Jerry Yang, after a tumultuous reign as the chief executive officer of Yahoo, the company he co-founded with David Filo, announced today that he is stepping down from the top slot. The news was first reported by Kara Swisher and later confirmed by Yahoo in a […]

Jerry Yang, after a tumultuous reign as the chief executive officer of Yahoo, the company he co-founded with David Filo, announced today that he is stepping down from the top slot. The news was first reported by Kara Swisher and later confirmed by Yahoo in a press release. He is going to make way for someone else, but will stay on the board of Yahoo and will be known as Chief Yahoo. More important, however, is the question of what Yahoo needs to do in order for Jerry to hang on to the title of Chief Yahoo!

Yang’s decision to move on isn’t a surprise – it was clear from his talk at a recent industry conference that he was tired and perhaps a little out of his depth. His choice to head the company that was looking down a deep abyss a while back was an ineffectual one, and a total and absolute failure on the part of Yahoo’s board of directors. In June 2008, I wrote about the systematic rot inside the company.

What hasn’t been discussed is that the company isn’t really facing up to the fact that its layers of management have resulted in a state of masterful inactivity, masked perhaps as a culture of consensus. This starts at the top - from the company’s board and senior management down to VP level where people are prone to organizing and attending twenty meetings before deciding the fate of a project. Some senior managers including the ones who are deserting the company are skillful players in this game of hiding ennui behind grandiose plans and a great future that never happens.

Yang was never able to address these core issues. He isn’t the inspirational tyrant (like Steve Jobs) who can save the company he co-founded. And because he’s a nice guy, he has failed to make the hard decisions needed in order to save the company. Even as an inspirational leader, he couldn’t bring a sense of single purpose to the company, which at times reminds me of the last days of the great Mughal empire.

With Yang gone, and the company actively seeking his replacement, the big question is what should Yahoo do next and whom should they hire to replace him? Kara Swisher has a lot of names on her short list, though I don’t think any one of them will prove to be Yahoo’s knight in shining armor. (You can play the Next Yahoo CEO game and leave your suggestions in the comments.) Regardless of the company’s final choice, here is what Yahoo shouldn’t do:

  • Not Hire from within, for the current senior management has proven too ineffectual and shares the blame for Yahoo’s current misfortunes.
  • Sell out to Microsoft at today’s prices. ($20 a share would be something the company should seriously consider.)
  • Merge with AOL, for that would be like tying together two bricks with a spider web and hoping that they will float.

What it should do:

  • Look outside for someone with spark.
  • Replace the current senior team with executives.
  • Refocus Yahoo on the very qualities that made it great – building technology products for the common people.
  • Focus its energies on Yahoo News, Yahoo Sports, My Yahoo, Yahoo Mail, Flickr, Yahoo Messenger and Yahoo Search, as well as Yahoo’s e-commerce platform.
  • Keep building on its Mobile offerings, for this is one area where its independence can help it win friends amongst operators who are worried about Google, Microsoft and Apple. 
  • Yahoo’s ad-serving platform needs to become more real-time, with a drastic improvement in customer service.

These are tough choices for Yahoo, but these are also desperate times. And while it might sound crazy, it is time for Yahoo to start entertaining the idea of going private — at today’s stock price that should cost about $15 billion, though it might take more than that to get the deal done. Technology-oriented guys like Roger McNamee could be good private investors because they would ensure that the dollars-and-cents approach doesn’t stall Yahoo’s innovation engine.

Hopefully they will bring on a no-nonsense, [HP CEO] Mark Hurd-style executive who can stabilize and revive the company by making it leaner, simpler and have it focus on its core competencies. For PE investors, there is also comfort in the fact that Yahoo can at anytime sell its Asian holdings for a ton of cash. They might be able to find some takers for their European properties as well.

Instead, Yahoo could take its roughly $6.36 billion in cash and focus solely on its core U.S. businesses, purging anything that isn’t core. This would mean job cuts for thousands of people, but unfortunately Yahoo doesn’t have much choice: It is either that or slow, lingering, painful irrelevance. Much as we laughed at the Peanut Butter manifesto when it was leaked to the media, the fact is that it still remains a blueprint for saving Yahoo. All someone has to do is read it.

Update: Just after I hit publish, I got a note from UBS Investment Research’s Internet analyst Ben Schachter, who writes ….

We expect the Board will ultimately opt for an external candidate as Decker would likely not be considered a significant enough change by investors. The news may also indicate the Board will push for a more meaningful restructuring of YHOO. Finally, the news will clearly reignite speculation around a potential deal w/MSFT (for a search-only deal or full acquisition) as well as potential other M&A activity. ….We still believe MSFT will eventually own YHOO. Jerry moving out of the CEO role may accelerate this. YHOO is a key strategic asset in the online space and given the scarcity of key players of size, we see value here not reflected in the stock’s current valuation.

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  1. Yahoo! needs a new leader that will Disrupt and use White Space to chart a new course. Someone who will compete with Google and improve the web for all of us. Certainly not Microsoft – a new leader wtih the moxie to compete. Read more at http://www.thephoenixprinciple.com

  2. Yahoo should get rid of bozos like Marco Boerris and bring in real people who understand the internet

  3. I think Yahoo should go out of the box and bring in Dick Cheney as CEO. The man is an organizational wizard, has the required dictatorial style, has previously been CEO of a Fortune 500 company (Halliburton) and would bring a totally fresh perspective to this spoiled and famously navel-gazing company.

  4. One of the better analysis of the situation out there — yahoo needs focus, focus, focus.

    Dan Rosensweig = would be great as CEO but I wonder if he has focus/discipline to make deep cuts.
    Qi Lu = bring him back as Chief Technical Officer and put Ari as head of YOS.
    CFO = somebody who is super tough and super disciplined.
    Head of Ad/Sales = somebody who is a total operations guru. We don’t need a big personality — need somebody who can get stuff done and has real depth.

    Yahoo needs to drop the “we are here to have fun” and get serious about building kick-ass products.

  5. Om — Good post. One thing I think you left out is that Yahoo also has some very strong assets and capabilities in cloud computing, including the Hadoop guys and a lot of expertise in running scalable infrastructure. They also have very strong capabilities in building platform-as-a-service offerings and opening up their existing apps for people to create their own applications that access user data, a-la Facebook and Force.com. Yahoo could be a serious contender in cloud computing if they get their act together.

    Regarding the comment by Mark Cassius above: You know your company is truly f@#$%d when someone suggests Dick Cheney can fix it :-)

    Blog: http://gevaperry.typepad.com

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  9. Mike @ WannaDevelop.com Tuesday, November 18, 2008

    They should beg MSFT to buy them out.

    The best option for everybody.


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