Is Marissa Mayer the right CEO for Yahoo?

By Felix Salmon
August 26, 2013
profile of Marissa Mayer.

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Nicholas Carlson, Joe Weisenthal, and Henry Blodget deserve many congratulations on Carlson’s monster 22,500-word profile of Marissa Mayer. It features the kind of deep reporting one normally only finds in books, and it sheds a lot of light on what is going on at Yahoo — both at the senior executive level and at board level. What’s more, Carlson was fortunate enough to get just the right amount of access to Mayer — enough to be able to fill in the necessary details, get lovely bits of color, and ask her the questions he needed to ask, but not so much that he became captured. (In general, with very few exceptions, the more time that a journalist spends with his subject, the more favorable the resulting profile will be.)

After reading Carlson’s piece, it’s clear that Mayer has genuinely changed Yahoo for the better, over the course of the year that she’s been running it. What’s not clear, yet, is whether Yahoo’s board made the right choice in picking Mayer over the alternative choice, Ross Levinsohn. Especially since the choice of Mayer was pushed through by two men — Dan Loeb and Michael Wolf — who aren’t even on the board any more.

When Loeb first took his large stake in Yahoo and pushed for a shake-up, his plan was clear. Yahoo was massively undervalued on any kind of sum-of-the-parts analysis, thanks to its large stakes in Alibaba and Yahoo Japan. As a result, if a new CEO were to come in and shake things up radically, the chances of value being destroyed were relatively low, while the amount of potential upside was enormous. So Loeb was itching to roll the dice.

What’s fascinating about Carlson’s account is the way in which Loeb, along with Wolf, his handpicked lieutenant, managed to override Yahoo’s chairman, Fred Amoroso, who favored Levinsohn over Mayer. Loeb’s 5% stake in the company was significant, but far from controlling — yet somehow, in practice, Loeb managed to get exactly what he wanted, even when he disagreed with the chairman of the board.

The choice of Mayer is particularly interesting in light of the fact that Levinsohn’s plan was in many ways more disruptive than Mayer’s. Yahoo has always struggled with the question of whether it is a media company or a technology company, and Levinsohn wanted to settle that question once and for all: he would sell Yahoo’s search business to Microsoft, while receiving MSN.com and lots of money in return, and move to using Google’s superior search product instead. And he could increase Yahoo’s Ebitda by 50%, even while he shrank Yahoo to a mere 4,000 employees — down from well over 15,000 as a technology company. At the end of the process, Yahoo would be a large, lean media machine, with more than 700 million unique visitors every month. Yahoo could sell those readers to advertisers, and make a fortune.

Given the inherent difficulty of competing over the long term not only with behemoths like Google and Apple but also with countless startups all wanting to eat your lunch, Levinsohn’s strategy made a lot of sense. You could get a lot of buzz by hiring a young, photogenic technology icon, who could then go on a massive shopping spree with shareholders’ money; that might well cause investors to boost your p/e multiples over the short term. But that basically would just turn Yahoo stock into a timing game, with the trick being to get out just as the honeymoon period is ending, and before shareholders start demanding financial returns on their M&A investments.

Loeb is a hedge fund manager: his job is to be good at timing games, buying low and selling high. And that’s exactly what he did at Yahoo. He sold his shareholding, and gave up his board seats, after the stock went up. But the job of the board, and of the board chairman, and of the CEO, is not to enrich and enable here-today-gone-tomorrow speculators. Rather, it’s to create permanent value. And it’s far too early to tell whether Mayer is capable of doing that.

Indeed, it’s still too early to tell what Mayer’s strategy really is. Levinsohn had a strategy — one which was clearly thought-out, and which would produce a focused, profitable company. Mayer, on the other hand, had, well, an excellent grasp of detail. Carlson has nailed down the timing: Yahoo’s board met with Mayer on July 11, 2012, and she gave an impressive presentation.

She described her long familiarity with Yahoo and its products. She described how Yahoo products would evolve over time under her watch. Her presentation included an extraordinary amount of detail on Yahoo’s search business, audience analytics, and data. She talked about fixing Yahoo’s culture with more transparency, perks, and accountability. She named her perceived weaknesses, and explained how she planned to address them — including by hiring people who had the skills she didn’t have.

