Transformation at Yahoo Foiled by Its Leader’s Inability to Bet the Farm

Date: 03-12-2015
Source: The New York Times

alibaba cc campusThe Alibaba Group campus in Hangzhou, China. Planning a spinoff of Yahoo’s stake in Alibaba has consumed much of Marissa Mayer’s tenure.

It’s not a big surprise that Marissa Mayer has failed to resurrect Yahoo. When the
celebrated Google executive took over the web’s most iconic basket case in 2012, the odds were stacked against her. Turning around any company is difficult; turning around a tech company is nearly unheard-of. There’s just one example everyone can think of — Apple — but that effort took nearly a decade to show results, and anyway, if your requirement for success is to be like Steve Jobs, good luck to you.

So the fact that Yahoo’s board is now considering a sale of the company’s web business — after months of pressure from activist shareholders and a mass defection of executives that has left morale spiraling — is hardly a shock. The hearse has been heading down the 101 freeway to Yahoo’s sunny headquarters for years. Now it’s pulling into the parking lot, and Ms. Mayer just happens to be the chief executive who will greet it.
But what is genuinely surprising is how boring Ms. Mayer’s tenure has been.

Mayer Larissa ccThree years ago, when Ms. Mayer first took over, she sparked excitement about the future of a company that had, by then, put everyone to sleep. Finally, Yahoo was getting an executive who seemed to understand the web, who was infectiously excited about the possibilities of new technologies and who had a pretty good track record of ushering in new things.

At the time, Yahoo was desperately in need of a new identity. The era of the web portal — a single website to serve all your online needs — had long passed, and Ms. Mayer seemed courageous enough to shed that legacy business and start something new. Few were betting that she would succeed, but just about everyone inside and outside the company thought it would be fun to watch her try.

What has happened is more pedestrian. Ms. Mayer has focused Yahoo’s resources on creating better mobile apps and a better video-viewing experience and building an advertising business that does away with old-fashioned banner ads. Nearly a year ago, I argued that some of these efforts were bearing fruit and that investors should give Ms. Mayer more time. Since then, progress has stalled, and Yahoo’s recent earnings reports have been dismal.

Yet the initial success followed by recent sluggishness is beside the point. The larger story of Ms. Mayer’s tenure at Yahoo is one of a transformation so modest it borders on stasis. Over all, Yahoo remains much the same business it was three years ago. It is a far-flung collection of news, entertainment and communications destinations supported by ads. Ms. Mayer was hired to build something novel. Instead, at best, she appears to be building a better Yahoo — with debatable results.

A Yahoo spokeswoman declined to comment.

What is the different company that Ms. Mayer might have built? One idea was to ditch the web portal and plunge into television. “One transformational thing that she could have done was buy Netflix,” said Robert S. Peck, an analyst who follows Yahoo for SunTrust Robinson Humphrey.

The timing was perfect: In 2012, a visionary might have guessed that cable bundles would soon be on the wane, that people would increasingly favor on-demand entertainment and that there was an appetite for new business models in an aging part of the media. At the time, the stock market doubted Netflix’s streaming future, and the company’s shares were less than a tenth of their current price — in the ballpark of what Yahoo would have been able to afford. Or if Netflix wouldn’t sell, Yahoo could have built its own subscription-based original programing business, an in-house competitor to Netflix.

Since then Netflix, which has poured money into creating a series of hit TV shows, has soared, and its subscription-based model for television has been widely hailed as the future of the industry. Ms. Mayer, on the other hand, bought the blogging platform Tumblr and a few other properties, “but for whatever reason, a lot of those just haven’t paid off,” Mr. Peck said.

A defender might point out that Ms. Mayer eventually jumped into Netflix-like original programming and that the project failed. In 2014, Yahoo announced two new half-hour comedies and saved “Community,” the cult-hit NBC show, from cancellation. In October, it scrapped the whole project, citing a dearth of viewers and advertisers, and took a $42 million charge on the deal.

But Yahoo’s fumbled foray into TV only highlights Ms. Mayer’s strategic failure. Instead of making a single big bet that might have focused the company on something completely different and potentially groundbreaking, Ms. Mayer staked out a lot of small and midsize positions, rarely committing to anything early enough to make a difference. For Ms. Mayer, original programming was just one of dozens of products in a portfolio that remains too complex to understand.

So, too, were other projects that could have been at the center of Yahoo’s new mission. In the time that Ms. Mayer has been at the helm, Facebook has invested heavily in messaging apps that could define the future of communication. Google and Apple, anticipating the eventual decline of text-based search queries, have tried to create predictive, voice-based search engines that also catalog all the content inside apps. Pinterest is pioneering a new kind of online commerce, while Instagram, Snapchat and Vine are working on new ways to tell collective narratives through video.

Under Ms. Mayer, Yahoo has had a hand in many similar initiatives, but it hasn’t led in any of these areas. If Ms. Mayer had picked a single project on which to hang the future of Yahoo — or, even better, some other new thing that no other company was working on — she could have accomplished something transformational, finally giving Yahoo a purpose.

None of it would have been easy. Ms. Mayer’s tenure has been consumed by confrontations with investors over the continuing complexity of spinning off Yahoo’s stake in Alibaba, the Chinese e-commerce giant. Any big, expensive bet-the-farm decision to focus Yahoo on a single product would have been likely to anger investors even more and would probably have lowered morale among sidelined employees. The plan that Ms. Mayer pursued instead — to do a little bit of everything slightly better than Yahoo was doing it before — was by comparison pretty safe.

But that’s the trouble: Marissa Mayer wasn’t hired to do the safe thing. She was picked to be bold, and so far, she has failed.

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