Is Yahoo Doomed?  Probably

Is Yahoo Doomed? Probably

Marissa Mayer’s reign as head of Yahoo looks to be ending like her predecessors.  With a serious flop.  Only this may well be the last flop – and the end of the internet pioneer.

It didn’t have to happen this way, but an inability to manage Status Quo Risk doomed Ms. Mayer’s leadership – as it has too many others.  And once again bad leadership will see a lot of people – investors, employees and even customers – pay the price.

Yahoo was in big trouble when Ms. Mayer arrived.  Growth had stalled, and its market was being chopped up by Google and Facebook.  It’s very relevancy was questionable as people no longer needed news consolidation sites – which had ended AOL, for example – and search had long gone to Google.  The intense internet users were already clearly mobile social media fans, and Yahoo simply did not compete in that space.

In other words, Yahoo desperately needed a change of direction and an entirely new strategy the day Ms. Mayer showed up.  Only, unfortunately, she didn’t provide either.  Instead Ms. Meyer offered, at best, a series of fairly meaningless tactical actions.  Changing Yahoo’s home page layout, cancelling the company’s work-from-home policy and hiring Katie Couric, amidst a string of small and meaningless acquisitions, were the business equivalent of fiddling while Rome burned.  Tinkering with the tactics of an outdated success formula simply ignored the fact that Yahoo was already well on the road to irrelevancy and needed to change, dramatically, quickly.

The saving grace for Yahoo was when Alibaba went public.  Suddenly a long-ago decision to invest in the Chinese company created a vast valuation increase for Yahoo.  This was the opportunity of a lifetime to shift the business fast and hard into something new, different and much more relevant than the worn out Yahoo strategy.  But, unfortunately, Ms. Mayer used this as a curtain to hide the crumbling former internet leader.  She did nothing to make Yahoo relevant, as fights erupted over how to carve up the Alibaba windfall.

When it became public that Ms. Mayer had hired famed strategy firm McKinsey & Co. to decide what businesses to close in its next “restructuring” it lit up the internet with cries to possibly just get rid of the whole thing! After 3 years, and more than one layoff, it now appears that Ms. Mayer has no better idea for creating value out of Yahoo than doing another big layoff to, once again, improve “focus on core offerings.”  Additional layoffs, after 3 years of declining sales, is not the way to grow and increase shareholder value.

Analysts are pointing out that Yahoo’s core business today is valueless.  The company is valued at less than its remaining Alibaba stake.  And this is not outrageous, since in the ad world Yahoo has become close to irrelevant.  Nobody would build an on-line ad campaign ignoring Google or Facebook, and several other internet leaders.  But ignoring Yahoo as a media option is increasingly common.

Investors are rightly worried that the IRS will take much of the remaining Alibaba value as taxes in any spinoff, leaving them with far less money.  Giving up on the CEO, and its increasingly irrelevant “core business” they are asking if it wouldn’t be smarter to sell what we think of as Yahoo to Softbank so the Japanese company can obtain the rest of Yahoo Japan it does not already own.  Ostensibly then Yahoo as it is known in the USA could simply start to disappear – like AOL and all the other on-line news consolidators.

PirateMarissaMayerIt really did not have to happen this way.  Yahoo’s troubles were clearly visible, and addressable.  But CEO Mayer simply chose to keep doing more of the same, making small improvements to Yahoo’s site and search tool.  By keeping Yahoo aligned with its historical Status Quo risk of irrelevance, obsolescence and failure grew quarter-by-quarter.

Now Status Quo Risk (the risk created by not adapting to shifting market needs) has most likely doomed Yahoo.  Investors are no longer interested in waiting for a turn-around.  They want their Alibaba valuation, and they could care less about Yahoo’s CEO, employees or customers.  Many have given up on Ms. Mayer, and simply want an exit strategy so they can move on.

