On Yahoo’s 20th Anniversary, its CEO presents a progress report on how she’s turning around—and maybe transforming—an Internet icon

It is sunset in Sunnyvale, but Marissa Mayer’s day is far from over. She has a keynote presentation at a mobile ad product launch coming up in a day, and the conference room near her corner office on the Yahoo campus shows evidence of careful preparation. Printouts from her slide deck are pasted on a six-foot-high piece of poster board. Her laptop is open. It is a little past 6 pm, and the 39-year-old CEO strolls into the room.

Our interview is starting, of all things, on time.

Maybe it’s happenstance, but the promptness seems just one more rebuke of what critics (many of them shareholders eager for quick returns) paint as a perpetually tardy CEO whose imperious style is just one impediment to pulling off a massive corporate fixer-upper that was probably impossible in any case. Off with her head, they cry, or, just as distressing, go off and merge with AOL and be sure to fire a lot of people. Despite a lift in employee spirits and stock price—Yahoo shares are about triple their value at the summer of 2012, when Mayer joined—her detractors are charging that it’s too little too late. And if haters ever run short of examples of Mayer’s failings, they can always turn to That Book, a takedown tome written by Business Insider’s Nicholas Carlson that Yahoo did not cooperate with and has consistently refused to comment on.

But Mayer and Yahoo are ready to tell a dramatically different story. During her two and a half year stint Mayer has frustrated the press by apportioning her availabilities with medicine-dropper penuriousness. The explanation was that she was relentlessly concentrating on the big job of “returning an iconic company to greatness,” a phrase she used in her most recent earnings call. When she had something concrete to report, she promised, she would open up.

That time is now. This interview comes on the heels of extensive sit-downs with the core of her executive team, with other ones to follow.

It’s a logical time to deliver her brief. Yahoo is marking its 20th anniversary, and Mayer wants the event to be seen as more celebration than wake. And after fending off wonkish calculations that the entire worth of her company was owed to its $40 billion share of the Chinese e-commerce giant Alibaba, Mayer has finally concocted a plan to get free of that gilded albatross without tax penalties or shareholder revolts. (It involves a deft spin-off of Alibaba stock into a separate holding company—more on that here.) From a valuation perspective, Mayer will now be standing on her own two feet.

But most of all, after 31 months at the helm of a company whose business model had been forged in the age of dial-up, Mayer wants to tell a story of progress. Here is her argument, as might be boiled down on Yahoo’s News Digest app, powered by technology she acquired in March 2013 by buying a company called Summly, headed by a precocious teenager:

She found Yahoo, despite its persistently huge audience, a sclerotic artifact of the desktop era, overly dependent on fading display ads, short of engineering talent and absolutely nowhere in mobile. And now the company is back on track. There are hundreds of new engineers, and an energized culture. Last year it reaped over a billion dollars of revenue in mobile ads — a business that didn’t exist at Yahoo when Mayer arrived. It bought Tumblr, which has 460 million users and is growing faster than Instagram. Yahoo has also built a system that allows app developers — the royalty of the new mobile age — to popularize and monetize their products. Meanwhile, Yahoo apps have won Apple Design Awards for two years running, and the company boasts over 500 million mobile users.

Does this mean Yahoo is officially back? Mayer refrains from making such a proclamation. Nevertheless, that’s the gist of what she’s saying.

“What I’m really proud about is building ourselves a future,” she says. “If you had told me two years ago we would basically have done this, I would have pinched myself. Does that mean that transformation is done? No. Does that mean we have successfully completed step one? That’s been great.”