That evening, the board decided to hire Mayer. The following morning, the board went through the motions of listening to a similar presentation from Levinsohn, along with his key lieutenants. But they’d made up their mind. Wolf started questioning Levinsohn aggressively, while Loeb spent a lot of the presentation playing with his BlackBerry (!) — and even disappeared off to the bathroom for a particularly important part of Levinsohn’s presentation.

Mayer did what she said she would do. She went on an aqui-hiring spree, buying more than 20 startups in her first year, culminating in the billion-dollar acquisition of Tumblr. She brought passion and buzz back to what had been a very demoralized company. And she sweated the small stuff: she would approve or reject, for instance, every single call or email that the PR team wanted to make to a reporter. She also dived head-first into a huge redesign of Yahoo Mail, taking personal responsibility to ship an awesome product in record-quick time.

On the surface, the results were fantastic. Yahoo’s new products, whether internal (Yahoo Mail, Flickr) or bought in (Tumblr) are best in class. Talented engineers actually want to work for the company again. And the stock price speaks for itself.

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But here’s the thing: it’s still far from clear what Mayer’s long-term strategy might be, or whether there even is one. Carlson does an excellent job of demonstrating how little she cared about anything on the business side of Google, and also of how distant she is when it comes to managing her direct reports at Yahoo — the people in charge of actually bringing in all the revenues. Mayer is more product manager than CEO, which maybe explains why she got on so well with David Karp — another person whose expertise is very much in the realm of product design rather than business-side nitty-gritty. When your company is your product, then the product manager as CEO can work very well. (See: Zuckerberg, Mark.) But Yahoo is not a product; it’s not even really a suite of products. To use the 90s terminology, it’s a portal — it’s a place where traffic can be aggregated and then monetized.

Yahoo’s doing very well on the traffic front, coming in top of the most recent Comscore rankings. But revenue is falling, and product design is only one of very many skills that Yahoo’s CEO needs. It’s also not even clear that Mayer is very good at that: although the new Yahoo Mail turned out lovely in the end, Carlson also recounts how Shashi Seth, the Mail team leader, along with his lead designer and his product manager, all departed shortly after their new Yahoo Mail shipped. Like Dan Loeb, perhaps, they decided it might be best to quit while they were ahead, rather than stay hitched to Mayer’s star. And these are the people in Yahoo who know Mayer best.

Mayer was extremely good at the job she held at Google until 2010 — essentially doing everything in her power to make the user experience as great as possible. Yahoo’s current users, too, have every reason to be happy that she has the CEO job — their experience is almost certainly better, as a result, than it would have been under Levinsohn. And for the time being, Yahoo’s employees and its shareholders are all happy as well. But I can’t help but feel that the CEO of a public $30 billion company, especially one which makes nearly all of its money by selling ad space to media buyers, needs certain management skills, and a passion for improving the company’s bottom line. Otherwise, Yahoo is likely to join the long list of companies where the people who sold their stock into the aggressive corporate stock buyback program ended up much better off than the loyal shareholders who didn’t.

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Comments
9 comments so far

In the long run, we’re all dead.

Posted by GRRR | Report as abusive

I dislike the new email service from Yahoo/Rocketmail. You can no longer right-click on an email and open it in a new tab. This is supposed to constitute an improvement? I don’t like to have to hit my “back” button 4 times after answering an email.

Posted by TaxLawyer | Report as abusive

The graphics on Yahoo are starting to veer too far to the foofy fashion side, I think Mayer’s imprint may be skewing things too much into her rich girl sensibilities. As far as content, the advertising has gone from average to just plain annoying, and why exactly do we need another Huffington Post?

Posted by RobJones | Report as abusive

Has anybody from Reuters kept up with the roll-out disaster that is the new “Neo”interface on Yahoo Groups? They’ve managed to copy the look of Facebook with none of Facebook’s functionality AND also completely destroy and/or cripple the functionality of Yahoo Groups.

Groups is/are admittedly populated by mostly less technologically adept folks (middle aged sorts like me), but there is a LOT of them. A lot. And Yahoo’s doing a damn fine job of chasing their eyeballs away. They don’t want a Facebook-style interface or functionality. They’re comfortable with old fashioned email and have relied on Yahoo Groups to provide that. And now Yahoo’s made a royal massive mess out of it. I’m more tech savvy and could figure it out…if it worked. But it doesn’t. Marissa’s not helping.

