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Yahoo's Big Mistake: Putting Itself First

You know things are bad at a company when the earnings release crows about exceeding the "midpoint of revenue outlook range." And given the recent history of Yahoo, there's no question that things have been bad. But has the departure of Jerry Wang and installation of Carol Bartz as CEO changed the company enough? I'm not so sure.

The essential problem of running a company has been known since at least the time of Plato. There is a constant tug between the desire to make money -- something for us -- and, hopefully, the desire to do the job well -- something for them. This is never a completely harmonious state of affairs, but I think you could reasonably argue that any great company must, on the whole, lean toward something for them, otherwise known as the customers. It's true for an Apple, Google ... even an IBM or Microsoft. The moment the focus tips too much toward you, all those customers start waiting for another opportunity.

Look at this statement from the earnings release:

"I'm pleased with our results this past quarter. We established a clear, simple vision to be the center of people's lives online, and we're backing that vision with important initiatives to create 'wow' experiences for our users," said Yahoo! chief executive officer Carol Bartz. "We're confident that this vision will put us on the right path to growth and profitability long term. Our new homepage is a perfect example of our efforts to create innovative products aimed at increasing user engagement while offering the most compelling advertising proposition in the industry."
On first read, it may seem like Bartz and Yahoo are focusing on the customer. But it's actually exactly the opposite. Instead of finding the needs of consumers and satisfying them, Yahoo wants to become the hub about which people buzz. It's a company-centric model that really puts the needs of the corporation first.

Granted that Apple is in a much different position, but compare its statement attributed to Steve Jobs:

"We're making our most innovative products ever and our customers are responding," said Steve Jobs, Apple's CEO. "We're thrilled to have sold over 5.2 million iPhones during the quarter and users have downloaded more than 1.5 billion applications from our App Store in its first year."
It's a subtle difference, but in essence, Yahoo says, "We're important and will do things to make people realize it." Apple says, "We do innovative stuff that people like and so we're successful." How about a statement from Google's Eric Schmidt?
"Google had a very good quarter, especially given the continued macro-economic downturn. While most of the world's largest economies shrank, Google's year-over-year revenues were up 3%. These results highlight the enduring strength of our business model and our responsible efforts to manage expenses in a way that puts us in a good position for the economic upturn, when it occurs," said Eric Schmidt, CEO of Google. "We remain focused on investing in technical innovation to drive growth in our core and new businesses."
Now, I have been vocal in my questions about Google, but they at least understand at a fundamental level that it's the customer that matters. How about IBM?:
"As a result of our strategic transformation, we have a very strong business model that is delivering superior earnings, cash and client value," said Samuel J. Palmisano, IBM chairman, president and chief executive officer."We have continued our strategic investments in Smarter Planet solutions, business analytics and next generation data centers. As a result we are optimistic about how IBM is positioned to make the most of current growth opportunities as well as those that emerge as the economy recovers. We are well ahead of pace for our 2010 roadmap of $10 to $11 per share."
You can't take advantage of growth opportunities if you're not putting what the customers want first before image and ego. You're not at the center of someone's world simply because you decide that it's part of your market positioning. Some of Yahoo's own numbers speak to this. Where Google's profits went up because a greater share of revenue came from its own sites, marketing services revenue (read as advertising) from Yahoo's own sites actually dropped by 1.6 percent from Q1 to Q2 while revenue from affiliate sites increased by about the same percentage. Compared to Q2 2008, revenue from Yahoo sites dropped by 15.5 percent.

I realize that ad revenue is not the same as customer attention, and I realize that estimates put Yahoo sites as taking in the second most amount of traffic behind Google, but ad revenue and customer interest are closely related, and you didn't see Google revenue taking such a hit. That suggests to me that Yahoo is becoming less central to its audience, not more.

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