Twenty Years of Triumph and Squander

March 2 is the 20th anniversary of the incorporation of Yahoo, which began as a handmade directory cataloguing the cacophony of sites appearing on the nascent World Wide Web. When I first visited the company in 1995, I described “a handful of windowless offices, some of them populated by exhausted programmers in sleeping bags.” You had to step over a stack of mountain bikes to see the servers, which then shuffled bits every day to what seemed then like an astounding million users. Even though I was a huge Internet optimist, I would never have imagined that that number would grow to its current billion. But then neither did Jerry Yang, who co-founded the company with his Stanford classmate David Filo. “We were in that startup mode where we were lucky to make it to the next day or next month,” says Yang, who is now a private investor. “We all had dreams and ambitions. But it wasn’t obvious to anyone, even ourselves, how big the Internet would be.” Filo was even more skeptical: “When we left Stanford, we thought the chance of this working out is probably pretty low and we’ll be back there 12 months later, grappling with our advisers to let us back in the program.”

That year, the co-founders made what Yang considers one of their smartest decisions, forgoing leadership roles in favor of a more experienced duo of top executives. The year after, in 1996, Yahoo went public, because that’s what baby Internet companies did back then. Yang would like to take that one back: he felt it was too early. “I remember driving home and coming into the office, and it was ‘Oh my god, what have we done.’”

In the short term, all was fine. The team led Yahoo to glory, defining the modern Internet portal, a digital Gladstone bag which either had or pointed to all you needed: mail, news, fantasy sports, financial information, video, music… you name it. Display ads—little billboards on the screen, often promoting brands— paid the freight.

Then came the dotcom bust, and Yahoo’s stock fell from a high of 108 to a bottom of four dollars. Yang notes that though the stock price had cratered, Yahoo’s user base kept growing. But because of its financial woes (that damn IPO!) Yahoo was ill-prepared to rise to the challenge of building a world-class search engine in 2000. Instead it licensed technology from a small company called Google; Yang and Filo had rejected an offer to buy the company several years earlier.

Later that decade, Yahoo’s new CEO Terry Semel, a Hollywood executive who joined in 2001, broke off the deal and starting rebuilding Yahoo search. It was a credible effort, but it would never catch up. Meanwhile, the could-a, would-a, should-a’s of Yahoo kept piling up. A decade after it first passed on Google, Yahoo almost bought Facebook: at the last minute, Semel reportedly decided to negotiate a lower price, and Mark Zuckerberg walked away from the deal. Semel left in 2007, pressured by outside investors; he is generally credited with expanding Yahoo’s audiences and revenues after the dotcom crash. The biggest coup of his regime was hardly noted: its prescient purchase (led by Yang) of a 40 percent share of a Chinese e-commerce company called Alibaba. But Yahoos now say that in those years, the company culture became more top-down, less geeky and less prepared to face the next wave of technology; Yahoo was tilting more media than tech. And its business began to struggle. “The company wasn’t setting itself up for success,” says Jeff Bonforte, then a Yahoo VP. “The world was moving away from Web 1.0 to Web 2.0. The smart phone was about to come out — and the company didn’t go full in.” (Bonforte joined the ongoing talent drain.)

In 2007, Jerry Yang once again became Yahoo CEO, inheriting a company on a downswing. He fought off a hostile buyout bid from Microsoft at $31 a share (Yahoo stock fell to $9 in the aftermath). Yang was elbowed out in 2009, replaced by a former CEO of Autodesk named Carol Bartz.

Somewhere in those years, Yahoo passed on the opportunity to buy Twitter, LinkedIn and YouTube.

Bartz quickly made a deal that haunts Yahoo to this day, outsourcing Yahoo’s search technology to Microsoft for ten years. “I was not a fan of giving up control over something so critical to the business,” says David Filo, who has kept his post as Chief Yahoo (concentrating on technology) since its founding. His worry was that the move would send a signal to top technical talent that Yahoo was no longer interested in cutting-edge computer science. “It probably played out even worse than I thought it would,” he now says.

Bartz was out in 2011 and Yahoo seemingly installed a revolving door with greased gears in its CEO suite for the next year: four leaders stepped up and down. The most spectacular flameout was former PayPal president Scott Thompson, who resigned after investors discovered falsehoods on his resume. Yahoo was at a precipice — was it a media company or a tech company? Could anyone restore it?

