Nicholas Carlson, Joe Weisenthal and Henry Blodget deserve many congratulations on Carlson’s monster 22,500-word profile of Marissa Mayer. It features the kind of deep reporting one normally only finds in books, and it sheds a lot of light on what is going on at Yahoo - both at the senior executive level and at board level. What’s more, Carlson was fortunate enough to get just the right amount of access to Mayer - enough to be able to fill in the necessary details, get lovely bits of color, and ask her the questions he needed to ask, but not so much that he became captured. (In general, with very few exceptions, the more time that a journalist spends with his subject, the more favorable the resulting profile will be.)
After reading Carlson’s piece, it’s clear that Mayer has genuinely changed Yahoo for the better, over the course of the year that she’s been running it. What’s not clear, yet, is whether Yahoo’s board made the right choice in picking Mayer over the alternative choice, Ross Levinsohn. Especially since the choice of Mayer was pushed through by two men - Dan Loeb and Michael Wolf - who aren’t even on the board any more.
When Loeb first took his large stake in Yahoo and pushed for a shake-up, his plan was clear. Yahoo was massively undervalued on any kind of sum-of-the-parts analysis, thanks to its large stakes in Alibaba and Yahoo Japan. As a result, if a new CEO were to come in and shake things up radically, the chances of value being destroyed were relatively low, while the amount of potential upside was enormous. So Loeb was itching to roll the dice.
What’s fascinating about Carlson’s account is the way in which Loeb, along with Wolf, his handpicked lieutenant, managed to override Yahoo’s chairman, Fred Amoroso, who favored Levinsohn over Mayer. Loeb’s 5% stake in the company was significant, but far from controlling - yet somehow, in practice, Loeb managed to get exactly what he wanted, even when he disagreed with the chairman of the board.
The choice of Mayer is particularly interesting in light of the fact that Levinsohn’s plan was in many ways more disruptive than Mayer’s. Yahoo has always struggled with the question of whether it is a media company or a technology company, and Levinsohn wanted to settle that question once and for all: he would sell Yahoo’s search business to Microsoft (MSFT), while receiving MSN.com and lots of money in return, and move to using Google’s (GOOG) superior search product instead. And he could increase Yahoo’s Ebitda by 50%, even while he shrank Yahoo to a mere 4,000 employees - down from well over 15,000 as a technology company. At the end of the process, Yahoo would be a large, lean media machine, with more than 700 million unique visitors every month. Yahoo could sell those readers to advertisers, and make a fortune.
Given the inherent difficulty of competing over the long term not only with behemoths like Google and Apple (AAPL) but also with countless startups all wanting to eat your lunch, Levinsohn’s strategy made a lot of sense. You could get a lot of buzz by hiring a young, photogenic technology icon, who could then go on a massive shopping spree with shareholders’ money; that might well cause investors to boost your p/e multiples over the short term. But that basically would just turn Yahoo stock into a timing game, with the trick being to get out just as the honeymoon period is ending, and before shareholders start demanding financial returns on their M&A investments.
Loeb is a hedge fund manager: his job is to be good at timing games, buying low and selling high. And that’s exactly what he did at Yahoo. He sold his shareholding, and gave up his board seats, after the stock went up. But the job of the board, and of the board chairman, and of the CEO, is not to enrich and enable here-today-gone-tomorrow speculators. Rather, it’s to create permanent value. And it’s far too early to tell whether Mayer is capable of doing that.
Indeed, it’s still too early to tell what Mayer’s strategy really is. Levinsohn had a strategy - one which was clearly thought-out, and which would produce a focused, profitable company. Mayer, on the other hand, had, well, an excellent grasp of detail. Carlson has nailed down the timing: Yahoo’s board met with Mayer on July 11, 2012, and she gave an impressive presentation.
She described her long familiarity with Yahoo and its products. She described how Yahoo products would evolve over time under her watch. Her presentation included an extraordinary amount of detail on Yahoo’s search business, audience analytics, and data. She talked about fixing Yahoo’s culture with more transparency, perks, and accountability. She named her perceived weaknesses, and explained how she planned to address them - including by hiring people who had the skills she didn’t have.
That evening, the board decided to hire Mayer. The following morning, the board went through the motions of listening to a similar presentation from Levinsohn, along with his key lieutenants. But they’d made up their mind. Wolf started questioning Levinsohn aggressively, while Loeb spent a lot of the presentation playing with his BlackBerry (!) - and even disappeared off to the bathroom for a particularly important part of Levinsohn’s presentation.
Mayer did what she said she would do. She went on an aqui-hiring spree, buying more than 20 startups in her first year, culminating in the billion-dollar acquisition of Tumblr. She brought passion and buzz back to what had been a very demoralized company. And she sweated the small stuff: she would approve or reject, for instance, every single call or email that the PR team wanted to make to a reporter. She also dived head-first into a huge redesign of Yahoo Mail, taking personal responsibility to ship an awesome product in record-quick time.
On the surface, the results were fantastic. Yahoo’s new products, whether internal (Yahoo Mail, Flickr) or bought in (Tumblr) are best in class. Talented engineers actually want to work for the company again. And the stock price speaks for itself.
But here’s the thing: it’s still far from clear what Mayer’s long-term strategy might be, or whether there even is one. Carlson does an excellent job of demonstrating how little she cared about anything on the business side of Google, and also of how distant she is when it comes to managing her direct reports at Yahoo - the people in charge of actually bringing in all the revenues. Mayer is more product manager than CEO, which maybe explains why she got on so well with David Karp - another person whose expertise is very much in the realm of product design rather than business-side nitty-gritty. When your company is your product, then the product manager as CEO can work very well. (See: Zuckerberg, Mark.) But Yahoo is not a product; it’s not even really a suite of products. To use the 90s terminology, it’s a portal - it’s a place where traffic can be aggregated and then monetized.
Yahoo’s doing very well on the traffic front, coming in top of the most recent Comscore rankings. But revenue is falling, and product design is only one of very many skills that Yahoo’s CEO needs. It’s also not even clear that Mayer is very good at that: although the new Yahoo Mail turned out lovely in the end, Carlson also recounts how Shashi Seth, the Mail team leader, along with his lead designer and his product manager, all departed shortly after their new Yahoo Mail shipped. Like Dan Loeb, perhaps, they decided it might be best to quit while they were ahead, rather than stay hitched to Mayer’s star. And these are the people in Yahoo who know Mayer best.
Mayer was extremely good at the job she held at Google until 2010 - essentially doing everything in her power to make the user experience as great as possible. Yahoo’s current users, too, have every reason to be happy that she has the CEO job - their experience is almost certainly better, as a result, than it would have been under Levinsohn. And for the time being, Yahoo’s employees and its shareholders are all happy as well. But I can’t help but feel that the CEO of a public $30 billion company, especially one which makes nearly all of its money by selling ad space to media buyers, needs certain management skills, and a passion for improving the company’s bottom line. Otherwise, Yahoo is likely to join the long list of companies where the people who sold their stock into the aggressive corporate stock buyback program ended up much better off than the loyal shareholders who didn’t.
Disclosure: Long Google.