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Summary:

The news that’s been telegraphed for weeks is done: Yahoo is laying off 2,000 staffers, 14.1 percent of its workforce, as new CEO Scott Thompson remakes the business around the buzzwords smaller, nimbler, core, best in class. Thompson isn’t close to finished.

Scott Thompson
photo: PayPal

The news that’s been telegraphed for weeks is done: Yahoo has finally confirmed that roughly 2,000 staffers, 14.1 percent of its workforce, are losing their jobs as new CEO Scott Thompson remakes the business around the buzzwords smaller, nimbler, core, best in class.  Thompson, the surprise choice to fill the gap left when the board fired Carol Bartz, isn’t close to finished.

The scale is more massive but the concept isn’t new.  Yahoo CEOs have been laying off and reorganizing to rationalize the company or their own view of it for years.  The former president of PayPal is following the tradition three months into his Yahoo gig.

On the re-org side, it looks like he’s about to undo the regionalization of Yahoo. When the reorg details follow, promised for the Q1 investors call on April 17,  I expect Yahoo to be organized across the company by businesses. That is, rather than the current setup that has, for example, Ross Levinsohn as EVP, The Americas, responsible for advertising sales, partnerships and media and different execs running the same types of operations in EMEA and Asia. Look for Levinsohn, if he sticks around, to head media and advertising across the board.

What’s the core of the new Yahoo? For years, Yahoo has been described as a media company. Under Thompson, it seems to be media-plus; the plus is using the engagement from media to make money in as many other ways as possible. Consider this description in today’s statement:

Yahoo! has a solid foundation — nearly 700 million users and thousands of advertisers that engage with Yahoo! properties regularly and trust the company with their data and their business.

The core properties outlined in a memo to the staff, posted by the WSJ:

Media and Communications:  Zero level of detail here. Does he like the current direction of Yahoo web originals and partnershops with Tom Hanks, Morgan Spurlock and the like? Does he want Yahoo to create original content at all? News? How does he feel about the alliance with Microsoft and AOL or the upcoming digital upfront? All we know for sure is it needs to be “best in class” and work across all screens. His wording:

Our content, media, and communications experiences must be best in class. That includes getting today’s core properties right and innovating on a next generation of great product experiences across all screens.∙

Platforms: Again, very little detail but recognition that Yahoo has technology that can and should be put to better use. It’s what connects media to data (see below).

We must make our core platforms and systems a genuine strength for Yahoo! – platforms that we can really leverage to support our massive scale, drive the deepest personalization, and boost speed to market.∙

Data: This is where Thompson’s PayPal experience should really pay off. He sees the immense amount of information being gathered and shared as a mine that has barely been tapped.

Our massive data sets must become a genuine competitive advantage for Yahoo!. We have to unlock the value in our data to allow us to really understand our 700 million users, encourage and win their engagement and trust, leverage everything they do with us to more fully personalize their experiences, and to give our advertisers the immediate insights they are rightfully demanding.

This boils down to a basic plan. Give users a reason to engage by watching, reading and sharing. Make the experience work well and use the technology to collect data. Use the data to make content and ad delivery more relevant — and look for ways to make money from it. Until now the company’s emphasis has been overwhelmingly on search and display advertising, where Yahoo has been losing ground.

Finding other income through transactions isn’t new at Yahoo — Yahoo has had some success in the transaction area with fantasy sports, for instance — but they need to achieve a different scale to make up for the advertising income that’s disappeared. Yahoo’s outgoing EMEA head Rich Riley telegraphed some of this potential at a U.K. conference last month, suggesting virtual goods, subscriptions or other transactions.

On the financial side, the move will cost Yahoo $125-$145 million this quarter in pre-tax charges; the company says it should lead to about $375 million in annual savings. That might appease activist shareholder Dan Loeb a bit but cutting alone won’t cut it for Loeb or most observers.

Analysts are already churning out “where’s the growth?” notes. From Barclay’s Anthony DiClemente:

While we believe the move is a positive, it still does not address the issue of growth and innovation. We believe investors’ biggest concerns around YHOO surround the ability for future growth.

Loeb launched a spiffy new activist site this week to explain why he, Michael Wolf, Harry Wilson, and Jeff Zucker should all get seats on the Yahoo board. He’s not been shy about offering his views so expect him to weigh in.

Whatever Loeb says or does, Thompson needs to cut through the buzzword clutter and get to specifics. He isn’t going to get endless cracks at bat. He better make this one count.

Update: So what does Loeb have to say? Not on the site yet but  here’s the latest SEC filing detailing his disappointment:

Yahoo! Inc’s  layoffs announced today represent the Company’s fifth significant headcount reduction in as many years. While this action was unfortunately necessary and widely expected, Third Point, Yahoo!’s largest outside shareholder, is disappointed that this round of cuts occurred before CEO Scott Thompson has articulated his strategic plan for the Company.

A “comprehensive strategic review” of Yahoo! was originally announced by the Board of Directors on September 7, 2011. On Mr. Thompson’s first quarterly conference call in January, he stated that he had “some very clear ideas about the specifics of what we’ll do, and we’re already deeply engaged in this”. As he approaches his 100th day as CEO, shareholders and remaining employees have heard few such specifics. Many of Yahoo!’s senior-level employees and investors have apparently seen enough and heard too little, and have independently staged an exodus, weighing on the company’s share price.

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  1. Interesting take. Thompson’s a smart guy but, when you think of the great platforms today, what comes to mind? Amazon, Apple, Facebook, and Google. These represent the first tier. Second: Twitter, WordPress, Force.com, LinkedIn.

    Yahoo’s not even in the conversation. It needs to make a bold bet or fold its hand.

    The Age of the Platform is here–and Yahoo’s not part of the conversation.

    Phil Simon
    http://www.theageoftheplatform.com

  2. Marketing DIY Friday, April 6, 2012

    @jefflee722
    How wrong can you be. Ever heard of Hadoop??
    Try looking at developer.yahoo.com for all the great things Yahoo has built and helped to build for the benefit of all.

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