Mayer was the surprise choice: a widely respected technologist who had long been one of Google’s top product talents. When she told the Yahoo board she was pregnant, they didn’t flinch. The news of her hire stunned and generally delighted Silicon Valley. When I spoke to her briefly on the July 2012 day she was hired, I asked what she would take with her from Google to Yahoo. “Focus on the user,” she said.

“Given that she was the fifth CEO in twelve months, there was obviously skepticism,” says David Filo. “Everybody is going to wonder, Will this be the fifth and sixth or seventh or what? When is it going to stop?

“But her background was exactly what we needed.”

An App-y Beginning

Despite the skepticism, Mayer arrived at Yahoo on a wave of good will — employees made a poster of her in the style of Shepard Fairey’s Obama “Hope” poster. And she returned the favor by instilling Google-style perks such as free food and a friendlier IT policy at Yahoo. But the challenges were prodigious. Before she could tackle the product and revenue problems, she needed to identify the best current employees and buttress them with a wave of incoming talent. “We really needed to build ourselves a future,” she says.

She went about this with none of the confusion that racked her predecessors over whether Yahoo was a tech company or media company. She was a product person and wanted people who were going to build products for Yahoo.

Jackie Reses.

“You had a company that had had so much legacy success and yet a great deal of melodrama or almost soap opera-like developments over the years. Could you attract the people that would have not just the talent, intellect and experience, but energy — the energy to do a Renaissance?” says Kathy Savitt, now Yahoo’s Chief Marketing Officer.

By sending signals that Yahoo was once again going to focus on technology and great products, getting talent became “much easier,” says Jackie Reses, who was recruited by Mayer to be chief development officer. “We attract the best and the brightest scientists and engineers—I look at the caliber of people and I’m amazed.” Outsiders in the Valley generally agree that it’s not the same Yahoo. “The perception has changed,” says Geoff Ralston, a Y Combinator partner who held tech-related executive roles at Yahoo for nine years, leaving in 2006. “Among engineers, it’s seen as lot different, better place.”

In Mayer’s thinking, getting talent was a prologue to quickly implementing her strategy. Yahoo’s main revenue source, display ads, was a 1990s business model whose sell-by date had arrived. She arrived at a solution in which Yahoo would focus on mobile apps, video, mobile-friendly “native” ads (which blend in with the content on small display screens), and social networks—all rising categories in the twenty-teens. “When you’re looking at five billion dollars of revenue that’s in decline, you need something big enough to matter, something growing fast enough to displace that revenue that’s going to come off the business, something that can grow over the long term,” says Mayer. “And for us, mobile, video, native and social—I use the shorthand MaVeNS—is the future.”

The most important letter is that M, for mobile. “I came in with the thesis that Yahoo needed to reinvent itself with a mobile lens,” she said. Yahoo’s sins of the past made it a challenge. Upon her arrival, Mayer was shocked to discover that Yahoo had only 50 engineers working on mobile. Yahoo had feared that its mobile apps would cannibalize its desktop products, exactly the kind of thinking that sinks technology companies. So Yahoo had no overall mobile strategy, just a motley assortment of apps. “There was no Yahoo Sports on the phone—it was called Sportacular and no one knew it was Yahoo,” she says. “There was no Yahoo Finance app for the phone. It was called Market Dash and no one knew it was Yahoo. There was actually no Yahoo Mail app for iOS, period.”

Mayer called for an immediate product review. Perhaps you read about the scene in That Book, the one where she supposedly humiliated the engineers by noting that the prototype Yahoo app for iOS was all jumpy. The incident was contextualized as an example of Mayer’s bullying style. But Mayer was zeroing in on a potentially fatal flaw in Yahoo’s move to mobile: most of its apps were being written using a web technology called HTML 5 that ran on multiple platforms, but performed much worse than a “native” app written specifically for either iPhone or Android. Mark Zuckerberg has said that the worst mistake he ever made—in the entire history of Facebook—was originally using HTML 5 for mobile apps. In an instant Mayer prevented Yahoo from proceeding further down that dead-end path.

