Can Marissa Mayer Save Yahoo! (Part II): From Chaos to Marissa Mayer
Shareholders are still waiting for the change that really matters: revenue growth in search and display advertising. In the second quarter, Yahoo’s revenue dropped 7 percent from the year before. Meanwhile, Facebook (FB) and Twitter are taking ever larger chunks of everyone’s time; Netflix (NFLX), Hulu, and Amazon.com’s (AMZN) Prime Instant Video service have become online TV networks; and Facebook and Google are carving up the display advertising business. Internet users no longer consume big meals of news and entertainment at a single Web portal—Yahoo’s previous raison d’être. Now they snack on morsels of information from all corners of the Web.
Yahoo executives may have stopped being in denial, but publicly at least, they don’t own up to the long odds. Kathy Savitt, a former Amazon exec and Mayer’s marketing chief, won’t even call her mission a turnaround. “We call it a renaissance,” she says, “because Yahoo is still one of the largest brands in the world.” To Mayer, the emergence of smartphones resets the game in Yahoo’s favor. “What people want on their phones is content. It’s just another way of delivering the Web,” she says. “I’m an optimist. I think all leaders are.”
Mayer decided early that Yahoo’s fortunes were tied to devices. Upon taking the job, she memorized a list of the top things people do on their cell phones and would recite them, unasked, to family and friends: phone calls, texts, e-mails, maps, weather, news, stocks, sports, games, photo sharing, group messaging, celebrity gossip, and financial news. “I remember financial news and stocks were both on there, and that sounded like cheating because they’re kind of the same,” she says.
Yahoo wasn’t going to pursue advances in voice-recognition, texting, or maps—she knew too well the expense associated with such development as well as the distance of Google’s head start—but the rest aligned closely with Yahoo’s most popular services. Yet when she began reorienting the company, Mayer discovered there were only a few dozen engineers working on apps. That’s not because Yahoo was late to the mobile revolution, but because it was too early. A decade ago, Yahoo built a mobile team under a former executive named Marco Boerries. The effort ran into a classic Innovator’s Dilemma: Yahoo’s success was tied to the traditional Web, and the company didn’t want to risk anything that might undermine profits. When Bartz took over as CEO in 2009, Boerries left to start a mobile company in his native Germany, and his group was disbanded. Some engineers were repatriated to their product teams, where they had trouble persuading colleagues to focus on mobile. Almost all are working elsewhere now.
Among Mayer’s top priorities was to reestablish a centralized mobile group. To run the unit she selected Adam Cahan, 41, whose startup, IntoNow, was acquired by Yahoo for around $20 million in 2011. Cahan, like Mayer and many of her lieutenants, is an exuberant dresser. For an interview, he wears gray, linen-covered shoes, a shirt with the top two buttons open, and a stack of bracelets he calls his “man jewelry.” Cahan says his mission is to build the largest software-only mobile development team in the world and to create applications based on Yahoo’s commonly used Web services, such as its Fantasy Football league and the feed of headlines and entertainment news on its home page. It sounds simple enough, but Cahan insists it’s a big change. Before Mayer took over, “there were elements at Yahoo very focused on the mechanics of a quote unquote turnaround,” he says. He argues that it’s a significant shift just to focus on users and build products instead of catering to the balance sheet.
Cahan’s biggest challenge is that engineers who develop mobile apps are young and scarce. Working for a limping giant such as Yahoo is rarely high on their list of personal goals. So Mayer and Cahan have bought talent, spending close to $200 million to acquire at least 18 startups, in addition to blogging network Tumblr for $1.1 billion. In each instance, Yahoo has locked up engineers with two- to four-year contracts and set them loose to build apps and hire more mobile developers, according to two people familiar with Yahoo’s deals who weren’t authorized to speak for the company. Despite the cash, it’s not an easy leap for entrepreneurs to make. “I was really worried,” says Josh Schwarzapel, a senior product manager for mobile whose video chat startup, OnTheAir, was acquired by Yahoo for an undisclosed amount in December. “I had a lot of friends who came in [to Yahoo] and were rejected by the host.”
Continued to Part III