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| After Jerry Yang's Resignation: How to Save Yahoo! by Karsten Weide, IDC On Monday, November 17, Yahoo! announced that Jerry Yang will step down as the company's CEO as soon as the board finds his successor; Yang will stay on the company's board. This has been a long anticipated and appropriate decision for Yahoo!, but it is only the first step on the road to a possible turnaround of the company. Yahoo!'s core challenge is to increase its stock price to deliver shareholder value. In order to do so, Yahoo! must accomplish two things: One, it must grow its revenue faster than it currently does. And two, it must increase its profitability to be able to finance do-or-die strategic initiatives and acquisitions. Yahoo! did indeed embark on a number of smart strategic initiatives under Jerry Yang's reign that might help turn the company around: the ad platform Yahoo! APT, opening up the Yahoo! platform with Yahoo! Open System, the mobile UI widget Yahoo! Go, to name but a few. The problem is that all of these will take at least a couple of years to contribute meaningfully to the top line. Yet stockholders will only be willing to wait that long if they see a new, fresh Yahoo! leader who they trust will make things better. Otherwise, they might decide to cut their losses and sell their shares to the next company that tries to acquire Yahoo!. Similarly, it needs a fresh leader to instill Yahoo!'s employees with renewed fighting spirit. How can Yahoo! be fixed? One, Yahoo! needs its own Lou Gerstner as new CEO. IDC has long maintained that Yahoo!'s fundament is sound. But some painful decisions need to be made, and Yahoo! needs someone who is aggressive and tough enough to make them. Someone who is not afraid to break with the past. Someone who buys Yahoo! two years' worth of time with stockholders and instills Yahoo!'s employees with new fighting morale. Yahoo! president Sue Decker is not that person. She is just as much a part of the Ancien Regime as is Jerry Yang, and has no more credibility with investors or employees than he does. Two, some tough operational fixes need to be put in place. Most importantly, the layoffs announced so far don't go far enough to improve profitability. With the planned December layoffs, Yahoo! will have about 13.000 employees, which translates to about $137,000 in revenue per employee per quarter. Google's revenue per employee is roughly twice that at $277,000. No doubt, it is more labor intensive to run Yahoo!, a company that relies heavily on display ad sales that require a substantial sales force, than a search engine with sales that are largely automated. But the above numbers do show that there is a lot of excess fat that needs to be trimmed. This fat is also tied to the company's continued efforts across a multitude of properties without enough revenue to justify the expense. Yahoo! must take the axe to its product lineup and only retain those where it can be no. 1 or 2 in terms of ad revenue. Three, Yahoo! needs to succeed in search. A new media company can only be a major player if it is a viable contender in search. That is because search is the major segment of online advertising, with about 40% U.S. market share. This will not change over the next five years, and therefore the new Yahoo! needs to dramatically shake up the company's search engineering to enable it to come up with a search that allows it to retain its number 2 position, but with a much bigger market share than its about 12% vs. Google's 75%. Yahoo! cannot afford to sell its search (to Microsoft or anyone else) because that would be the beginning of the end of Yahoo!. Four, Yahoo! needs to retain its international assets at all costs. It cannot afford to scale down its presence in Europe, the only other developed online ad market. Giving up on China and India or APAC in general it can afford even less, because these will be the major sources of growth going forward. Five, the future of online advertising is in display ads (including display ads proper, rich media ads and video ads). Search will not always be the most important market segment. The idea that little text snippets, be they as relevant to the consumer as they may be, are the last word in online advertising is a misguided one. Fortunately for Yahoo!, in display ads, no other company is positioned as well as it to take advantage of the future growth. Yahoo! is the current market leader, and its new Yahoo! APT platform is a smart initiative to consolidate the fragmented display ad inventory in the marketplace and make a tidy cut by doing so. The APT initiative needs to be combined with a push to automate display ad sales to reduce sales expenses, and to use ad exchange technology to get a better yield in display ad sales. Six, mobile advertising will someday be big and therefore needs to be a strategic focus. It is now that future market shares and mobile media brands are being created, yet Yahoo! is falling behind Google. No need to create a Yahoo! phone, no need to get into the mobile operating system business as Google did. Yahoo! Go is a strong contender to make the mobile Web more accessible to consumers. However, Yahoo! Go versions need to be iterated faster. Even the new Go 3.0 still renders many standard Web pages hardly usable, lacks email attachments, instant messaging support, access to Yahoo! Calendar, and direct access to Yahoo! Contacts. It has also received little support from external developers. Yahoo's fundamentals are considerable. Yet its only chance to bring that to bear and deliver shareholder value is to make a clean cut and install a tough, competent outsider as CEO. If it does not, we expect it will be acquired by Microsoft before the next year ends. write your comments about the article :: © 2008 Computing News :: home page |