Back in the Terry Semel days, of course, the idea of a CEO schooling engineers was unimaginable.

Over the next couple of years, Yahoo built up its mobile team, starting with a number of acquisitions of small mobile startups. “We used them as feeders,” says Adam Cahan, who Mayer appointed the head of a new group called Mobile and Emerging Products in late 2012. “The first thing we told them was, you must replicate: there are five of you, we expect you to be at 10, we expect you to be at 15. So they went on hiring sprees. They’re hiring their friends, their friends are bringing in more friends. We really scaled because of that.” That’s how Yahoo got to 550 mobile engineers.

Yahoo says that its now-expanded suite of apps has a total audience of 575 million. “We’ve had a complete change of direction in terms of pace, in terms of velocity, culture,” says Cahan. “We have had more launches under Marissa than I think had happened within the last 10-plus years.”

Mayer herself took a hands-on approach to some products, including Yahoo’s weather app. It was one of about 10 winners of the Apple Design Awards in 2013 and got a lot of good press. (It is currently number seven in the iTunes app store.) The app she seems most proud of is Yahoo News Digest, kind of the mobile equivalent of a daily and afternoon paper — twice a day, it delivers a package of eight articles, algorithmically drawn from multiple sources and artfully packaged for a phone screen. The app, currently number 13 in the News category, isn’t exactly blowing up the iPhone store. Perhaps Mayer likes it because it benefits from good design and sophisticated natural language technology.

Jeff Bonforte.

Perhaps the most crucial app, however, is Yahoo Mail. Unlike the others, it represents locked-in loyal users. On all platforms, Mail has around 225 million users each month; 110 million employ it every day. Early in Mayer’s tenure, she bought Xobni, a company headed by former Yahoo executive Jeff Bonforte—he became a “boomerang,” a return employee, who was charged with heading the company’s communications products, many in dire need of repair or updating. (“Mail was going down seven times a week,” he says.) If Yahoo ever wants to serve its users and sell targeted ads the way Google, Facebook and even Twitter do, Mail will be a cornerstone. “It’s an amazing data source,” says Bonforte. “If productized correctly for the user it becomes a win-win for both [users and advertisers.]” Yahoo now feels that it has successfully built a mail app to keep users as they move to mobile.

Yahoo has yet to have a breakout app — its top ranked entry in the iTunes store is Mail at 42. But she argues that Weather and News Digest are real innovations: “I think they’re an order of magnitude better than any other news app or any other weather app. At the same time, we’ve got a great foundation of products here, a user base that knows us, gets us, understands us. It’s really been about building on that. Because you also have to walk before you can run, and we really were facing a situation in 2012 where mobile had been really badly neglected. We didn’t even have apps.”

But Mayer did manage to get a major acquisition, checking off the “S” in MaVeNS by buying the edgy blog platform Tumblr for $1.1 billion in May 2013. Some people griped that she paid too much. But still-growing Internet properties with more than 400 million users aren’t that common. And in a company where her predecessors missed out on Google, Facebook and Twitter, actually completing the deal was a victory in itself.

Building a new business

Compounding Yahoo’s mobile woes when Mayer arrived at Yahoo, the display ads it depended on worked best on the desktop and were losing steam even there. Given all the years she spent in Google Search, Mayer would have loved to have totally rebuilt Yahoo’s search business. But she is still constrained by Carol Bartz’s ill-conceived Microsoft partnership. “It’s clear that our expectations [from the search partnership] haven’t been met, certainly on the business front,” she says. So while trying to figure out a way around the deal, she’s been working the edges. “It’s notable that we’re already not exclusive with Microsoft on the phone,” she says. As she outlines some of her search vision, it sounds almost like Google Now, taking advantage of information Yahoo knows about you from various properties to personalize suggestions and searches.

