The Irony of Yahoo: Or How to Repeat HP’s Turnaround CEO Mistake

Rob Enderle
Slide Show

4 Ways IT Can Better Align Itself to Fulfill Business Needs

Yahoo has announced that it is going to do a reverse divestiture, keeping the Alibaba holding it was planning to spin off and instead spinning off its core business. From a financial perspective, this idea looks really good, but that is assuming the firm can sell it, and with the stock down, that capability is in doubt.

Remember the story of Jack and the Beanstalk? The kid was sent to sell a cow and he came back with magic beans. Jack’s mother was upset because the goal wasn’t to get rid of the cow; it was to get the money that the family needed for food. In Yahoo’s case, the goal wasn’t to get rid of Alibaba; it was to raise money to fund the turnaround. So Yahoo didn’t get the cash; it just replaced Alibaba ownership with a more complex structure and doubled the corporate compliance costs. This moves the ball, but it looks like it moved it the wrong way.

This move goes directly against ex-IBM President Thomas Watson, Jr.’s teaching that a company should be willing to change everything BUT its core. If Watson’s teaching is correct, and IBM is the standing example that it is, this move will likely eventually kill Yahoo.

In Yahoo’s present circumstances, I see the incredible importance of marketing when doing a turnaround, or really anything that is outward facing, and the irony that firms that live off of advertising don’t understand marketing. I am also reminded of the nearly identical mistake HP made when it hired Carly Fiorina as CEO. Finally, like HP, Yahoo has a huge problem with its board of directors.

HP and Yahoo: Boards, Bad Decisions, Wrong CEOs

HP has been the leading example of what happens when you have a board that doesn’t seem to concern itself with current events. The pertinent example is that HP hired Fiorina out of Lucent Technologies, a telephony company that had never had a CEO, shortly after AT&T and IBM both had to reverse their telephony acquisitions, learning, at the cost of billions, that high tech and telephony didn’t mix. To be fair, I should point out that given the absolute failure of IBM and AT&T with those acquisitions, Fiorina didn’t do that badly.

Yahoo seemed to get to a similar mistake far more personally. After nearly failing because it sold its significant stake in Google, Yahoo then tried to chase that company with search. After signing a deal with Microsoft that supplied it with search technology, Yahoo hired as CEO Marissa Mayer, an executive out of Google, who was doing marketing and who had never been a CEO before. The result has, so far, been pretty disappointing, almost mirroring Fiorina at HP. Decent ideas but generally failing to execute.

Both CEOs seemed to have a good idea where their firms needed to go but were pretty clueless in regard to how to actually get there.

Marketing Irony

One of the biggest ironies in the market today is that firms that make their money off of ads don’t seem to understand marketing. The biggest example, Google, often seems to be working unsuccessfully to get away from an embarrassing revenue source. But if you make most of your money from something, and in this case that thing is ads, you are in the marketing business, regardless of whether you are proud of that fact or not. You should become competent in it.

Mayer came out of Google marketing and much of Yahoo’s problem right now is an inability to market its turnaround. This is one of the things that Lou Gerstner and Steve Jobs understood when they turned around IBM and Apple, respectively. People had to believe first so they’d buy the products and invest in the firms. If they didn’t believe, the company would never actually get to the turnaround part. And this is where Yahoo is failing: Folks just don’t get where Yahoo is going and, as a result, Yahoo can’t get there. Yahoo really did need marketing competence at the top. You wouldn’t go to Harvard to hire a chef; you likely shouldn’t go to Google to hire marketing talent. So, right specialty, wrong company, on several levels.

Wrapping Up: Repeating Mistakes

If you look at both HP and Yahoo, you see a stream of CEOs. The latest ones are likely the longest-lasting, in part, because their golden parachutes are nearly unaffordable. Meg Whitman’s is over $40M and Mayer’s is over $60M, more than the current valuation of Yahoo’s core business. But the problem is the lack of understanding as to what is needed in a turnaround CEO. You need someone with both a vision and the demonstrated skills to pull it off. Both the HP and Yahoo boards have successively failed to select such a person.

Boards of directors should really take to heart the quote from George Santayana: "Those who cannot remember the past are condemned to repeat it,” which seems to apply in spades in this situation.

Rob Enderle is President and Principal Analyst of the Enderle Group, a forward-looking emerging technology advisory firm.  With over 30 years’ experience in emerging technologies, he has provided regional and global companies with guidance in how to better target customer needs; create new business opportunities; anticipate technology changes; select vendors and products; and present their products in the best possible light. Rob covers the technology industry broadly. Before founding the Enderle Group, Rob was the Senior Research Fellow for Forrester Research and the Giga Information Group, and held senior positions at IBM and ROLM. Follow Rob on Twitter @enderle, on Facebook and on Google+

Add Comment      Leave a comment on this blog post
Dec 12, 2015 7:40 PM db55411 db55411  says:
"... This is one of the things that Lou Gerstner and Steve Jobs understood when they turned around IBM and Apple..." Complete nonsense. Gerstner achieved a turnaround by dumping bodies 10k at a time (i.e. layoffs). That and stock buy back are the only concrete things Gerstner did. This and IBM's 'too big to fail' reputation is how IBM achieved its turnaround. I believe Marissa Mayer's main hurdle is the fact that because she is a woman she does not have at her disposal the inside help the good-ole-boy system has available to them. This is the system that ensures white woman and real minorities are never a large enough number in upper management to make a real difference. Lastly, a Board is only as good as the company it represents. If Mayer had turned things around you would be calling them brilliant. Reply
Dec 15, 2015 2:11 PM Me Me  says: in response to db55411
Gerstner did a lot of things right - he was customer focused, built the services business, reinvested in mainframe technology that still drives revenue and so on. IBM had real customers willing to pay it to do stuff that IBM does. The only thing Yahoo does is advertise, but there is no particular reason for people to eyeball Yahoo and thus feed the ads. Reply
Dec 16, 2015 8:38 AM Yacko Yacko  says:
You are right the initial decision makes sense if Yahoo is an information, communication and knowledge company, however, the new move means Yahoo is not. I think Mayer realizes the "core" business is untenable and Yahoo or whatever it will be named will be a very different business. What comes to mind is the joke about a farmer who wins Powerball for many millions and who, when interviewed and asked what he is going to do, says he will keep farming and expanding until all the money has disappeared. Mayer is not going down that road. The new Yahoo will likely be an investment company that invests in other businesses perhaps with ecommerce dna. There are many examples of businesses changing their models, Abercrombie&Fitch comes to mind, but I think the J. W. Mays retail chain in NY is a better choice. The company, which owned all the store buildings, knew retailing was a slow death spiral, particularly with NY taxes, and so liquidated the inventory and started renting the square footage. I believe the location in Brooklyn serves as headquarters and the company has slowly added other additional properties to the real estate mix. Reply

Post a comment





(Maximum characters: 1200). You have 1200 characters left.



Subscribe to our Newsletters

Sign up now and get the best business technology insights direct to your inbox.