Where Bartz Blew It, and What Yahoo! Needs To Do Now

by | Sep 15, 2011 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Innovation, Leadership, Lock-in, Science, Web/Tech, Weblogs


Carol Bartz was unceremoniously fired as CEO by Yahoo’s Board last week.  Fearing their decision might leak, the Chairman called Ms. Bartz and fired her over the phone.  Expeditious, but not too tactful.  Ms. Bartz then informed the company employees of this action via an email from her smartphone – and the next day called the Board of Directors a bunch of doofusses in a media interview.  Salacious fodder for the news media, but a distraction from fixing the real problems affecting Yahoo!

Unfortunately, the Yahoo Board seems to have no idea what to do now.  A small executive committee is running the company – which assures no bold actions.  And a pair of investment banks have been hired to provide advice – which can only lead to recommendations for selling all, or pieces, of the company.  Most people seem to think Yahoo’s value is worth more sold off in chunks than it is as an operating company.  Wow – what went so wrong?  Can Yahoo not be “fixed”?

There was a time, a decade or so back, when Yahoo was the #1 home page for browsers.  Yahoo! was the #1 internet location for reading news, and for doing internet searches.  And, it pioneered the model of selling internet ads to support the content aggregation and search functions.  Yahoo was early in the market, and was a tremendous success.

Like most companies, Yahoo kept doing more of the same as its market shifted.  Alta Vista, Microsoft and others made runs at Yahoo’s business, but it was Google primarily that changed the game on Yahoo!  Google invested heavily in technology to create superior searches, offered a superior user experience for visitors, gave unique content (Google Maps as an example) and created a tremendously superior engine for advertisers to place their ads on searches – or web pages. 

Google was run by technologists who used technology to dramatically improve what Yahoo started – seeing a future which would take advantage of an explosion in users and advertisers as well as web pages and internet use.  Yahoo had been run by advertising folks who missed the technology upgrades.  Yahoo’s leadership was locked-in to what it new (advertising) and they were slow with new solutions and products, falling further behind Google every year.

In an effort to turn the tide, Yahoo hired what they thought was a technologist in Carol Bartz to run the company.  She had previously led AutoCad, which famously ran companies like IBM, Intergraph, DEC (Digital Equipment) and General Electric owned CALMA out of the CAD/CAM (computer aided design and manufacturing) business.  She had been the CEO of a big technology winner – so she looked to many like the salvation for Yahoo!

But Ms. Bartz really wasn’t familiar with how to turn an ad agency into a tech company – nor was she particularly skilled at new product development.  Her skills were mostly in operations, and developing next generation software.  AutoCad was one of the first PC-based CAD products, and over 2 decades AutoCad leveraged the increasing power of PCs to make its products better, faster and relatively cheaper.  This constant improvement, and close attention to cost control, made it possible for AutoCad on a PC to come closer and closer to doing what the $250,000 workstations had done.  Users switched to the cheaper AutoCad not because it suddenly changed the game, but because PC enhancements made the older, more costly technology obsolete.

Ms. Bartz was stuck on her success formula.  Constantly trying to improve.  At Yahoo she implemented cost controls, like at AutoCad.  But she didn’t create anything significantly new.  She didn’t pioneer any new platforms (software or hardware) nor any dramatically new advertising or search products.  She tried to do deals, such as with Bing, to somehow partner into better competitiveness, but each year Yahoo fell further behind Google.  In a real way, Ms. Bartz fell victim to Google just as DEC had fallen victim to AutoCad.  Trying to Defend & Extend Yahoo was insufficient to compete with the game changing Google.

The Board was right to fire Ms. Bartz.  She simply did what she knew how to do, and what she had done at AutoCad.  But it was not what Yahoo needed – nor what Yahoo needs now.  Cost cutting and improvements are not going to catch the ad markets now driven by Google (search and adwords) and Facebook (display ads.)  Yahoo is now out of the rapidly growing market – social media – that is driving the next big advertising wave.

Breaking up Yahoo is the easy answer.  If the Board can get enough money for the pieces, it fulfills its fiduciary responsibility.  The stock has traded near $15/share for 3 years, and the Board can likely obtain the $18B market value for investors.  But “another one bites the dust” as the song lyrics go – and Yahoo will follow DEC, Atari, Cray, Compaq, Silicon Graphics and Sun Microsystems into the technology history on Wikipedia.  And those Yahoo employees will have to find jobs elsewhere (oh yeah, that pesky jobs problem leading to 9%+ U.S. unemployment comes up again.)