So instead of search ads, Mayer focused on building a new Yahoo business centered around native ads. These are different from display, or banner, ads in that they reformat the assets an advertiser provides—text, images and maybe a button to buy something or head off to a link — in the style of the “organic” content that people had initially come to view.

Once again, unlike previous Yahoo leaders, she was willing to cannibalize the current business to embrace the future. And to rely on engineering resources to do so. She had to. “Banner ads just don’t work on the phone,” she says. “We were by far the most successful of the banner ad companies and it was very scary to give up that crown and say, ‘You know what? That industry over the long haul isn’t going to matter as much.’”

The process began in early 2013 with an overdue change to Yahoo’s vaunted home page, changing the array of news items and other posts from a traditional web format to a stream. For signed-in users, Yahoo would personalize the feed, selecting ideas based on their known preferences. It offered an opportunity to replace some of the items in the stream with similarly personalized native ads.

The ad project was dubbed Moneyball and leading it was a new hire, Enrique Munoz Torres. He was one of several people now at Yahoo who were once in the Google Associate Product Manager program, an effort created by Mayer in 2004 to groom talent. She now has about 10 former APMs on board at Yahoo, and she has recreated a version of the program at her new home. (One of those APM hires from Google, Fernando Delgado, says that when he emailed Mayer to explore working with her, she responded later that day, asking if he minded if she put him in touch with someone else at the company. She would normally be more closely involved, she explained, but she had just given birth a few hours earlier.)

When Torres arrived in January 2013, he joined a team of about 20 people who were given 45 days to build a system to monetize the new home page. Mayer explained the philosophy to them, and they set up a war room and began creating it, using tools and techniques drawn from auctions, machine learning and personalization. In keeping with the project name, the team members were all given Oakland A’s baseball caps. Within the company, it became known that when anyone wearing one of those hats asked for help, the correct response was to drop everything and help out.

“We said, ‘Okay we’re going to do this experiment and we might make a few dollars or we might make, like, a billion dollars over time,’” says Mayer.

Moneyball was completed in 43 days, two under the deadline. Moneyball gave the advertiser the choice to pay by impression or engagement. But the key to its success was moving away from the display model and integrating ads into the stream. The home page still had display ads, but the Moneyball native ads, known as Yahoo Stream Ads, replaced some of them.

As the product evolved, it was renamed Gemini and expanded to become a more flexible system covering more products. “The project has just gone gangbusters,” says Mayer. “The team took that opportunity and super-sized it to include mobile search, native advertising on mobile, native advertising on the PC, and it’s now extending to Tumblr. They’ve ramped out into different formats like images and video and app install ads.” Yahoo is just starting to implement video ads using technology from its $680 million acquisition of a company called BrightRoll. Gemini, essentially, is the $1.2 billion (and growing) crown jewel of what she presents as Yahoo’s comeback.

Critics point to Yahoo’s flat revenue over the last two years as a sign that Mayer is failing. But Mayer argues—and the numbers seem to back her up—that although the revenue has not grown, the sum no longer represents the dregs of a dying display-ad business, but, in part, the fruits of an entirely new mobile enterprise she has built from the ground up. Picture Yahoo as a baseball team: in 2012, you would say that even more worrying than its mediocre record was the age of its lineup, populated completely by old players whose skills were in decline. Two seasons later, the won-lost record might be the same, but now its roster includes young players with their best years ahead of them. That’s the kind of team that might contend for a pennant in a few years.

At the Yahoo Mobile Developers conference in February—the one that Mayer was preparing for on the day of our interview—Yahoo announced its next step, centered around its $300 million acquisition of Flurry, a free analytics service for mobile app developers: it provides data on the demographics and behavior of their users. It claims to reach 1.6 billion devices. Yahoo’s plan is to keep Flurry’s free service going and embed its ad systems in it. Developers can easily use Gemini to monetize their apps, with Yahoo taking a slice of revenue. Those same developers can use Yahoo’s content properties and other apps in the ecosystem to place ads as well — native ads that lure people into downloading their apps. (The app-install market is an estimated $6 billion.)