Ms. Mayer’s leadership has shown us some important leadership lessons:

  • Hiring an executive from Google (or another tech company) does not magically mean success will emerge.  Like Ron Johnson from Apple to JCP, Ms. Mayer showed that even tech execs often lack an ability to understand market trends and the skills to adapt an organization.
  • It is incredibly easy for a new leader to buy into an historical success formula and keep tweaking it, rather than doing the hard work of creating a new strategy and adapting.  The lure of focusing on tactics and hoping the strategy will take care of itself is remarkably easy fall into.  But investors need to realize that tactics do not fix an outdated success formula.
  • Youth is not the answer.  Ms. Mayer was young, and identified with the youthfulness of Google and internet users.  But, in the end, she woefully lacked the strategy and leadership skills necessary to turn around the deeply troubled Yahoo.  Young, new and fresh is no substitute for critical thinking and knowing how to lead.
  • Boards give CEOs too much time to fail.  It was clear within months Ms. Mayer had no strategy for making Yahoo relevant.  Yet, the Board did not recognize its mistake and replace the CEOs.  There still are not sufficient safeguards to make sure Boards act when CEOs fail to lead effectively.
  • CEOs too often have too much hubris.  Ms. Mayer went from college to a rapid career acceleration in largely staff positions to CEO of Yahoo and a Board member of Wal-Mart.  It is easy to develop hubris, and an over-abundance of self-confidence.  Then it is easy to require your staff agree with you, and pledge so support you (as Ms. Mayer recently did.)  All of this indicates a leader running on hubris rather than critical thinking, open discourse and effective decision-making.  Hubris is not just a weakness of white male leaders.

Could there have been a different outcome.  Of course.  But for Yahoo’s employees, suppliers, customers and investors the company hired a string of CEOs that simply were not up to the job of redirecting the company into competitiveness.  Each one fell victim to trying to maintain the Status Quo. And, unfortunately, Ms. Mayer will be seen as the most recent – and possibly last – CEO to lead Yahoo into failure.  Ms. Mayer simply was not up to the job – and now a lot of people will pay the price.

 

Microsoft’s Last Stand

Microsoft’s Last Stand

Over the last couple of weeks big announcements from Apple, IBM and Microsoft have set the stage for what is likely to be Microsoft’s last stand to maintain any sense of personal technology leadership.

Custer Tries Holding Off An Unstoppable Native American Force

Custer Tries Holding Off An Unstoppable Native American Force

To many consumers the IBM and Apple partnership probably sounded semi-interesting.  An app for airplane fuel management by commercial pilots is not something most people want.  But what this announcement really amounted to was a full assault on regaining dominance in the channel of Value Added Resellers (VARs) and Value Added Dealers (VADs) that still sell computer “solutions” to thousands of businesses.  Which is the last remaining historical Microsoft stronghold.

Think about all those businesses that use personal technology tools for things like retail point of purchase, inventory control, loan analysis in small banks, restaurant management, customer data collection, fluid control tracking, hotel check-in, truck routing and management, sales force management, production line control, project management — there is a never-ending list of business-to-business applications which drive the purchase of literally millions of devices and applications.  Used by companies as small as a mom-and-pop store to as large  as WalMart and JPMorganChase.  And these solutions are bundled, sold, delivered and serviced by what is collectively called “the channel” for personal technology.

This “channel” emerged after Apple introduced the Apple II running VisiCalc, and businesses wanted hundreds of these machines. Later, bundling educational software with the Apple II created a near-monopoly for Apple channel partners who bundled solutions for school systems.

But, as the PC emerged this channel shifted.  IBM pioneered the Microsoft-based PC, but IBM had long used a direct sales force. So its foray into personal computing did a very poor job of building a powerful sales channel.  Even though the IBM PC was Time magazine’s “Man of the Year” in 1982, IBM lost its premier position largely because Microsoft took advantage of the channel opportunity to move well beyond IBM as a supplier.

Microsoft focused on building a very large network of developers creating an enormous variety of business-to-business applications on the Windows+Intel (Wintel) platform.  Microsoft created training programs for developers to use its operating system and tools, while simultaneously cultivating manufacturers (such as Dell and Compaq) to build low cost machines to run the software.  “Solution selling” was where VARs bundled what small businesses – and even many large businesses – needed by bringing together developer applications with manufacturer hardware.

