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Pride Goes Before the Fall at Yahoo

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The New York Times has a lengthy piece on the rise and fall of Yahoo – the Internet giant that pioneered Web searches, helped define the Internet experience by creating a unified start page that still has over 700 million visitors a month, and at its peak raked in advertising revenue ten times the size of what early-Nineties analysts thought the entire online advertising market would add up to… and yet, has somehow mismanaged its resources to the point that it’s actually worth less than nothing.

The Times was inspired to write its rise-and-fall corporate tragedy after the worst quarterly earnings report in a decade, followed by the analysis of an influential hedge-fund manager that nearly all of Yahoo’s positive value came from its stake in the premier Chinese search engine, Alibaba. Subtract the value of that Alibaba holding, and Yahoo itself was $4 billion in the red.

The Times lays much of the blame for this sad state of affairs on Yahoo CEO Marissa Mayer, who fancied herself a Steve Jobs-style visionary who could put Yahoo back on the same Olympian playing field as Google and Facebook by making expensive new acquisitions. A wiser, sadder course would have been to acknowledge that Yahoo’s survival depended on stripping down its operations, reducing costs, and finding a way to remain acceptably profitable by using its still-sizable audience to sell advertising revenue. Instead of battening down the hatches, Mayer hauled up more sails and called for full speed ahead into doldrums that would never again resemble the wild hurricane of innovation from the Nineties.

Her fondness for comparing herself to Jobs did not align with the reality of Yahoo as a content-delivery system, not a creator of physical products; you can’t have an Apple Renaissance without iPods to sell. Almost everyone who isn’t using the Internet to sell merchandise or services is making money by using text, audio, or video content to attract readers, then selling access to their eyeballs to advertisers. This has become such a big business that it’s already generated its version of “Brinks Job” larceny – a scheme by Russian hackers to hijack inline website ads with a virus that re-directed computers to Internet domain servers under their control. When those pirate servers were taken down, it led to some tense moments where authorities feared the Internet would crash, because so many infected computers were still trying to patch into the deceased illegal servers. In the end, a heroic effort by both government and private cyber-security teams saved the day.

But advertising revenue evidently wasn’t sufficient fuel for Mayer’s vision of Yahoo rebirth. They’re in the same position as many post-bubble tech companies: big costs for a vast army of highly skilled employees and extensive physical infrastructure, without enough income to justify those costs. They’d have to dump over half of their 15,000-strong workforce to reconfigure into a lean, mean content-delivery machine. They’d also have to reconfigure their workforce away from tech innovators to content providers, i.e. writers and artists – a transition incompatible with the Silicon Valley engineering mindset. “Tech executives know how to hire engineers and designers; they’re less adroit at recruiting editors or producers,” as New York Times author Nicholas Carlson puts it.

Isn’t that really the story of post-bubble Silicon Valley, and maybe even permanent-recession America, in a nutshell?  The erosion of our manufacturing base, cost-inflating labor policies, innovation-crushing regulations, a flat-out deranged corporate tax system… we’ve allowed ourselves to be swept into a New Normal where yesterday’s achievements in design and production are fading into legend, the incredible feats of a people that no longer exist. Not to put too fine a point on it but “content provision” is the only culturally acceptable way to get rich these days. If you’re an actor, singer, or athlete, you can live in a mansion and pile up millions without a word of criticism from class warriors. Everybody else is a greedy pig who needs to be taken down a notch and looted for whatever the Left decides their “fair share” should be.

Another reason for Yahoo’s current travails is that Mayer had some interesting ideas the company just wasn’t ready to pursue. Yahoo seems to have been particularly blind to the growing smartphone market (they were still making their employees use BlackBerry’s in the summer of 2012!) but that’s where Mayer saw an opening. She wanted to create best-in-class apps that would allow Yahoo to corner the “start page” market on phones, as they had dominated it for the early personal-computer Web browsers. Alas, they had already been outpaced by vastly larger, better-funded mobile app teams working for Google and Facebook. They didn’t even have their own email app at the time Mayer took over. She put a lot of work into fighting a revolution that was already over.

The results really shouldn’t surprise anyone, given where the titans were positioned on the day Mayer rolled into the boardroom and decided she wanted Yahoo to play in their league again.  She previously worked for Google, so she should have known what she was up against.  Instead, she arrived in a shower of media fireworks celebrating a young female CEO with bold plans to transform a tech dinosaur into “the world’s largest start-up.” When she finally got interested in the money-making content provision side of Yahoo’s business, she ended up schmoozing with Anna Wintour, hiring Katie Couric, and daydreaming about Yahoo creating its own splashy critically-acclaimed Netflix-style programs… somehow missing the point that such expensive premium content only works if you’re selling it to paying subscribers.

Even now, after her tenure has come to ruin, the press seems reluctant to admit that Mayer was mostly a cult-of-personality phenomenon, without the experience or judgment to effectively implement a finger-in-every-pie style that came off as blinkered and arrogant.  She threw around huge sums of money to hire even emptier suits, from Couric (whose contributions to Yahoo were nothing less than embarrassing catastrophes, earning cat-video levels of audience interest) to unvetted top executives who dazzled her with claims they couldn’t back up. The working men and women of Yahoo ended up resentfully laboring beneath a flashy managerial aristocracy that ruined their lives with capricious rule changes. If that doesn’t sound familiar enough already, Mayer even has a habit of showing up late for her press conferences, just like a certain chief executive of the United States.

The final chapter in the Yahoo saga is being written right now, as shareholders and investors push for a merger with AOL – another fallen titan that managed to find a sustainable path to more modest profitability, under the guidance of a far less flashy but more competent CEO. It’s really hard to do what Steve Jobs did for Apple, especially when the retail purchase of physical products is not involved. It’s tempting to call the Apple rebirth a singular achievement. The quest to replicate it has given us expensive superstar CEOs who captivate the press during their glitzy debuts, but end up making expensive compromises with corporate destinies they should have been wise enough to embrace sooner.


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