Yahoo is not the only company to think of a system like this: both Facebook and Twitter are also trying to be the best friends of developers. Flurry CEO Simon Khalaf, who has continued at Yahoo, thinks the company can compete with those, and even Google. He says he chose Yahoo (despite what he claims was a higher offer) because Flurry fit perfectly with what he felt was a remarkable mobile effort at Yahoo. “The best untold story is that [Yahoo] figured out native advertising on mobile at scale. It went from zero to $1.2 billion in gross revenue. If it weren’t Yahoo, people would put $100 billion valuation on [a company that did this].”

In his own version of a News Digest, Khalaf summarizes Yahoo’s approach: “First people, then apps. Then, let’s take everything we learned and go after the app community — while winning the content war. Give these folks services to allow [them] to scale better, grow audience, understand audience.”

Speaking of audience, Mayer has taken heat for her media strategy of hiring expensive name journalists like the New York Times’ David Pogue or Elle’s Joe Zee to head “digital magazines,” or, in the case of ABC’s Katie Couric, to become Yahoo’s “global anchor.” It’s an attempt to double down on Yahoo’s massive traffic on its home page. (One former Yahoo News employee describes this massive audience, at least in the US, as “not on the coasts.”) Yahoo says that its magazines, five of which are number one in their categories, are growing at a 39 percent quarter-to-quarter rate. “My column routinely gets five, ten times the readership that I got at the Times,” says Pogue.

Critics feel that Mayer is overpaying for her stars and generally wasting her time buying original journalism when other companies make fortunes with free user content. Couric is paid a reported $5 million. (Yahoo says that after a slow start, Couric’s appearances totaled 32 million streams in the last quarter.) When Pogue mentioned to his bosses the inconvenience of commuting to Yahoo’s New York headquarters in the old New York Times building to make videos, Yahoo built a green-screen studio in his Connecticut house.”They’re incredibly generous!” he says.

Are those investments wasteful? It will depend on how many BrightRoll video ads wind up on the streams, and whether lucrative Gemini ads will thrive on the digital magazines. But there’s something bigger at stake, something that goes beyond the usual Yahoo arguments of media versus technology. As I understand Mayer’s strategy, the content investments can’t be seen in isolation: they’re part of a Moneyball effort, too. At the Yahoo Mobile Developers Conference, she presented a vision where Yahoo’s big audience is just a jumping off point for a complicated ecosystem where better ads delivered to bigger audiences make money not only for Yahoo and sponsors but other app developers as well. If all the gears mesh, that money leads to more quality, even bigger audiences, even better ads and even more money. But none of it happens if nobody’s home. When fighting the big Internet powers, scale is essential. In a world where Facebook has blown well past a billion users, Yahoo needs every one of its own tenuous billion—whether they are locked in with email, posting on Tumblr, or watching Katie Couric interview John Kerry.

How do you solve a problem like Marissa’s critics?

One part of Yahoo’s history that Mayer has not been able to avoid—despite her best efforts—is the corporate penchant for melodrama. Even while Mayer limited her availabilities and focused on work, the curiosity about a brainy, fashionista young mother trying to rescue a famous brand proved irresistible press fodder. Some of the various flaps involving her leadership were crazily overblown, like her personal child care accommodations, or an edict against working at home that affected a tiny percentage of Yahoo’s workforce. Another near-capital crime was assuming an awkward pose in a Vogue photo shoot. One anecdote in That Book alleges Mayer would not hire Gwyneth Paltrow as a contributing editor to Yahoo Food because the actress-slash-Goop-founder didn’t have a college degree. More serious critiques take issue with her management style and strategic choices, generally presenting her as out of touch or unrealistic in her assessment of Yahoo’s limitations. One columnist recently posed the question: “Is Paltrow more qualified than Mayer to run Yahoo?”

