How Yahoo Got To Be So Bloated

This story was written by Rory Maher.
Since she took over as CEO at the beginning of the year, Carol Bartz has been pruning the product lines at Yahoo (NSDQ: YHOO). She has laid off 700 employees and killed a handful of products, including the fairly successful GeoCities, which reaches almost 14 million visitors a month.

You may be wondering: Just how did Yahoo become so bloated? It appears that at least part of the answer, based on data in SEC filings, is that Yahoo hired people to work on new products at a much faster rate than it was actually launching those new products. A snapshot of the economics of Yahoo's product-development division over the past four years, after the jump

Yahoo developed 29 new products over past four yearsbut there was little growth in the number of new products per year over that span: It had six new products in 2005, 10 in '06, six in '07, and seven in '08. (This covers developing a major new product or expanding an existing one into new markets or countries.)

Product-development expenses increased at an average of 35 percent per year during the same period.

Some of the expense increases may be from acquisitions made over the years, which likely would have led to an increase in headcount. But clearly revenue from those deals didn't remotely keep pace with new expenses. Product-development expenses as a percentage of revenue increased from 11 percent in 2005 to 17 percent in 2008.

By Rory Maher