Yahoo!'s Mismanagement Shows Through

After last week’s analyst call, I stated that Jerry Yang, Sue Decker and Blake Morgensen seemed to be describing another company, because from my vantage point, Yahoo!’s (YHOO) senior management had lost the last shred of credibility they had.

It led me to conclude that these people were either incompetent or dishonest, or both. It then led me to think of Warren Buffett who always looked for management that was candid, be it with shareholders or employees.

Last week, Yang, Decker and Morgensen were not honest with shareholders… and by totally mismanaging the layoff rumors/announcement, they were not candid with staff too.

It is thus interesting to see how Yang reacts to Microsoft's (MSFT) offer in a memo to employees. Allow me to stress that Yang seems like a very nice person who is trying to protect his employees. The man’s is a legend of the Web. But having had no one report to him for over a decade and then walk into a nightmare scenario was an attempt to emulate Steve Jobs. Yang made a mistake my mismanaging expectations with that 100-day assessment period. In his defense, he never said any action would take place in said period, he just suggested that he would look at things. But ultimately the market reversed momentum and Yahoo! began to face headwinds.

This is more about managing a publicly traded company than it is about managing Yahoo! I’ve been harsh on Yahoo!’s management (which includes Yang obviously). I just think that the longer Yang tries to fight the inevitable, the longer this drags out, creating uncertainty for employees who are clearly dusting off resumes and connecting with their networks to see who is hiring for what position.

Yang should be candid with staffers: this MSFT takeover attempt is the greatest challenge the company has faced in its history. It is a greater challenge than the battle against Google (GOOG), which Yahoo! lost. Yang should not get all of the blame himself, that is for sure, but before suggesting that YHOO has many options (You Always Have Other Options, he once told Mark Cuban) he should analyze history to see how Yahoo! came out of the Google battle and ask himself if Yahoo! stands a chance to survive and thrive against this challenge (of a different kind) by MSFT.

It seems to me that YHOO was on a more solid footing in 2000 when the Google machine ramped up; much the same way that YHOO inadvertently helped Google by showcasing Google’s search on Yahoo!, it might be helping make MSFT’s bid to acquire it easier…

Comments

[Tom B:]

Ashkan: There is NO reason Yahoo can't simply turn MSFT's offer down. In fact, that is what they should do.

2008 Feb 05 03:02 PM

[Ashkan Karb...:]

Thomas, respectfully, if YHOO rejects the offer, then they owe shareholders an explanation of what their plan is to match the $31 share price. If it involves "time" then existing shareholders will ask for Yang, Decker et al.'s resignation.

If they reject simply to get MSFT to up its price, they better hope that the strategy pans out because regardless Sue and Jerry are due for a change of landscape.

I cannot understand how you can mismanage a company with YHOO's assets and brand, but Sue and Terry have done just that. One way or another, it's time to go.

2008 Feb 05 03:43 PM

[Tom B:]

1) YHOO's investors received a golden opportunity to jump ship Friday, if they were so inclined.

2) Sometimes "time" is the best cure. But a better cure might be outsourcing search to GOOG; this has been proposed.

YHOO's biggest asset is that it is the internet's Billboard; many, out of habit, myself included, use it as a home page. If they get bought by MSFT, I don't think I'm the only one who would "move on". And all the Yahoo services would surely degrade in security and performance; this is a given.

2008 Feb 05 03:57 PM

[Ashkan Karb...:]

I am neither a MSFT fanboy nor a critic, but I don't think that most people (users) care much who owns YHOO. Only people in the industry - be it finance, marketing, or tech industries - have such positive or negative biases.

Frankly, YHOO is a bit sloppy and buggy, with more resources it would be more robust.

Lastly, as an investor I will sell for the price MSFT ultimately acquires YHOO, I believe that might be more than $31, hence why I did not sell, but many have. As well, many have bought in expecting it to go higher.

Based on your comments you seem to be smart, but outsourcing search to Google is foolish. It only makes Google stronger, it only adds 25% more revenue now but over time Google will squeeze YHOO's margins (ask yourself if AOL is indeed stronger today than when it sold 5% to Google and powered its search with Google).

So long as YHOO is independent, it will be benchmarked to Google. And by handing off search to Google, it is showing that it has not learned from history and repeating the same mistake it did in 2000.

At least now YHOO is better positioned in Asia than Google (world's fastest market). Problem is: Yang and Decker are incompetent and dishonest. They don't know what they are doing.

I would vote FOR the sale to MSFT at a price higher than $31.

I would vote AGAINST the sale to MSFT if Decker and Yang - and many others - would resign which I doubt they will do.

All in all, outsourcing search to Google only weakens YHOO and strengthens GOOG. Google's offer showed just how self-serving Google is. It does nothing but further weaken YHOO, in my opinion.