Kathy Savitt.

Not surprisingly, her executive team feels she’s been treated unfairly. “The criticism that’s been lobbed against Marissa is unusual, remarkable and unwarranted,” says CMO Savitt. “And we have been very focused on letting our performance do the talking.”

Yahoo boomerang Bonforte is also quick to defend his boss. “Marissa has attacked problems fundamental to that company that were stopping it from being fast and efficient,” he says. “No one knows about that — no one writes about it. But the company is certainly far healthier underneath than people believe.”

Mayer herself says that the constant sniping is not a significant distraction, not even when the heat was most intense during the child care/work-at-home scandal. (Plus, snark attacks aren’t new to her: she was a frequent Valleywag target while at Google.) “Everyone will come to me and say…’How are you?;” she says, laughing. “And the funny thing is, I really don’t read [those stories]. They tend to pull you off your center. And if reading that makes you more likely to do something or less likely to do something, that’s probably not great because it’s going to cause you to change your vector, even just a little bit.”

Mayer does not profess to always get it right. One blunder she owns up to is her catastrophic hiring of former Google ad manager Henrique DeCastro as Yahoo’s COO. His toxic personality and dismal performance led to an ugly parting in January 2014. He left with a reported $109 million for 15 months of work and Mayer took a very public hit. She now flagellates herself for missing what others thought was obvious. “I am a very solid hirer….I’m a gold medalist in hiring,” she says. “Which is why it was really humbling to make a hiring mistake of that proportion. But I will say it felt good to be able to do something about it. At the same time, it’s always a mixed bag. Because I did hire Enrique, it allowed me to delegate [sales operations]. And I don’t know if we would have had such a tremendous year in 2013 and 2014 in terms of innovation, improving products, making so much progress on mobile, if I had had that on my plate.”

But what about all that stuff about micro-managing? There’s no avoiding the fact that Mayer has strong opinions, thinks hard about products, and isn’t shy about expressing her views. Tales abound of her swooping in and fixating on things such as the font in the weather app.

Instead of denying this, Mayer embraces her penchant for detail. “[Though] micromanagement can be viewed as a criticism, it can also be something that can make you a lot more successful,” she says. “And for me over the course of my career, and especially here, it’s been about, how do I use the fact that I can keep a lot of facts and details in my mind to my advantage?” The way to do that, she concludes, is “telescoping in on something that really matters.”

“One of the things that I love about Marissa is that she is a brilliant engineer and product leader, but she’s an uber consumer,” says Savitt. “She actually can put her head and her mind and her behavior into a consumer’s.” Savitt uses as an example of a time when engineers were stepping up security for Yahoo Mail by forcing users into an awkward process to come up with a new password. Mayer demanded that the executive staff themselves be locked out of their accounts so they could see from a user’s point of view how the process affected people.

Adam Cahan.

Adam Cahan provides an example from a product review of the Mail app. Analytics showed that when people saw everything in their inbox, they kept thumbing down to refresh—they were bored. “I want to be able to fill that time,” Mayer told Cahan, suggesting that Yahoo integrate some of its other products into the app. This approach ran counter to conventional wisdom that functions should be unbundled, each into its own app. But following Mayer’s suggestion, the team put buttons in the mail app that let users read news clips and conduct web searches. “That single insight,” says Cahan, “created twenty two million minutes of additional user time every single day.”

Some observers have posited that the snark about Mayer’s micro-management plays into gender stereotypes; it’s one example of many, they say, of Mayer being called out for aggressive behavior that wins praise when exhibited by male CEOs. Mayer wants nothing to do with that form of support. “I never play the gender card,” she says. “The moment you play into that, it’s an issue.” What’s more, she believes that in Silicon Valley the sex of a CEO doesn’t matter. “In technology we live at a rare, fast-moving pace. There are probably industries where gender is more of an issue, but our industry is not one where I think that’s relevant.”

What is Yahoo’s moon shot?

