supposed superstar from Google. How could this go wrong? Why would she want to leave Google?
Yahoo picked the wrong leader for the wrong reasons at the wrong time in their life. This happens more than you’d think — something that’s a good idea at one time becomes a bad idea over time but everyone is afraid not to go forward.
Marissa, for her part, had the wrong motivations and was unable to pass up the redemption she thought she get get by making the move. And she made them fell that they wanted her more than she wanted them. Awesome negotiating, too bad that didn’t carry over into the job.