It only took a few years for Microsoft to overtake Apple and IBM by dominating and growing the VAR channel.  Apple did a poor job of creating a powerful developer network, preferring to develop everything users should want itself, so quickly it lacked a sufficient application base.  IBM constantly tried to maintain its direct sales model (and upsell clients from PCs to more expensive hardware) rather than support the channel for developing applications or selling solutions based on PCs.

But, over the last several years Microsoft played “bet the company” on its launch of Windows 8.  As mobile grew in hardware sales exponentially, and PC sales flattened (then declined,) Microsoft was tepid regarding any mobile offering.  Under former CEO Steve Ballmer, Microsoft preferred creating an “all-in-one” solution via Win8 that it hoped would keep PC sales moving forward while slowly allowing its legions of Microsoft developers to build Win8 apps for mobile Surface devices — and what it further hoped would be other manufacturer’s tablets and phones running Win8.

This flopped.  Horribly. Apple already had the “installed base” of users and mobile developers, working diligently to create new apps which could be released via its iTunes distribution platform.  As a competitive offering, Google had several years previously launched the Android operating system, and companies such as HTC and Samsung had already begun building devices. Developers who wanted to move beyond Apple were already committed to Android.  Microsoft was simply far too late to market with a Win8 product which gave developers and manufacturers little reason to invest.

Now Microsoft is in a very weak position.  Despite much fanfare at launch, Microsoft was forced to take a nearly $1B write-off on its unsellable Surface devices.  In an effort to gain a position in mobile, Microsoft previously bought phone maker Nokia, but it was simply far too late and without a good plan for how to change the Apple juggernaut.

Apple is now the dominant player in mobile, with the most users, developers and the most apps.  Apple has upended the former Microsoft channel leadership position, as solution sellers are now offering Apple solutions to their mobile-hungry business customers.  The merger with IBM brings even greater skill, and huge resources, to augmenting the base of business apps running on iOS and its devices (presently and in the future.)  It provides encouragement to the VARs that a future stream of great products will be coming for them to sell to small, medium and even large businesses.

Caught in a situation of diminishing resources, after betting the company’s future on Windows 8 development and launch, and then seeing PC sales falter, Microsoft has now been forced to announce it is laying off 18,000 employees.  Representing 14% of total staff, this is Microsoft’s largest reduction ever. Costs for the downsizing will be a massive loss of $1.1-$1.6B – just one year (almost to the day) after the huge Surface write-off.

Recognizing its extraordinarily weak market position, and that it’s acquisition of Nokia did little to build strength with developers while putting it at odds with manufacturers of other mobile devices, the company is taking some 12,000 jobs out of its Nokia division – ostensibly the acquisition made at a cost of $7.2B to blunt iPhone sales.  Every other division is also suffering headcount reductions as Microsoft is forced to “circle the wagons” in an effort to find some way to “hold its ground” with historical business customers.

Today Apple is very strong in the developer community, already has a distribution capability with iTunes to which it is adding mobile payments, and is building a strong channel of VARs seeking mobile solutions.  The IBM partnership strengthens this position, adds to Apple’s iOS developers, guarantees a string of new solutions for business customers and positions iOS as the platform of choice for VARs and VADs who will use iBeacon and other devices to help businesses become more capable by utilizing mobile/cloud technology.

Meanwhile, Microsoft is looking like the 7th Cavalry at the Little Bighorn.  Microsoft is surrounded by competitors augmenting iOS and Android (and serious cloud service suppliers like Amazon,) resources are depleting as sales of “core” products stagnate and decline and write-offs mount, and watching as its “supply line” developer channel abandons Windows 8 for the competitive alternatives.

CEO Nadella keeps saying that that cloud solutions are Microsoft’s future, but how it will effectively compete at this late date is as unclear as the email announcement on layoffs Nokia’s head Stephen Elop sent to employees.  Keeping its channel, long the source of market success for Microsoft, from leaving is Microsoft’s last stand.  Unfortunately, Nadella’s challenge puts him in a position that looks a lot like General Custer.

