How Bartz Will Turn Around Yahoo Without Selling the Search Biz
No sooner did Carol Bartz say her gut instinct was to keep Yahoo's search business, than shareholders ran for the exits. Well, that's just The Street's well-known short-term perspective talking.
In the long run, however, Bartz's instinct is correct. Here's her likely thought process.
Let's start with the problem
Why is Yahoo in need of a turnaround? Simple. Revenues have flatlined and profits have dwindled to record lows. Sounds like a lot of companies these days, except for two things:
First, the downward spiral is not a result of the financial crisis, but of competitive pressure from Google. Second, Yahoo's balance sheet is solid. It has $3 billion in cash and short term investments, with another $3 billion in long term investments.
Nevertheless, it's still a turnaround because the company is clearly in need of direction and change to return to any semblance of its former operating fundamentals.
Oh, one more thing. Jerry Yang's incompetence (I mean that with all due respect, but actions speak loudly, here) has left the company leaderless, in disarray, and with one of the more notable losses of executive talent, morale, and productivity in recent memory.
Yahoo's strengths
First is the Web portal with 500 million users, second is display advertising, and third is search and search advertising. Of the three, search and search advertising has the most significant growth and profit value. That's what makes Google Google and why Microsoft covets it. Indeed, without it, Yahoo lacks a significant growth and profit engine.
The future is all about search technology, which is still in its infancy. You see, in time we'll be generating so much online content and media that the quickest, perhaps the only way to find anything will be search. Search will become more intelligent and intuitive. As a growth and profit engine, search will only get bigger.
So, as the number two search company, I think it would be a very bad idea for Yahoo to sell the business or turn control over to Microsoft or anyone else. Especially not if Bartz can turn the company around without doing that.
Five steps to a turnaround
Under Terry Semel, Yahoo became bloated and bureaucratic. Under Yang, things just went from bad to worse. It's a similar situation to pre-turnaround HP, where Mark Hurd essentially streamlined the organization and empowered key executives to better execute on the company's growth businesses, while cutting the rest.
I'm certain that Bartz has what it takes to accomplish the same thing at Yahoo without giving away the family jewels. Moreover, a solid leader can replenish Yahoo's executive ranks, especially in this economy. From a technology standpoint, the company has lost some time, but not its intellectual capital.
To recap, here are the five steps for Bartz to turn around Yahoo:
- Spend a month listening and learning. She probably already knows what to do, but this will reinforce her instincts and add credibility to her decisions.
- Develop a clear and compelling vision for the company, including its key growth strategies.
- Refocus and reorganize based on that vision, putting the right people in charge and giving them the tools they need while removing roadblocks to execution.
- Cut everything that doesn't fit the strategy and streamline across the board.
- What about Microsoft? Keep talking to Steve Ballmer. Perhaps a relationship that doesn't result in Yahoo giving up control of its growth engine will arise, but nothing comes immediately to mind.
Last word
Overall, Bartz has a solid opportunity to return a once-great Internet giant to its former grandeur. But I think the odds of that happening are significantly diminished if she gives up the search business. Apparently, Carol Bartz agrees.