Googleization of Yahoo hits pricey speed bump
By Richard Beales and Robert Cyran
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
The Googleization of YahooÂ has hit a pricey speed bump. Chief Executive Marissa Mayer has fired the chief operating officer she lured from her former employer, costing Yahoo as much as $60 million for Henrique de Castroâs 15 months on the job. She may have made the right call, but itâs a reminder that a sprinkling of Googledust wonât on its own get Yahoo growing again.
Mayer has plainly brought vigor to Yahoo. The companyâs move to untangle its overseas web by selling half its holding in Chinese internet auction firm Alibaba raised more than $4 billion and excited investors â as did using most of the proceeds to buy back stock. Mayer also helped give Yahoo a future by acquiring a bunch of smaller firms, including Tumblr for $1.1 billion.
Even free food in the office and a ban on working from home should increase employeesâ commitment and morale. Mayer has been rewarded with a 150 percent increase in the stock price since taking the reins.
For all this, Yahoo still has a fundamental problem. Its sites are a hodgepodge. Tumblr may be exciting, but it doesnât provide much revenue. And in the third quarter of 2013, Yahoo sales declined 5 percent compared with the same period a year earlier.
Meanwhile, the companyâs disappointing search agreement with MicrosoftÂ accounts for almost a third of the top line. Mayer has made clear she would like to get out of this deal, but the alternative could be working with Google, which would set off antitrust alarm bells.
While de Castro didnât goose Yahooâs top line, news reports suggest he also had bad chemistry with Mayer. The CEO said in a memo to employees obtained by the Recode website that she decided to fire de Castro as part of her New Year âreflection.â If she didnât know him well from Google or failed to vet him properly, handing him such a big pay package was a rash move.
Another possible explanation for his firing is even more unsettling. In an echo of ex-AppleÂ retail star Ron Johnsonâs failure as J.C. PenneyÂ CEO, Yahooâs business may simply be too messy for even a bunch of former Google whiz-kids to turn around.