Watching Yahoo's decline is rather sad. If you take any pleasure watching it, you must've enjoyed a weak kid getting beat up by a couple of bullies in the schoolyard. Yahoo's decline is the result of nothing more or less than creative destruction. Meeting that challenge head-on is incredibly tough. Very, very few companies make the transition. IBM, led by Lou Gerstner, met the challenge of the PC era in his epic turnaround (described in the book Who Says Elephants Can't Dance). Microsoft has struggled mightily to remain relevant in the Web era and they are as smart and driven as it gets. What's so incredible is seeing the speed of these transitions - to see a big successful Web start-up like Yahoo marginalized by technology shifts.
The companies that faded from view in earlier transitions are far too numerous to mention. Most of them suffered from the boiling frog problem. They never hit a crisis that forced fundamental change. They were profitable and had plenty of cash reserves. Customers (not all but enough) loved them.
The problem was always "too little, too late". Faced with creative destruction, a radical strategy is usually needed, something that looks almost crazy and high risk. It also has to be really simple to understand, so that employees, investors, partners and clients can understand.
FWIW, here is my unsolicited advice to the Yahoo Board:
* Jerry Yang has to go. He is too associated with the past. Radical turnarounds need a new leader. His 1.0 act was brilliant and he can enjoy the financial fruits of that. His post Semel 2.0 act was dismal.
* Nix both the Google and the Microsoft deals in a way that it is clear they mean it. Signal an independent path. So what if investors dump your shares? Another investor will buy. This happens all the time, it is just "noise on the line".
* Understand what happened, without any rose-tinted glasses. Basically Yahoo is not a player in the two major shifts - search and social. It is still very good at Web 1.0 and that still makes a lot of money, but Yahoo missed both of the big transitions.
* Come up with a simple strategy that everybody can rally around.
Here is my attempt at a simple strategy for Yahoo:
1. Re-energise the current core money-makers.
2. Disrupt the current leaders with a new proposition for developers.
The first is not really a new strategy, it is just better execution. When Lou Gerstner took over IBM he got a lot of flack for saying something like "the last thing IBM needs right now is a new vision". What he realized was that the company simply needed better execution and that was not simple to do, it required a massive cultural shift internally. The same is true for Yahoo today.
Re-energizing the current core money-makers is possible if Yahoo accepts that there is really very little synergy at the end user level. People use different services because they work for them at the time, there is no lock-in at all. Recognizing this would mean managing these lines of business more like a Private Equity Fund manages a portfolio of companies:
* Lots of autonomy for managers
* Ways for managers to make a ton of money if they perform (more than the CEO)
* No mandate to use any other part of Yahoo - can use external resources if that is better. Synergy is loosely coupled and voluntary
* Very low corporate overhead
This model will work well for current lines of business as well as new acquisitions. There are plenty of start-ups looking for an exit that has public stock, but will give them autonomy to perform.
The second part (disrupting current leaders with a new proposition for developers) should not be unveiled until there is something substantive. Yahoo has an opportunity to take a leaf out of Amazon's AWS book, but go a lot further. Yahoo can open up all their search, content, communication and community services to developers via well-defined interfaces. If they do this really radically, Yahoo could lead the next wave of the "programmable web" or the "web operating system". This has to be radical. More "too little, too late" won't work. Radical means:
1 Simple pricing. This is where Amazon did well. A start-up can understand how to build their costs into a plan.
2 Cost plus pricing. This is again where Amazon did it right. They look at it like a retail "I buy infrastructure at $x and sell it at $x plus y%". Nothing wrong with that model at scale.
3 Loosely coupled. You can use just the services you want. But you end up using lots of services as it is simply easier to integrate than something else and the price is right.
Yahoo has lots more to offer than Amazon. Nor do Yahoo need to worry about cannibalizing their core e-commerce business (which does constrain what Amazon is willing to offer).
This developer offering has some risks. Theoretically, any start-up can compete with Yahoo's existing cash cows, using Yahoo's own assets. In practice a) start-ups will tend to focus on new markets and b) start-ups can compete with Yahoo anyway, with or without their help.
Yahoo can score four ways with a really open suite of services for developers:
1. They make money immediately from fees for the services.
2. They empower start-ups to compete with Google and Facebook.
3. They become exciting again, getting talent back on board.
4. They get a steady flow of acquisitions with zero integration cost.
Yahoo has occasionally done things that excite developers, such as Delicious, Pipes and SearchMonkey. They need to take that to a much higher level and offer everything they have via interfaces and promote that like crazy. That is how Microsoft won the PC era. With the right leader, Yahoo could still do this in the Web era.
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I agree to your advices and myself recommend Yahoo to reassemble and concentrate their business on either (1) Enterprise Services - big opportunity, big money (2) developer integration and flexibility - be the good guys.
Posted by: Stefan | June 26, 2008 12:45 AM
"Yahoo has occasionally done things that excite developers, such as Delicious, Pipes and SearchMonkey." ... Don't forget Yahoo's JSON and Flash APIs -- incredibly developer-friendly. Don't forget Flickr, one of the most successful APIs out there. Don't forget YUI. Yahoo has a great subculture of developer-centric innovation. It's not yet at the center of Yahoo, but if, as you suggest, it moves to the center, then a different world of possibilities opoen up for this Web 1.0 company.