 

Two Lessons For Us All from Crumbled Crumbs Bake Shop

Two Lessons For Us All from Crumbled Crumbs Bake Shop

Crumbs Bake Shop – a small chain of cupcake shops, almost totally unknown outside of New York City and Washington, DC – announced it was going out of business today.  Normally, this would not be newsworthy.  Even though NASDAQ traded, Crumbs small revenues, losses and rapidly shrinking equity made it economically meaningless.  But, it is receiving a lot of attention because this minor event signals to many people the end of the “cupcake trend” which apparently was started by cable TV show “Sex and the City.”

However, there are actually 2 very important lessons all of us can learn from the rise, and fall, of Crumbs Bake Shop:

crumbs cupcake

1 – Don’t believe in the myth of passion when it comes to business

Many management gurus, and entrepreneurs, will tell you to go into business following something about which you are passionate.  The theory goes that if you have passion you will be very committed to success, and you will find your way to success with diligence, perseverance, hard work and insight driven by your passion.  Passion will lead to excellence, which will lead to success.

And this is hogwash.

Customers don’t care about your passion.  Customers care about their needs.  Rather than being a benefit, passion is a negative because it will cause you to over-invest in your passion.  You will “never say die” as you keep trying to make success out of an idea that has no chance.  Rather than investing your resources into something that fulfills people’s needs, you are likely to invest in your passion until you burn through all your resources.  Like Crumbs.

The founders of Crumbs had a passion for cupcakes.  But, they had no way to control an onslaught of competitors who could make different variations of the product.  All those competitors, whether isolated cupcake shops or cupcakes offered via kiosks or in other shops, meant Crumbs was in a very tough fight to maintain sales and make money.  It’s not you (and your passion) that controls your business destiny.  Nor is your customers.  Rather, it is your competition.

When there are lots of competitors, all capable of matching your product, and of offering countless variations of your product, then it is unlikely you can sustain revenues – or profits.  There are many industries where cutthroat competition means profits are fleeting, or downright elusive.  Airlines come to mind.  Magazines. And many retail segments.  It doesn’t matter how much passion you have, when there are too many competitors it’s a lousy business.

2 – Trends really do matter

Cupcakes were a hot product for a while.  And that’s great.  But it wasn’t hard to imagine that the trend would shift, and cupcakes would be displaced by something else.  Whatever profits you might have when you sit on a trend, those profits evaporate fast when the trend shifts and all competitors are fighting for sales in a declining market.

Remember Mrs. Field’s cookies?  In the 1980s an attractive cook and her investment banker husband built a business on soft, chewy, warm cookies sold in malls and retail streets across America.  It seemed nobody could get enough of those chocolate chip cookies.

But then, one day, we did.  We’d collectively had enough cookies, and we simply quit buying them.  Mrs. Fields (and other cookie brand) stores were rapidly replaced with pretzels and other foodstuffs.

Or look at Krispy Kreme donuts.  In the 1990s people went crazy for them, often lining up at stores waiting for the neon sign to come on saying “hot donuts”.  The company exploded into 400 stores as the stock flew like a kite.  But then, in a very short time, people had enough donuts.  There were a lot more donut shops than necessary, and Krispy Kreme went bankrupt.

So it wasn’t hard to predict that shifting food tastes would eventually put an end to cupcake sales growth.  Yet, Crumbs really didn’t prepare for trends to change.  Despite revenue and profit problems, the leadership did not admit that cupcake sales had peaked, the market was going to decline, competition would become even more intense and Crumbs would need to find another business if it was to survive.

Few trends move as fast as tastes in sweets.  But, trends do affect all businesses.  Once we bought cameras (and film,) but now we use phones – too bad for Kodak.  Once we used copiers, now we use email – too bad for Xerox.  Once we watched TV, now we download from Netflix or Amazon – too bad for NBC, ABC, CBS and Comcast. Once we went to stores, now we order on-line – too bad for Sears. Once we used PCs, now we use mobile devices – too bad for Microsoft.  These trends did not affect these companies as fast as shifting tastes affected Crumbs, but the importance of understanding trends and preparing for change is a constant part of leadership.

