Yahoo's Problem Is Really a High Tech Problem

I'm no fan of the job Yahoo (YHOO) CEO Carol Bartz has done over the last nearly two years. After Bartz tried to defend herself at the Goldman Sachs Communacopia Conference yesterday morning, one person after another started calling for her ouster. And yet there is something inherently unfair about how taking pot shots has become an industry pastime, especially when the problems have been obvious for over a year but apparently are just dawning on the experts.

I've said it before and will again: Bartz has seriously screwed up. But look at the situation dispassionately for a moment and you might see that it's not just Bartz, but an entire industry that has a twisted approach to business and the world. There but for market muscle, inertia, and dumb luck go many companies.

Bartz tried to push off the criticism and questions during the Communacopia question and answer session, as Joseph Tartakoff at PaidContent noted. And some of them were hard. People are less tied in with Yahoo Mail as they send messages over Facebook, though it apparently came across as blaming consumers -- otherwise known as customers. Her reaction to a question about executives pulling the ripcord and departing?

"I can't tell you how many times I've gone to my assistant and said, 'Do you know who this person is,' and they're about six layers down."

She's cornered and, as Bartz has demonstrated before, entirely capable of being combative. However, these answers aren't completely unreasonable. If anything, this was a moment when Bartz dropped the curtain and admitted the truth. The problem is that Wall Street and industry insiders might see such answers as out of touch, rather than admitting fundamental problems that may not have a neat solution. Yes, customers spend less time when they don't need to. If you're on Facebook regularly and people you ordinarily communicate with are there, why go to another application to send an email?

Companies so large that the CEO doesn't know people that the industry consider to be important to the company's interests? Of course, but most tech corporations aren't doing just badly enough for people to notice. Look at the HR mess that HP (HPQ) has sunk into, with more than two-thirds of employees only waiting for an equivalent offer to bail. The only reason that became widely known is that former CEO Mark Hurd got booted. Had he been a little less greedy and not fudged expense reports, it would still be a festering problem that investors and industry experts would ignore. Or not even know about.

Can't find a company that would add enough revenue to be worth purchasing?

Where did the insane notion come from that spending a lot to get a revenue bump necessarily makes sense? It's fine if you're acquiring a business for one or maybe two times annual revenue or if something is so strategically important that it's worth spending a bit more -- and you're a Apple (AAPL) or Google (GOOG) or Microsoft (MSFT), with almost as much money to your name as a Bill Gates or Warren Buffett. Of course, don't tell HP (HPQ), whose $2.4 billion acquisition of 3PAR (PAR) was only 12.4 times that company's revenue last fiscal year.

And Twitter? What a waste of money. The company can't figure out yet how to make lots of cash for its investors, so what would it do for Yahoo? (And why did investors back something so thoroughly when there hadn't been adequate consideration of how to treat it as a business with significant revenue expectations, rather than as a hobby?)

The market is changing, consumers are quickly adopting other habits, and those who don't want to see it have their heads wedged so far into the sand that their socks must be getting filled. But that's the problem. Big tech companies (other than Apple, which, for all the problems I've mentioned over time, is in a class by itself) are no longer flexible, highly innovative, and hungry competitors who knew what a market wanted and who had to face reality. They've become large, clumsy, and bloated market dominators who think that business is all about them, not about the customers, and whose revenue is large enough to mask the enormous daily flow of ego-driven foolishness.

Bartz is probably bewildered, although she'd never admit it, because she followed the official playbook -- use the right words, hire the right people, take the right strategic directions. Only, when times are dangerous and tough, following the rules can be a disaster because you're likely doing exactly what got you into a fix in the first place.

Wall Street is no better at making smart calls. ThinkEquity analyst Aaron Kessler calculated that after subtracting cash and Yahoo's stakes in Yahoo! Japan, Alibaba.com, and Alibaba Group, what's left -- the core part of Yahoo -- is worth nothing. Not less than you might expect. Not far under a competitor. Zip. Well, technically, less than nothing.

OK, everyone, stop for a moment. All those sites, all that annual revenue that isn't going to disappear tomorrow, and the company's market value is less than zero? What are big investors smoking? On what planet do analysts live?

Managers and boards have to start getting really smart. That means taking a pass on pompous, self-important strategic declarations. It means ignoring the "smart money," because if all those people really knew what they were talking about, they'd all do as well as Steve Jobs, and that isn't happening. Get back to basics, make customers happy, deal with them honestly, and make great products.

As for Carol Bartz, she clearly listened to the in crowd for far too long. I wouldn't give her longer than six months on the outside. It's too bad, but you only get so much time. Spend it with the usual suspects, and you won't take a company anywhere new.

Related:

• Yahoo's Carol Bartz Just Doesn't Know When to Shut Up
• Yahoo's Problem: Bartz Is the Wrong Type of Turnaround CEO
• Yahoo's Turnaround Is a 360 Degree Spinout
• Yahoo to Spend $3B on Stock Buy-Back -- and Management Is Nuts
• How to Blow Shareholder Cash: Spendthrift HP Plans $10B Share Repurchase
• Intel Woes and HP-Dell Wars Show the March of the Dinosaurs
• HP and Dell in War over 3PAR Acquisition -- and Big Corporate Sales