Yahoo Layoffs Beginning This Week

Yahoo’s new CEO, Scott Thompson, appears set to leave his mark on the troubled search company. Many in the media reported plans for massive layoffs at Yahoo starting the middle of this week, followed by restructuring next week.

Kara Swisher broke the story at AllThingsD, citing unnamed insider sources. Though Yahoo employs around 14,000 people, she noted that “thousands of employees” could be laid off. The layoffs are apparently the upshot of a series of meetings Thompson held with top management at the end of March.

What will Yahoo look like after the layoffs? Swisher described the goal as “a drastically slimmed-down organization with a focus on media, advertising and new but unclear ‘future’ initiatives.” To that end, the layoffs will mostly affect those employed in the product, research and marketing units of Yahoo.

Swisher also seemed to imply that Yahoo may not be keeping its ad technology or search business. She cited her sources as noting that “Thompson and others are still trying to figure our how to dispense with” these parts of the company, and that Yahoo’s CEO has been talking with both Microsoft and Google on this topic. About 2,500 employees work for these units; their fate remains uncertain.

So exactly what would the new Yahoo look like? Swisher’s sources said the image emerging includes at least three divisions: global media; communications and search businesses; and global and regional sales. A fourth, smaller organization, employing perhaps 50 people, may focus on future innovation.

Sarah Lacy reported that the ax would come down at Yahoo as early as April 4 for those in the United States, and a day later for those located in other parts of the world. She notes that Thompson seems to be targeting Yahoo’s international division, “particularly those parts of Asia that aren’t China and India.” She points to Yahoo’s footprint in Southeast Asia being bigger than both Google’s and AOL’s, and apparently believes that Thompson is undervaluing this asset.

Though Lacy has disagreed with much of what Thompson has done at Yahoo up to this point (which is strange, since he doesn’t seem to have done that much other than hold some hush-hush meetings), she believes the layoffs are not a bad idea. Yahoo “is clearly a company that has been way too bloated for a long time,” and managing it must be nothing short of a nightmare – as it “is a jumble of silos, and getting its managers to all swim down is nearly impossible.” So if one can’t get the separate departments to act in unison, perhaps large cuts will get rid of the problem.

To those of us who have watched Yahoo for many years, this seems to be simply the latest move in a long death spiral. Thompson is trying to right a sinking ship, and at this point, it’s questionable whether anything will prevent the company from going down.

A sharp, lengthy blog post from Michael Smith, who worked for Yahoo in Southeast Asia until recently, brings the company’s problems into sharp focus. He notes that the only major thing Thompson can do to show he’s serious about turning Yahoo  around is start massive layoffs. “Any other move is pure fluff cause Yahoo is bloated, top heavy and needs to be shaken up,” he writes.

Smith points to Yahoo’s “lack of forthright, confident decision making” as its biggest problem. Everyone does what they want, which is really no way to run a company of Yahoo’s size. He talks of going to meetings “where we discussed how to make plans,” many of which were a waste of time and money “since the guy who spearheaded that level of planning is already out of the company.”

Smith points to another problem at Yahoo – many of the rank and file have already left, most of the hires have been management, and many of those came from Microsoft. “We used to joke that although MSFT didn’t actually buy Yahoo – for the most part MSFT was running Yahoo.” According to Smith, Yahoo now makes it money from ads, where it used to make its money from ads and search. “Yahoo gave search to MSFT” but didn’t save enough costs from the deal because “the amount of people working on search experiences is still way too high…if Yahoo outsourced search it should really do it. Get rid of all search related employees. Put a search box up and when a user clicks the button the rest is done by MSFT.”

Smith also discusses the Facebook lawsuit. According to him, it stems in part from the fact that Yahoo never benefited from that deal to the same degree that Facebook did. “Yahoo got single sign-in, which is great, and Yahoo users were able to share more easily on FB – worked wonders for Yahoo pageviews but FB got to easily export Yahoo address books and gleaned all the resultant data. Anytime Yahoo product managers tried to export the other way around or use the data we usually found that the agreement did not support that or that FB got to personally veto the Yahoo product idea.” The upshot was that “Yahoo lost social” and Facebook got stronger.

Smith noted that Yahoo not doing well with its deals and acquisitions is part of a pattern at the company. “Anyone remember the Zynga deal? Waste of time. Zimbra? Xoopit? Dapper?…Very few of these deals made Yahoo a better, more able company…I once heard a corp dev guy say his job would be measured by how many deals he did,” Smith notes, and not how many of them “actually grew the bottom line.”

Finally, Smith criticized Yahoo for its lack of innovation in ads, especially in the mobile space. “The ad division in Yahoo, some 900 strong, has not created a new ad innovation in years.” With its major focus on display ads, Yahoo faces a huge problem as Internet-connected mobile devices grow in their number of  users and importance. “Mobile is killing the goose that laid the golden egg. The better Yahoo does at mobile with emails, comms products, media products and so on – the more the revenue will decline. There is no space to put display ads, there is no room for takeovers [ads] and as users demand products that work well for mobile – they are less forgiving than they are on the desktop.” Smith praised Yahoo’s Livestand, but noted that “creating a new experience like this from scratch within Yahoo is hard to do.” Here, he notes, it would actually make sense to buy a market leader, but he does not believe that Yahoo will spend that kind of money.

The layoffs will change the face of Yahoo – but only if those in charge use the momentum from the cuts to truly turn the company around, back into the innovator it once was and needs to be again to compete. Otherwise, these layoffs could simply be the signal that Yahoo is going under for the last time.
 

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