Blog Post

How Yahoo Got To Be So Bloated

imageSince she took over as CEO at the beginning of the year, Carol Bartz has been pruning the product lines at Yahoo (NSDQ: YHOO). She has laid off 700 employees and killed a handful of products, including the fairly successful GeoCities, which reaches almost 14 million visitors a month.

You may be wondering: Just how did Yahoo become so bloated? It appears that at least part of the answer, based on data in SEC filings, is that Yahoo hired people to work on new products at a much faster rate than it was actually launching those new products. A snapshot of the economics of Yahoo’s product-development division over the past four years, after the jump…

–Yahoo developed 29 new products over past four years — but there was little growth in the number of new products per year over that span: It had six new products in 2005, 10 in ’06, six in ’07, and seven in ’08. (This covers developing a major new product or expanding an existing one into new markets or countries.)

Product-development expenses increased at an average of 35 percent per year during the same period.

–Some of the expense increases may be from acquisitions made over the years, which likely would have led to an increase in headcount. But clearly revenue from those deals didn’t remotely keep pace with new expenses. Product-development expenses as a percentage of revenue increased from 11 percent in 2005 to 17 percent in 2008.

8 Responses to “How Yahoo Got To Be So Bloated”

  1. 'A published article owes the reader an opinion going forward'

    Should a news story provide 'opinion'. Isn't that the role of a separate news analysis piece or a column?

    Perhaps you mean opinion in the TechCrunch or Sillicon Alley Insider style of reportage. Should pC really go down this route? Would users prefer it? Would the Guardian object? And why do I keep asking questions?

  2. Rory Maher

    Thanks for your comments. I think it's too early to make definitive conclusions about what Batz has done so far, but I do like the direction she is heading – she has made getting rid of the product silos (each product—- Finance, News, Sports, Entertainment, etc.—has had its own dedicated legal, finance and customer-service teams) for a leaner, less confusing structure a priority. I also think opening up Yahoo to outside content and services, like other portals, is a good idea.

    Jack, what are your thoughts?

  3. Jack Cowardin

    Jason,

    Not looking for stock buying advice on YHOO; Just proofing the article that I feel leaves the reader without conclusion. But you're so intuitive, why don't you tell us just what's so conclusive and directional about what the commentary indicates whether Bartz's efforts are bearing fruit, or a lost cause. Is she being successful, or is the job too insurmountable?

    A published article owes the reader an opinion going forward, or at least an indication. We've already knew the obvious on the companys over zealous expansion.

  4. Jason

    Way to go, commenters Al and Jack. Proof once again what a bunch of whiny non-contributors there are on the Web, people who expect the world for free. If you want proprietary stock-buying advice, go pay for a service somewhere.

  5. Jack Cowardin

    So what's the point? Can't you make a definitive conclusion on the status quo of Carol Bartz's performance to date. You started the article stating she's been cutting and deleting projects, which would make YHOO 'less' bloated, presumably. Is the company now, after your due diligence, more or less bloated, or are they a helpless case of obesity?

  6. Al Stazinski

    Why don't you tell us something we don't already know. It must be a slow day, you have added nothing to determine whether Yahoo is a buy or not. Why not do a little leg work and find out the status of the supposed talks between Yahoo and Microsoft or would that require too much effort!