So Crumbs Bake Shop failure was one which could have been avoided.  Leadership needed to overcome its passion for cupcakes and taken a much larger look at customer needs to find alternative products.  It wasn’t hard to identify that some diversification was going to be necessary.  And that would have been much easier if they had put in place a system to track trends, observing (and admitting) that their “core” market was stalled and they needed to move into a new trend category.

Will Obama’s Presidential Legacy Be Ruined by a Website?

Will Obama’s Presidential Legacy Be Ruined by a Website?

“A horse, a horse, my Kingdom for a Horse” King Richard cried out just before he was murdered (Richard III by Billy Shakespeare ~ 1592.)

King Richard of England was really, really unpopular.  He was accused of ascending to the throne via various Michiavellian behaviors.  Eventually he was trapped on the battlefield by his enemies, his horse was slain, and he uttered the above line – metaphorically begging for a way out of the trapped world that was his kingdom.  He didn’t get the horse – and he died.

After over 20 years of fighting about health care the U.S. Congress passed the Affordable Care Act and the President signed it into law in 2010. About the only agreement in the country was that the ACA appealed to almost no one due to the compromises required to get it passed.  It was fought by wide ranging constituencies, until in 2012 the Supreme Court upheld the law.

But not even that was the end of the fight, because in October, 2013 Congress shut down the government as groups fought about whether the act would receive any funding to implement its own provisions.  Eventually an agreement was reached, the government re-opened, and it looked like the ACA was going into practice.

Oh, but wait…

In today’s world everyone uses the internet.  Face-to-face meetings are largely gone, and forests by the score are being saved as we refuse to use paper when a digital screen will accomplish our tasks.  So it only made sense that when the U.S. population was to sign up for the benefits of this new law they would do so on the World Wide Web.

Folks would buy health insurance just like they buy books and clothes, and download movies, from a web site.  Billions of transactions have happened over the web the last decade.  Why, Google alone does over 5 billion searches each and every day.  So it seemed easily practical, and doable, for implementation to be as easy as opening a new web site.  We all expected that come November we’d simply hit the search button, go to the web site, price out the options and make our health insurance decisions.

Of course we all know how that worked out.  Or didn’t.  The site didn’t work for spit.  Apple may be able to track about a million apps on its site, and it seems able to deliver about 4 million per day at an average price of about a buck.  But the U.S. government web site – after spending over $400million (maybe even $1B) – couldn’t seem to process but a few thousand applications a day.  So Congressional hearings started – cries for firing Secretary Sebelius rang out – and President Obama’s favorability plummeted faster than the failed effort messages came up in browsers at Healthcare.gov.

You could almost hear the President on the steps of the White House “A web site, a working web site, my Presidency for a working web site.”

There was a Chicago mayor who lost an election because he couldn’t clear the streets of snow.  Something as simple as removing snow in a 1979 blizzard overtook everything Mayor Bilandic’s administration did, and wanted to do, for his great city.  When Chicagoans couldn’t access their streets for 3 days they “threw the bastard out” by electing a new candidate (Jane Byrne) in the next primary – and she went on to be the next mayor.

And the only thing anyone remembers about Mayor Bilandic was he didn’t get the snow off the streets.

This lesson is not lost on any local mayor.  You can have grand plans, and vision, but if you can’t keep the streets clean you get thrown out.

We’ve entered a new era of political expectations.  Citizens now expect their politicians to build and operate functional web sites.  They expect their government to do as least as good a job as private industry at everything digital.  And if politicians, or administrators, flub a web implementation it can have signficant, damaging implications.

Failure to build a functional web site, meeting the average person’s expectations, is a terrible, terrible falure these days.  Perhaps enough to lose the voters’ trust.  Perhaps enough to breath new life into those who want to overturn your “landmark legislation.”  And perhaps enough to kill your place in history.

