You’d almost have to be blind to not see this coming. Back in January, some Yahoo shareholders were trying to come up with a “plan B“ for the company, which I reported on in mid-March. The very first point of this nine-point plan called for the immediate replacement of Terry Semel. Presumably, Semel and Yahoo could have weathered this, but the company’s lackluster performance in the first quarter of this year only caused the clamor to reach a fever pitch.
Semel and Yahoo’s Board of Directors managed the transition gracefully, with Semel writing in a statement that “I was clear in telling you of my desire to take a step back sooner rather than later.” Make no mistake: he’s not actually leaving the company; he will remain as chairman in a non-executive role, and presumably in some sort of advisory capacity. In short, he’s no longer in a position where he’s responsible for the company’s every move – so he can’t be blamed for any missteps in the future.
He has certainly earned his share of blame for previous missteps. Shareholders and analysts have taken Semel to task for failing to purchase Google in 2002, MySpace in 2005, YouTube in 2006, and probably DoubleClick in 2007. They have also complained about the direction he tried to take with the company in his efforts to move it more toward content production, and the fact that it didn’t move toward streamlining after making certain purchases – for example, Yahoo had its own picture sharing site when it purchased Flickr, and didn’t close it until fairly recently.
The amount of blame Semel has received isn’t entirely fair, however. It fails to take into account the state of the world in general and the technology sector in particular when he came on board. Most of all, it does little to point up some of the good things he’s done for Yahoo. It probably is time – and past time – for him to step down. But let’s not be too hasty in our condemnation.
Terry Semel took the top position at Yahoo in May 2001. The dot-com bubble had burst, and terrorists destroyed the World Trade Center just a few months after that, killing thousands and throwing the already weakened US economy into a tailspin. Semel was brought on board because Yahoo was already performing poorly, and it was thought that a change of direction was needed. Semel’s background included a stint as co-chairman and co-CEO of Warner Brothers, so he approached it from the standpoint of content rather than technology.
Content is often used to sell advertising, so what Semel did next was no coincidence. With the new market realities showing the connection between search and advertising, he successfully overhauled Yahoo’s sales force. His smart moves include hiring ad industry veteran Wenda Harris Millard as Chief Sales Officer and acquiring Overture.
These and other steps boosted Yahoo’s annual revenues nearly nine-fold to $6.4 billion as of last year. In fact, Yahoo quadrupled its market value after Semel came on board. But whatever honeymoon Semel had wasn’t going to last. Some say his time was up as early as 2003; others might date it to February 2004, when Yahoo stopped using Google’s technology in its searches and chose to use its own. Perhaps it would have been good to see a technology person take over the helm at that point, because getting this part right was clearly going to be more important in the future.
If that wasn’t clear in February 2004, it should have been clear in August 2004. That’s when Google, three years younger than Yahoo, had its initial public offering. On its first day of trading, it hit a market capitalization of $23 billion. Yahoo’s market capitalization at that time was $39 billion. If someone wasn’t alerted by the fact that Google was that close to Yahoo’s cap after only one day of trading, they really should have been.
Eric Jackson, CEO of consulting company Jackson Leadership Systems and one of the shareholders who led the grassroots revolt, sums it up for a lot of people: “I think that Semel was the right person at the time he came in in 2001. He did a lot of great things to stabilize the company and set it on its path after the bubble burst, but shareholders were looking for some new blood and direction.” But will they actually get what they want?
Yahoo’s stock fell nearly 30 percent over the past 18 months. It is clearly losing ground to Google, who seems to hold a larger share of the search market every time comScore Media Matrix issues a new report. With Semel out of the CEO position, will the people taking over be able to navigate the company out of its current quagmire?
Well, let’s not forget that Jerry Yang was partly to blame for getting Yahoo into the quagmire that made Terry Semel as CEO look like a good idea. That’s not entirely Yang’s fault though. He became a billionaire at 29…and then the market turned. Still, he did sign off on some decisions that look questionable in retrospect, like purchasing Broadcast.com for $5 billion and GeoCities for $2.8 billion. On the other hand, Yang is said to be very much in touch with the needs of Yahoo’s customers; to use industry slang, he not only created the dog food, he eats it, in preference to anything else. Terry Semel didn’t, and for that reason he never had the intuitive grasp of what Yahoo is and needs to become that Yang brings to the table.
Meanwhile, Susan Decker has been receiving nothing but compliments for how she’s been managing her positions. She has served as Chief Financial Officer for Yahoo since the dot-com bubble burst, and has been a consistently rising star. Rumors have been circulating for a long time that she is being groomed for the CEO position; they only intensified after Yahoo reorganized itself into three main divisions, and she became the head of one of them. Some see her promotion to president as a snub; personally, I see it as another chance for her to gain some more experience before they give her the CEO position. No one can blame Jerry Yang for wanting to step in personally to try to save the company he founded after all.
Will this team be up to the challenges they face? Yang identified his priorities as dealing with an under-performing search monetization platform, the company’s rivals for user traffic, and the stream of employees leaving the company. He’s going to have quite a job ahead of him just boosting employee morale; many employees first learned about the change in leadership through the media. Apparently no internal email was sent before the announcement.
Since the announcement that Terry Semel has stepped down, Yahoo has agreed to acquire collegiate sports site Rivals.com, and some interesting rumors are circulating. Some analysts believe that Yahoo won’t be an independent company a year from now. That casts News Corp’s supposed consideration of handing MySpace over to Yahoo in exchange for a 25 percent stake in the search engine in an intriguing light. But the real hope for Yahoo’s future, to judge from a recent Wired piece, lies in thinking outside the box.
True, that sounds like the biggest cliche in the book. But here’s the reasoning: conventional wisdom has been saying that Yahoo is a media company while Google is all about the technology. The truth is that they’re both content companies; Yahoo just doesn’t recognize that what Google is doing is content. In this case, the content is software.
Think about it. Google’s search, its Gmail, its calendar, Google Earth, Picasa, and more…it’s all content, just highly interactive. That’s the real reason that web surfers use those applications. Yahoo really should be able to win in this space; it has many of the same offerings, and it has far more of an investment in web 2.0-style interaction, if for no other reason than that it has purchased more web 2.0 companies than anyone (as it acknowledged last year in its April Fool’s blog entry).
Am I saying that Yahoo needs to cast itself as another Google? No. Yahoo needs to understand why Google became as popular as it did, and see what it can do to fill that same need. Yang’s stated goal of doing better by his own people, especially his engineers, should help with that; it’s going to take some real technological genius to catch up to Google. Beating Google, on the other hand, means understanding the needs of users better than Google, and getting the message out. Jerry Yang and Susan Decker just might be the right team to do this, but time alone will tell.