Posted by Slave2anMG | Report as abusive

This article espouses old school thinking despite it’s claim to take the long-term perspective. Just because Yahoo’s revenues are largely from certain types of ads *now* does not mean that revenue source is sustainable 3, 5, or 10 yrs out. Look at newspapers, for example.

What Levinsohn wanted to do was optimize the best revenue sources Yahoo has *today*. That would have focused the company and improved the bottom line short-term, but what would the company have done when that well dried up? And it is drying up (see Aol).

You need innovation for long-term success, and Levinsohn’s plan was not innovative. You need great products *first* to get the users who will drive revenue now & into the future (see Google Search).

I applaud the attempt at a fresh perspective, but what this article offers is a perspective from a limited understanding of how innovation & long-term growth happen in the first place.

Posted by veeandchip | Report as abusive

yahoo’s crown jewel is probably it’s fantasy football program

Posted by thispaceforsale | Report as abusive

“Yahoo’s current users, too, have every reason to be happy that she has the CEO job — their experience is almost certainly better ….”

Obviously, Mr. Salmon, you are unfamiliar with Yahoo! Groups. Group owners and members are leaving in droves and searching for new hosting sites because Mayer’s changes are nothing more than a glorified version of Facebook, something that does not fulfill the requirements of most Yahoo! groups. Let’s face it, if these groups felt a Facebook-type format served their needs, they would have simply created a Facebook page. They chose Yahoo! because it was different. Mayer is, in effect, doing to Yahoo! Groups, what she did to Flickr, rendered it virtually unusable.

Additionally, every time Mayer opens her mouth, she inserts her foot. What sort of CEO of a major company would say, “There’s no such thing as professional photographers anymore”? Or promise not to “screw up” Tumblr?

And speaking of Tumblr, Mayer paid $1.1 billion for a company the SEC valued at less than $200 million. Then, she paid David Karp another $81 million to continue in his position for four years. If Karp is allowed to operate Tumblr his way, it might survive for four years, but once he’s gone, Yahoo! WILL “screw up” the company — provided there is a Yahoo! four years from now. This is a given because Yahoo! screws up everything it touches.

Yahoo! Groups was one of the company’s biggest money-makers because of the advertising. However, Yahoo! misleads advertisers regarding the number of people reached by advertising on its site. For example, many of the groups in Yahoo! Groups have been inactive for years, yet Yahoo! NEVER purges these groups because the more groups it can claim, the better when it comes to selling to advertisers, even if a significant proportion of these groups are dead as door nails! Most Yahoo! group owners that are leaving Yahoo! aren’t deleting their groups, but keeping them for archival or reference purposes, but Yahoo! will NEVER admit this to advertisers. Companies/organizations advertising, or planning to advertise, on Yahoo! Groups need to do some serious due diligence and find out for themselves if all those groups Yahoo! is claiming are, indeed, active, and if active, how active.

Yahoo! is an aging, incompetent dinosaur that destroys everything it touches from email, to Flickr, to Yahoo! Groups and it’s just a matter of time before it destroys itself!

Posted by CarlisleHall | Report as abusive

I use Yahoo Groups, Mail, and Flickr. I am not happy with Marissa Mayer as CEO of Yahoo. Even though my Classic Yahoo Mail was converted in June, I have been using the basic version of the new Yahoo Mail since. There have been small changes since June. Some of the changes are kind of good, while others make now sense at all.

While I still have some photos posted on Flickr, I can no longer use it the way I used to. I no longer feel as though I am visiting a gallery as I did before the May 20, 2013 change.

A lot of users do not like the new Groups format. I’m one of them. I can no longer use Groups the way I did before the change. There is a big difference between being functional and being usable. For me and many others Groups are no longer usable.

Did Marissa Mayer actually poll her users before authorizing these changes? It doesn’t seem like it.

Posted by AmberKat | Report as abusive

Marissa Mayer, the Stanford genius, began her career at Google and thirteen years later, Google’s Geek Goddess switched loyalties. Wooed by Yahoo in 2012, Mayer became the youngest female CEO of her time There’s one thing about Marissa Mayer that everyone agrees to: she is among the smartest people you could meet. Mayer went to STANFORD UNIVERSITY only after scrutinizing the PROS AND CONS of 10 colleges that she had been accepted at. http://www.bidnessetc.com/business/maris sa-mayer-one-of-silicon-valleys-most-pow erful-women/

Posted by andrewstuart18 | Report as abusive
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