A better answer would be to turn around Yahoo!  Yahoo isn’t in any worse condition than Apple was when Steve Jobs took over as CEO.  It’s in no worse condition than IBM was when Louis Gerstner took over as its CEO.  It can be done.  If done, as those examples have shown, the return for shareholders could be far higher than breaking Yahoo apart.  

So here’s what Yahoo needs to do now if it really wants to create shareholder value:

  1. Put in place a CEO that is future oriented.  Yahoo doesn’t need a superb cost-cutter.  It doesn’t need a hatchet wielder, like the old “Chainsaw Al Dunlap” that tore up Scott Paper.  Yahoo needs a leader that can understand trends, develop future scenarios and direct resources into developing new products that people want and need.  A CEO who knows that investing in innovation is critical.
  2. Quit trying to win the last war with Google.  That one is lost, and Google isn’t going to give up its position.  Specifically, the just announced Yahoo+AOL+Microsoft venture to sell ad remnants is NOT where Yahoo needs to spend its resources.  Every one of these 3 companies has its own problems dealing with market shifts (AOL with content management as dial-up revenues die, Microsoft with PC market declines and mobile device growth.)  None is good at competing against Google, and together its a bit like asking 3 losers in a 100 meter dash if they think by forming a relay team they could somehow suddenly become a “world class” group.  This project is doomed to failure, and a diversion Yahoo cannot afford now.
  3. In that same vein, quit trying to figure out if AOL or Microsoft will buy Yahoo.  Microsoft could probably afford it – but like I said – Microsoft has its hands full trying to deal with the shift from PCs to tablets and smartphones.  Buying Yahoo would be a resource sink that could possibly kill Microsoft – and it’s assured Microsoft would end up shutting down the company piecemeal (as it does all acquisitions.)  AOL has seen its value plummet because investors are unsure if it will turn the corner before it runs out of cash.  While there are new signs of life since buying Huffington Post, ongoing struggles like firing the head of TechCrunch keep AOL fully occupied fighting to find its future.  Any deal with either company should send investors quickly to the sell post, and probably escalate the Yahoo demise with the lowest possible value.
  4. Give business heads the permission to develop markets as they see fit.  Ms. Bartz was far too controlling of the business units, and many good ideas were not implemented.  Specifically, for example, Right Media should be given permission to really advance its technology base and go after customers unencumbered by the Yahoo brand and organization.  Right Media has a chance of being really valuable – that’s why people would ostensibly buy it – so give the leaders the chance to make it successful.  Maybe then the revolving door of execs at Right (and other Yahoo business units) would stop and something good would happen.  
  5. Hold existing business units “feet to the fire” on results.  Yahoo has notoriously not delivered on new ad platforms and other products – missing development targets and revenue goals.  Innovation does not succeed if those in leadership are not compelled to achieve results.  Being lax on performance has killed new product development – and those things that aren’t achieving results need to stop.  Specifically, it’s probably time to stop the APT platform that is now years behind, and because it’s targeted against Google unlikely to ever succeed.
  6. Invest in new solutions.  Take all that wonderful trend data that Yahoo has (maybe not as much as Google – but a lot more than most companies) and figure out what Yahoo needs to do next.  Rip off a page from Apple, which flattened spending on the Mac in order to invest in the iPod.  Learn from Amazon, which followed the trends in retail to new storefronts, expanded offerings, a mobile interface and Kindle launch.  Yahoo needs to quit trying to gladiator fight with Google – where it can’t win – and identify new markets and solutions where it can.  Yahoo must quit being a hostage to its history, and go do the next big thing! Create some white space in the company to invest in new solutions on the trends!

Of course, this is harder than just giving up and selling the company.  But the potential returns are much, much higher.  Yahoo’s predicament is tough, but it’s been a management failure that got it here.  If management changes course, and focuses on the future, Yahoo can once again become a market leading company.  Sure would like to see that kind of leadership.  It’s how America creates jobs.

