Mayer on the defensive as Yahoo! board 'explores strategic alternatives' to the latest turnaround plan
- Summary:
- Headcount slashed, losses bigger and the company's basically up for sale, but CEO Marissa Mayer is complaining about nasty media stories. Make it stop!
Today, we’re announcing a strategic plan that we strongly believe will enable us to accelerate Yahoo!’s transformation. This is a strong plan calling for bold shifts in products and in resources.
That, or it’s one last desperate throw of the dice to keep the board of directors from selling the company.
No-one can now be in any doubt that Yahoo! is approaching the end of days - at least in its current form.
Equally no-one can surely doubt that CEO Marissa Mayer’s turnaround strategy has failed? No-one other than Mayer herself it seems, as she insists:
Yahoo! today is a far stronger, more modern company than the one I joined three-and-a-half years ago.
Yesterday the fallen-from-grace internet pioneer announced its latest ‘strengths’ included:
- a 15% workforce reduction worldwide, bringing total headcount down over a third from its 2012 level.
- a $4.4 billion quarterly loss.
- a pulling back from Europe and Latin America.
- a commitment to explore strategic alternatives, code for ‘up for sale’.
Against that gloomy backdrop, Mayer defends her actions over the past few years:
In a turnaround, you must literally turn around declining revenue and get it to grow. There are two ways to do that - by returning current business lines to growth, or by adding new business lines that grow.
When I arrived at Yahoo!, I reviewed all the lines of business. Each one was in decline and had been for years.
Worse, we depended heavily upon banner ads and desktop users, both of which were declining in line with industry trends. That was the bad news. It meant we were sitting on about $5 billion of deteriorating revenue, with essentially no clear path to growth.
We needed to turn that around, that declining revenue, with new businesses, not existing ones. And we needed something that was going to be big enough, and grow fast enough to matter to a $5 billion business.
OK, so far, so basic business theory. Why hasn’t it worked? Mayer goes on:
We knew we had a large but declining base of revenue. We knew it'd be irresponsible to walk away from large streams of revenue and profits prematurely, and we knew we had to invent new businesses that were extremely fast-growing and large enough to be material.
We would have had some amount of time where revenue was flat to down. However, during that period, the makeup of the revenue would change dramatically. As an analogy, it could be described as a tectonic shift or the plates shift beneath your feet in terms of revenue composition, but you stay at roughly the same elevation in terms of total revenue.
Based on that thesis, Mayer defines Yahoo!’s legacy revenue as being that coming from banner ads and desktop search, which she characterizes as “headwinds” of nearly $0.5 billion per annum. The new income streams come from the Mavens - mobile, video, native and social - and now account for $1.6 billion in GaaP revenue a year. Mayer says:
This is essentially from zero. Mavens as a revenue source didn't exist at all in 2011 and was nascent in 2012.
Defensive
For all the talk of new directions, Mayer argues:
Our vision for Yahoo! isn't changing and is rooted in our beginnings as Dave and Jerry's Guide to the World Wide Web.
She picks up the image of Yahoo! as a three-legged stool of Search, Communications and Digital Content:
If you remove any one of the three legs, the system and the business works less well. Remove Search and you lose a key element of discovery, and also a really lucrative piece of the business. Remove Mail and you lose engagement and the frequency of use. Remove digital content, and you remove our differentiation, the reason people turn to us over other mail and search providers. Together the three of them form a true digital network and make Yahoo!, Yahoo!.
OK, but the Yahoo! stool, to borrow the analogy, is distinctly wobbly. And if you remove a leg, it's not so much that the stool works "less well". It means you actually can't sit on it anymore.
Anyway, all three legs on the Yahoo! stool need tightening. This is what Mayer says is now about to happen.
To that end, the firm will focus on three global platforms - Search, Mail and Tumblr - and four core verticals - news, sport, finance and lifestyle - in a reduced number of core markets - US, Canada, UK, Germany, Hong Kong and Taiwan.
On the advertising front, it’s all about Gemini - for search and native ads - and BrightRoll - for programmatic buying and selling for video, display and native advertising.
Meanwhile, legacy products like Yahoo! Games and SmartTV are to be culled, while the likes of Flickr, Answers and Groups will be put on life support for now, but with “significantly lower investment”.
What's clear though is that Mayer is feeling under siege, complaining about:
some blatant falsehoods that have been circulating in the press about the company's spending. I have found these untruths to be upsetting, and I'm sure our investors have as well… There have been reports of a $7 million holiday party and a $450 million spend on food over the past few years at the company. Both numbers are exaggerated by more than a factor of three. Our holiday parties globally cost approximately $150 per invited attendee.
There has been a discussion of millions of dollars spent on free smartphones. The notion of free implies that these were given to employees. These phones remain property of the company, much like the desks, chairs and computers we issue to employees. Mobile is a huge part of our strategy. We could not have built a billion-dollar mobile advertising business, one of the largest in the world, if the people building it did not use the tools, platforms and products we expect our users to use.
There are many more examples of untruths and mis-characterizations.
This litany of complaints about the nasty media was totally an unforced error on Mayer’s part, making her look defensive and on the back foot. This shouldn't be about Marissa Mayer being upset at scuttlebutt; it should be about a CEO explaining to investors why a 3.5 year turnaround plan is still all about ‘jam tomorrow’.
She concludes:
I want to say that I have never believed more in this company, in the people, in the products and in the inherent value of what we do.
To be clear, this is a strong plan and a bold plan, and one we are embarking on with the full support of the board.
That’d be the same board that has decided to:
engage with other qualified strategic proposals.
The same board that Mayer talks about in the third person, in stark contrast to the discussion about the latest rescue plan which is all about ‘we’ and ‘us’.
Semantics is a wonderful thing.
My take
Yahoo! has over one billion monthly users. That makes it an attractive purchase for someone like Comcast or Verizon.
Let’s just get on with it, shall we? We know how this ends; we just don't know who yet.