Ronnie05's Blog

Yang departs: The choices before Yahoo! Now

Posted in Internet and Search by Manas Ganguly on January 19, 2012

The time has come for me to pursue other interests outside of Yahoo!- Jerry Yang

Yahoo! has not delved into details regarding Jerry Yang’s exit.. It didn’t really have to.

While Yahoo! remains one of the biggest draws on the web with about 600 million people visitors a month, but like AOL, that other dinosaur of the first era of the internet, Yahoo! has been left flat-footed as Google and Facebook emerged as the next generation of online leaders. Sales have fallen at Yahoo! since 2008 and Google and Facebook are taking an increasing share of its display ad business. The firm has cut costs and found ways to boost its profit margins and keep earnings up. But the pressure for change is on – and it shows.

In 2008, Microsoft’s Steve Ballmer launched a $44.6bn (£28.8bn) takeover bid for Yahoo! but it was resisted, especially by Yang, and eventually the deal collapsed. Yang was the man who fought hardest to reject Ballmer’s offer. Yahoo! is currently worth about $19bn but now that Yang has gone, it may require a more radical fix.

Yahoo! is still huge, but what is sort of company is it? They are not going to beat Google in search, or Facebook for the social network. They will continue to get ads because of their size, but if they are not seen as relevant – and they are not – the quality of those ads and the price paid will fall. In today’s environment, companies that are not seen as relevant are dead. Yahoo! is on its downward spiral. Yahoo! lost its way long ago. It’s big in news, sport, finance, email and it owns Flickr, the photo-sharing site. But somehow one of these sites add up to a whole. It will take a Steve Jobs to turn Yahoo! around. Someone needs strips it down to the core before building it back up again. Yahoo! recently appointed a new chief executive, Scott Thompson, former boss of eBay’s online payment company PayPal. He replaces Carol Bartz, acrimoniously ousted by a board she dismissed as doofuses. Given the firm’s shoddy record with bosses, she might have had a point. But so did they.

Bartz’s strategy – trim costs, sack people, sell stuff – did little for Yahoo!. According to comScore data, the number of minutes that US website visitors spent on Yahoo! sites during her two-and-a-half years as chief executive fell 33% while the stock price stayed flat.

The big question for Scott Thomson is what is he going to do that’s different. Thompson is likely to sell off Yahoo!’s Asian assets, a move many believe Yang was holding back.Yahoo! bought a 40% stake in China’s Alibaba in 2005 for $1bn. It was a great buy. Analysts calculate that the Alibaba holding, along with the company’s stake in Yahoo! Japan, is now worth $17bn.

But what happens after that? Yahoo! is undergoing a “strategic review” and competitors smell blood in the water. Microsoft is reportedly looking at Yahoo! again, albeit at a far lower price, and private equity firms have been sizing it up. Jack Ma, Alibaba’s founder, has also expressed an interest and is tipped as a likely buyer for Yahoo! Japan and maybe more. If Yahoo! were to be acquired by Alibaba that would be the biggest Chinese takeover of a US company in history.

Scott has the choice of turning Yahoo! around. However, that’s not really his skill set. The rumour in Silicon Valley is that he was far from the company’s first choice. Like Bartz, who came from a design software firm, Thompson does not have a media or advertising background. But if that doesn’t work, at least he’s a finance guy. He’ll know how to package this company for sale.

With Yang gone, a sale of all or part of the business looks more likely. It’s what comes after this that worries. Yahoo! is one of the top sites in the world. That’s a lot of opportunity. But if it can’t redefine itself, it could be scattered to the winds.

Suggested Reading: http://www.delawareonline.com/article/20120122/BUSINESS09/201220327/Yahoo-fighting-remain-relevant

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