New Look and Feel – Recharge, Reignite, Regrow – Get America Growing

by | Mar 10, 2009 | Current Affairs, Disruptions, General, Innovation, Leadership, Lock-in

Those of you who follow my blog should have noticed a new look and feel today!  If you receive this missive in your email box via an RSS feed, I encourage you to stop by www.ThePhoenixPrinciple.com to see the new look.

As most of you know, I'm quite serious about helping organizations realize that they all can rejuvenate.  It's a mission I started in 2004, and devoted my life to in 2007 when I started writing Create Marketplace Disruption.  And now, in the midst of this terrible recession, it is clearer than ever that we need to realize that different phases of the lifecycle take different management approaches.  And for most companies today, old fashioned notions of "focus" and "hard work" simply won't pull them out of this recession and toward better returns. 

So I've rededicated myself to this mission.  And part of that rededication is hiring some professional help with this website!  Thanks to Public Words for the new design – and this is just a small part of what they will be doing to help me over the next year to increase the awareness of this mission and expand the base of people who want to help their organizations recharge, reignite and regrow!  I'm also spending more time public speaking to companies, leadership teams, industry events and multi-company conferences about what we need to do so we can get back to growing!  (If you know of groups, please let them know how The Phoenix Principle and Adam Hartung can help them get growing again.)

So, let me know what you think of the new look and feel!  Your comments can help the site be more productive for us all.  If you want things added, speak up!  I read all comments, whether here or emailed my way, and my new team will consider them all.  In addition to the look and feel, please offer your ideas for how I can drive more links, and attract more readers to our mission.  Some of you offered great ideas recently (special kudo to reader Bob Morris for his insightful recommendations) about how to better use tags, technoroti tags and trackbacks.  Please keep telling me places I need to link, and other things which can help grow readership.  Your help in spreading the word is greatly appreciated.

Also, if you haven't noticed I'm not twittering.  So you all are invited to reach out to me on Twitter – there's even a link to twitter me on the blog now!  I'll be getting my facebook page up soon as well.

I read a fascinating report published today you can dowload from Bank of America claiming that this recession actually began in 2000 – and we're somewhere between 60% and 70% of the way through.  Real estate could decline another 15%, and the big equity averages may drop another 20-40%!   Whether that's true, or maybe we're closer to "the bottom", for most of our organizations to be prosperous again will take a different approach to management.  One that overcomes Lock-in to outdated Success Formulas (often created in a previous industrial era) by obsessing about competitors to learn about market trends, never fearing disruption – internal or in the marketplace – and utilizing White Space to test new business ideas which can create better, higher return Success Formulas that fit newly evolved markets.

"Hiring Plans or Firing Plans" is the headline on Marketwatch.com.  Previously, the lowest number achieved for "net hiring plans" was in 1982 when a net 1% of firms were planning to hire.  But in the entire 47 years of the Manpower hiring survey (since 1962) never was the index a negative – where more firms plan to lay off than hire!!!  That was until now, with the index at -1%.  Just one year ago the number was +17%! (Find the complete Manpower Employment Outlook Survey at this link to their site.)  More of the same "ain't going to cut it".  Instead of looking for reasons to lay off workers, we have to realize that there are a lot of reasons to hire more!  If we follow the right management principles – The Phoenix Principle – we can get going again!  If we encourage Disruption and keep White Space alive we can continue to grow!

A past client of mine recently discovered a way to introduce a new line of products with 80% less development cost.  But the new product is being delayed because the CEO feels he must lay off workers and slow down product launches – due to what he's reading about the economy.  The CEO is afraid that a new product launch, which would cement the company's #1 position ahead of competitors gnawing at their position the last 4 years, would be a tough sell to the Board of Directors.  The CEO is clearly focusing on the wrong thing – because his Board would be happier with growing sales and profits, and a reinforced #1 market position, than anything else!  Especially now!  But this company is almost afraid to grow, locked in fear of what to do next.  Instead of reallocating resources to growth projects, and jettisoning "sacred cow" products that are low-profit and declining in sales volume, management prefers to follow today's popular wisdom of cutting costs, cutting new product introductions, even cutting revenues by sticking with historical products nobody is buying - so that's what they will do!!!

So, please be a part of this journey.  Participate, don't just be a spectator.  Provide your feedback and comments.  And share the word!  Nothing is more valuable than debate.  Great ideas are developed in the marketplace, not in someone's head!  Pass along the message, and get others involved. 

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