 

Why Small Business Leaders are Missing the Digital/Mobile Revolution

It is an unfortunate fact that small businesses fail at a higher rate than large businesses.  While we've come to accept this, it somewhat flies in the face of logic.  After all, small businesses are run by owners who can achieve entrepreneurial returns rather than managerial bonuses, so incentive is high.  Conventional wisdom is that small businesses have fewer, and closer relationships to customers (think Ace Hardware franchisees vs. Home Depot.)  And lacking layers of overhead and embedded management they should be more nimble.

Yet, they fail.  From as high as 9 out of 10 for restaurants to 4 out of 10 in more asset intensive business-to-business ventures.  That is far higher than large companies.

Why?  Despite conventional wisdom most small businesses are run by leaders committed to a single, narrow success formula.  Most are wedded to their core ideology, based on personal history, and unwilling to adapt until the business completely fails.  Most reject new technologies and other emerging innovations as long as possible, trying to conserve  cash and wait for "more proof" change will pay off.  Additionally, most spend little time investing time, or money, in innovation at all as they pour everything into defending and extending their historical business approach. 

Take for example the major trend to digital marketing.  Everyone knows that digital is the only growing ad market, while print is fast dying:
Digital vs Print ad spending 3-2013
Chart republished with permission of Jay Yarow, Business Insider 3/19/2013

Yet AdWeek reported a new Boston Consulting Group study reveals that a mere 3% of small business ad dollars are in digital!

Digital marketing is one of the few places where ads can be purchased for as little as $100.  Digital ads are targeted at users based upon their searches and pages viewed, thus delivered directly to likely buyers.  And digital ads consistently demonstrate the highest rate of return.  That's why it's growing at over 20%/year!

Yet, small businesses continue to put most of their money into local newspapers and direct mail circulars.  The least targeted of all advertising, and increasingly the least read!  While print ad spending has declined over 80% the last few years, to 1950 levels (adjusted for inflation,) smarter businesses have abandoned the media.  At large companies in 2012 38% of advertising is on digital, second only to TV's 42% – and rapidly moving into first place!

A second major trend is the move to mobile and app usage.  In the last 2 years mobile users have grown and shown a distinct preference for apps over mobile web sites.  App use is growing while mobile web sites have stalled:
Apps v mobile web 3-2013
Chart republished with permission of Alex Cocotas, Business Insider 3/20/13

Even though there are over 1million apps available for iPhone and Android users, the vast majority of small businesses have no apps aligned with their business and customers.  Most small businesses, late to the game in digital marketing, are content to try and add mobile capability to their already existing web site – hoping that it will be sufficient for future growth. Meanwhile, customers are going directly for apps in accelerating numbers every month!
Number of app downloads 1-2018
Chart republished with permission of Alex Cocotas, Business Insider 1/8/13

Rather than act like market leaders, using customer intimacy and nimbleness to jump ahead of lumbering giants, small business leaders complain they are unsure of app value – and keep spending money on historical artifacts (like their web site) rather than invest in higher return innovation opportunities.  Many small businesses are spending $20k+/year on printed brochures, coupons and newspaper or magazine PR when a like amount spent on an app could connect them much more tightly with customers, add higher value and expand their base more quickly and more profitably!

The trend to digital marketing – including the explosive growth in mobile app use – is proven.  And due to very low relative up-front cost, as well as low variable cost, both trends are a wonderful boon for small businesses ready to adopt, adapt and grow.  But, unfortunately, the vast majoritiy of small business leaders are behaving oppositely!  They remain wedded to outdated marketing and customer relationship processes that are too expensive, with lower yield! 

The opportunity is greater now than during most times for smaller competitors to be disruptive.  They can seize new innovations faster, and leverage them before larger competitors.  But as long as they cling to old practices and processes, and beliefs about historical markets, they will continue to fail, smashed under the heal of slower moving, bureaucratic large companies who have larger resources when they do finally take action.