Posted by: Anderson | June 26, 2008 12:53 AM
Is/isn't Y! Open Strategy similar to what you are describing? Please see the video at http://lin.cr/05d
Posted by: Swaroop C H | June 26, 2008 1:00 AM
Yahoo! kind of reminds me the story of IBM, 20 years ago.
They started with a very clear position on the web. I used Yahoo! with Lynx, from a VT220 terminal before graphical browsers existed. It was pretty simple: need to find something? - yahoo.com
Then, came and went the famous Yahoo directory the portal, weather, email, whatever.
Instead of being #1 for a very specific task, yahoo tried to be among the first in too many things. And, they didn't focus on holding their position in any of those.
IBM went through quite the same. Anyone knows what they're in to now? Same with Yahoo. What's their core business?
Posted by: Amir | June 26, 2008 5:44 AM
If I had to write a me-too book of the "elephant can't dance" to describe the yahoo issues I would call it "small boats sometimes loose their direction". The point here is when you're a group it is necessary that all your business match together to reach a great vision. I think the yahoo vision is not that clear. That have the both disadvantages of a conglomerate that spread energies everywhere and the risk exposition of a pure player...
Posted by: stetoscope | June 26, 2008 6:37 AM
It's great to hear someone talk about how to turnaround or save Yahoo when everyone else (ahem... Arrington, et. al.) seems to just assume that Yahoo is on its death bed.
It's bewildering to me. And highly indicative of the temporal culture we live in these days in which establishment and tradition are the antipathy of "good" in most people's eyes, particularly as it involves public companies in which soul-less mutual fund managers trying to bonus themselves toward a new Mercedes-Benz lease make decisions that affect only their funds and the slime-filled pits of day traders that have besotted our economic common sense.
What everyone seems to forget, and should know better, is that Yahoo is the number one destination on the web, and is the number two search engine.
For all the clamor and ruckus, I don't hear anyone suggesting that Microsoft buy out the hundreds of search engines with less traffic than Yahoo. I don't hear anyone preaching similar doomsday scenarios on a thousand non-profitable single-function web apps, but instead cheering each time they get a new round of VC financing.
In fact, I personally think the Web 2.0 blogosphere is still riding the high of the ridiculous 1.6 billion dollars that Google blew on YouTube and Zuckerburg's hilarious refusal of $1 billion for Facebook (which he will one day regret). Money has lost all meaning to many people.
While I agree that a turnaround is needed and some cost cutting would help, I'm not so sure that Yang needs to go. If anything, he's proven that he's not a wall street lapdog and that he believes in the long term of Yahoo - over and above short-term prurient interests of fund managers and daytraders. Frankly, I wish more companies, particular those with outstanding success like Yahoo, would tell Wall Street to stuff a sock in it.
The message to America, if Yahoo falls, is this: You must always be number one and as soon as you lose even the tiniest shred of market share, hang your head in shame and fold.
And I might ask... fold to whom? AOL? Microsoft? Companies with no vision, who have long been floundering on the banks like dead fish (in terms of their internet strategies) without hope of resurrection? They are so far behind Yahoo in every attribute, it's only a drunken barista who would suggest that the lower life forms buy out the upper ones.
Every webmaster (is that still even a word?) knows full well who brings them the bacon every day... Google, followed by Yahoo (and on a few sites, that order is reversed). A nuclear bomb could fall on Redmond and it would affect the web not at all.
It is in hardly a single person's interest that Yahoo fall to Microsoft or AOL or Google. Or AT&T or any other company big enough to buy it. Not a single Yahoo user and visitor would benefit.
Thanks for keeping the discussion sane instead of just jumping on the "Let's beat up Yahoo on our blog" bandwagon.
Posted by: Lawrence Salberg | June 26, 2008 7:42 AM
Yahoo has a lot of great assets. I think the 'starting point of the web vision' has messed up lately since consumers are using search as the starting point (google) and not a portal (yahoo). Yahoo still has a lot of page views on their properties and a decent search engine (comprehensive crawl and decent relevance).
I could not agree with you more that Yahoo should open source, and they should open up completely. Give developers access to their crawl/index, ability to run map/reduce on their data set. Yahoo could become a platform to build search engines like how facebook has become a platform to build social apps. Why are they missing this?
I had blogged about this last week at http://ihobbes.wordpress.com/2008/06/23/yahoo-open-up-your-search-index-to-gain-market-share/ would love to hear your thoughts.
Posted by: Mehul | June 26, 2008 9:03 AM
i agree with you that jerry yang has to go and fresh leadership has to emerge..
Posted by: Tech Search | June 26, 2008 9:53 AM
@Lawrence- Thanks for the novel. Self-righteous much?
Posted by: Sean | June 26, 2008 11:08 AM
yahoo is going to be fine
this year has been great for it, lot of deadwood has gone, and beiong forced to grow up is always a good thing. long yahoo
Posted by: gregory | June 26, 2008 3:41 PM