ZDNet: Five Steps to a Yahoo! Turnaround

From today's ZDNet:

By Elinor Mills, CNET News.com Published on ZDNet News: June 20, 2007, 4:00 AM PT

After 18 months of floundering, Yahoo finally swallowed a bitter pill Monday and replaced Chief Executive Terry Semel with co-founder Jerry Yang.

But just promoting "Chief Yahoo" Yang and giving Semel a ticket back to his old stomping grounds in Hollywood won't be enough to get the company back on track, Yahoo watchers said in interviews Tuesday. The company has a beast of a competitor in Google and a shaky product lineup. Plus, employee morale is low, and at least one key management position remains unfilled.

"It's clear they have lost mind share and market share to competitors, namely Google, over the last several years," said Derek Brown, an analyst at Cantor Fitzgerald. "Seems to me that they're in a fairly important juncture in their history."

That's not to say it's a lost cause. Yahoo still pulls in gobs of traffic and is one of the best-known brands in the country. And no one knows the company better than Mr. Yahoo himself, Jerry Yang. But the clock is ticking. Analysts, industry watchers and one former Yahoo executive say Yang has to move quickly on five things:

Focus on social media: It seems a bit cliche at this point, but there is no question that social media is hot and Yahoo hasn't done enough to ride that wave. Despite the company's acquisitions of popular photo site Flickr and bookmarking site Delicious and the rapid rise in use of its Answers site, analysts say Yahoo has failed to adequately integrate the services or create a centralized online hub for people to hang out. Yahoo's 360 social network has not been widely adopted, even within the company.

"The social-media space is new growth for the Internet, and Yahoo has properties but none are on par with MySpace, Facebook or even YouTube," said Sandeep Aggarwal, an Internet analyst at Oppenheimer & Co.

Several observers suggested that Yahoo should buy, or at least partner with, Facebook. Last year, Yahoo ignominiously lost, to Microsoft, a deal to serve ads on Facebook and reportedly has declined to offer as much money as Facebook wants to be acquired. Yahoo has conceded that growth for display advertising, its largest business, is slowing, and analysts say many advertisers are being lured over to popular social-networking sites.

"They haven't done a good job of integrating the social media they have now," said Danny Sullivan, editor of the Search Engine Land blog. "Maybe getting something like Facebook would help them."

Added Greg Sterling, principal of consultancy Sterling Market Intelligence, "They need to build a center to their social-media strategy through the acquisition of a social network or blogging platform."

Get better at video: Another hot area where Yahoo is lagging is video, partly for the same reason as social networking--advertisers follow the eyeballs. Google nabbed the prize when it acquired viral video site YouTube for $1.65 billion in stock last year.

Yahoo has stated that it plans to target social networking, video and mobile. "They need to definitely be on the lookout for acquisitions that make sense in those areas," said Eric Jackson, chief executive and president of consultancy Jackson Leadership Systems. "I suspect that Jerry is going to be a little faster to move."

Jackson was the shareholder who challenged Semel at last week's shareholder meeting, saying that Semel owed stockholders a public apology for the company's lackluster financial performance.

Streamline internal structure, processes: With nearly 12,000 employees and so many different products and divisions, Yahoo has become a large, complex corporation that some critics say has difficulty respond quickly to competitive threats, such as Google on search and search advertising. The company could start by axing redundant, overlapping and underwhelming products, like it did by shutting Yahoo Auctions and closing Yahoo Photos in favor of Flickr, Jackson said. Consolidating MyWeb and Delicious might be a start, he added.
"Authority and decision making needs to be pushed down within the organization," Jackson said. "There is a culture that has become apparent where too many managers are quashing ideas that come up from below."

Yahoo also should improve the efficiency of its display advertising business so that it doesn't lose out advertising to sites with lower cost-per-impression rates, like MySpace, said David Card, an analyst at Jupiter Research. "They need to make their internal machinery work better," he said.

Name a chief technology officer: Yahoo needs to fill its open chief technology position, and soon. The spot has been vacant since Farzad Nazem resigned several weeks ago. Given that Yahoo is a technology company, the role is, needless to say, a rather big deal.

"They need to bring in good additional management, someone who has credibility both internally and externally, a hitter CTO," said Ellen Siminoff, former senior vice president of entertainment and small business at Yahoo who is now the chief executive at search engine marketing firm Efficient Frontier. "Or David Filo," who co-founded Yahoo with Yang 12 years ago and as a "Chief Yahoo" is very involved in technical aspects of the company, Siminoff added.

Jackson agreed. "David Filo would be perfect, but I don't know if he wants the job," he said.
"They need to devote more resources to the engineering technology group."

Innovate out of trouble: Yahoo remains one of the top Web sites on the Internet and its e-mail, instant messaging and news services are leaders, but the company hasn't had a real home run in a while with a new product. While Google grabs the headlines and geek cachet with products like Google Earth, YouTube and Google Apps, Yahoo's coolness factor has suffered.

A few months ago Yahoo opened what it calls "Brickhouse," a unit devoted to developing innovative new products, but so far there's been only one release--Yahoo Pipes, an interactive feed aggregator.

"They need to acquire or build a couple of new hits on the product side. Those can either be innovative looks at a new area or hitting a specific demographic group" like women, Siminoff said. "They need to show some innovation, some new product that is different from Google."

Among other suggestions, Sterling said Yahoo must work to restore employee confidence by articulating "a vision people can get excited about." And Yahoo should do what it can to boost its portal status now that AOL and MSN are re-inventing themselves and in flux, said Card.

"Overall, I'm still positive on Yahoo," Sullivan said. "I think you have to have (a company) out there being a counterbalance to Google."

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