Mayer acknowledges that building Yahoo into a great company once again will require at least a few more years. That’s why she tries to frame a 20-year-old company with 12,500 employees as a startup. That’s why she has spent $2 billion on acquisitions, most notably the $1.1 billion for Tumblr, which instantly gave Yahoo a credible entry into social networking and user-generated content. (It was, in fact, a Tumblr post that was Patient Zero in “The Dress” contagion that ate the Internet last week.) But “activist” shareholders believe that Yahoo should act its age, and adopt somewhat of an endgame business model instead of wasting all energy and capital on rebuilding to compete with the big Internet powers. They might pose Mayer’s biggest threat to success.

“It’s disingenuous that they say it’s the biggest startup,” says Eric Jackson, who runs the Ironfire Capital and Angel hedge fund and has been urging Yahoo to give more money to shareholders since the Terry Semel era. (Last summer he wrote a Forbes column called, “How Do You Solve a Problem Like Marissa?” where, among other things, he took Mayer to task for not firing enough people and for spending too much on acquisitions.) “Yahoo is crowing that it has about 500 milion mobile users, but they had a billion desktop users,” he says. “That’s only a 50 percent conversion! The question with any CEO of Yahoo should be, what should success look like? It should be more.”

One of the most strident voices of late has been Jeffrey Smith, the head of an equity firm called Starboard Capital, who wrote a long letter last year lecturing Mayer not only on her Alibaba strategy but the futility of her ambitions to make Yahoo great. He argued that Yahoo should merge with AOL, lay off thousands of newly redundant employees, and presumably milk whatever revenues are left in the desktop era. There’s even speculation that Smith might run an alternate slate of directors in Yahoo’s shareholder meeting in June. (Smith declined to speak to me.)

Those activist investors don’t seem buoyed by the revived energy among the ranks of Yahoo. They are not charmed by the weather app or News Digest. Katie Couric’s presence does not impress them. They certainly don’t want to see more acquisitions. They want a leaner Yahoo and bigger profits, and contend that two and a half years was enough for Mayer to produce them. Patience, in their view, is a poor return on investment.

Her counterparts in Silicon Valley are more understanding. “Marissa’s a really deep product thinker and has a great product vision,” says Sheryl Sandberg, Facebook’s COO and a former Google colleague of Mayer’s. “But she needs time. Yahoo is not a place where the product can be turned around quickly.” Another top executive, who did not want to be named, says of Mayer, “Strategically the moves she made were really smart. But she was naïve to think she had the time.”

Mayer, of course, has never denied that a long-haul effort is required. But she is excited—and proud—that the turnaround has begun. “I do actually think now we’re onto the transformative phase. In the beginning we had to build ourselves back up, walk before you can run. Now we’re really trying to transform ourselves.”

That idea of transformation intrigues me. In May 2013, I had interviewed Mayer onstage at a business conference and asked her, “What is Yahoo’s moonshot?” Her answer, something about Yahoo products being on every device, seemed timid—incremental rather than transformative. I wanted to know how she was re-thinking Yahoo. How could it be a leader in whatever new world emerges in the years to come?

This time when I ask the question, she is cagier. She acknowledges that Yahoo has an active research wing. Maybe there is a moon shot in the works. “We aren’t done yet,” she says. “Just as there are elements like mobile, video, native and social that weren’t in the company in 2011 or 2012, there certainly will be [new] things that are here in the next five years. Are we working on some of those things? Yes. Am I going tip my hand on them? No.”

First, restoration. Next, transformation. If Marissa Mayer can pull that off—a journey perhaps as unlikely as the one taken by Jerry Yang and David Filo in 1995—maybe there will be a Yahoo 20 years from now. “In some ways it feels like forever ago, but in other ways it feels like we are just kind of getting started,” says Filo.

“By the way,” says Mayer. “Gwyneth Paltrow never applied for a job here.”

All photos by Sam Wolson for Backchannel. Cover photo illustration is a composite of two photos from the same event.

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