2008 Feb 05 04:18 PM

[Ashkan Karb...:]

Even more arguments against outsourcing search to Google:

watchmojo.com/web/blog.../

My point: outsourcing search made sense in 2003 before the company bought Inktomi, Overture and spent billions on Panama. Now that it has spent billions and lost so much time, it would be accelerating its demise.

A sale to MSFT creates a strong #2 in online advertising, I would think. Google is not doing this for cloud computing as much as they are doing it to build an online advertising business.

2008 Feb 05 04:21 PM

[thenoseknows:]

The very best thing that Yahoo Stockholders can do, is to sell their stock now and buy Google! Without the Microsoft rescue, their stock would have continued to decrease in value and would eventually bottom out around $8.00 per share. if I owned Yahoo stock, I'd have sold it faster than a dog can scratch for fleas when Microsoft offer became public and invested in a real champion, Google!

2008 Feb 05 05:02 PM

[Tom B:]

"Based on your comments you seem to be smart, but outsourcing search to Google is foolish. It only makes Google stronger, it only adds 25% more revenue now but over time Google will squeeze YHOO's margins (ask yourself if AOL is indeed stronger today than when it sold 5% to Google and powered its search with Google)."

AOL is essentially defunct because they were unable to make the transition from dial-up to broadband. The AOL Finance page, BTW, has been getting good reviews recently.

"At least now YHOO is better positioned in Asia than Google"

Which is why they should strive to remain independant. It is CONCEIVABLE, albeit unlikely, that GOOG will fail to dominate Asia. Asia is big.

"I am neither a MSFT fanboy nor a critic, but I don't think that most people (users) care much who owns YHOO."

People will be unhappy to see the quality of YHOO services decline. Also, a sale is bad for America. I don't CARE who dominates search. I DO care if Messenger, Zimbra and Flickr disappear and/or get "Vista-ed"

2008 Feb 05 05:04 PM

[fedup:]

How is MS going to monetize this Yahoo content? Who would want to sponsor it by putting their company name on this stuff?

2008 Feb 05 06:52 PM

[Ashkan Karb...:]

@TheNoseKnows - $8? Once YHOO fell below $20/share, given the assets, revenue/profits and cash on hand, it was inevitable that someone saw this was an asset in distress that was undervalued and would make a move. It just so happens that MSFT beat a PE firm to it. And frankly, as many have stated, MSFT is the one who can reap most value out of the deal, and as such, can overpay. If MSFT would back away (they won't, because they're almost there), the stock would fall... but if it falls below $20, then guess what - someone will make an offer, again.

@Thomas - Once YHOO is publicly traded, it loses control.

Once YHOO fails to execute and hit the promises it lays out to investors, then it becomes vulnerable to a takeover.

That's what is happening here. This has nothing to do with choice. Jerry Yang chose to bring on Terry Semel, give him $500M in shares and evaporate 50% of the company's value. He's run out of choices. I am not speaking opinion there, I am speaking facts.

@Fedup - As per Flickr, it's moot. One of the many vestiges of Bubble 2.0 where we thought eyeballs = value. Flickr, like Webshots before it, is a nice tool or feature but not one that MSFT (or anyone else) will monetize.

In other words, MSFT is not interested in Flickr or Crappr or anything else the hippy love crowd (aka Silicon Valley) became enamorated with, they're interested with "the billboard" that is YHOO that Thomas referred to above.

All of this is part of a cleansing process that is well overdue. Again, I would love to see YHOO independent, heck, I rooted for that for 4 years... but in last week's analyst call, I could no longer in clear conscience support Jerry and Sue.

2008 Feb 05 08:21 PM

[TA:]

Ashkan: As you can see by Thomas' responses, your thoughtful retorts were wasted. Thomas still thinks it's 1995 and just hates MSFT no matter what anyone says.

Unfortunately for the rest of us, he spends a great deal of time filling the comments on on most of the tech articles on this site with nonsense like 'MSFT are all criminals' and fails to back up anything with more than the shallowest of cliches.

I recommend you ignore him in the future like the other authors have, closed minds are simply not worth the time.

Nice balanced article BTW - it's a rare treat

2008 Feb 05 08:24 PM

[Tom B:]

Blah123: why don't you just restrict your comments to analysis instead of personal attacks? Maybe you're long on MSFT; maybe I'm slightly contrarian. If you have something valuable to add, add it.

Dell used to be a Wall Street Darling. Ford used to be a Wall Street Darling. MSFT is still "printing lots of money", but that is NOT going to last and this deal, IMHO, does neither party any good.

2008 Feb 05 10:24 PM

[TA:]

Wouldn't it be annoying if all I did was say AAPL and GOOG suck on every single article written about them? Even the ones that say they suck too?

I've never owned any tech stocks for the same reasons Buffett won't buy them despite working in IT for all these years

2008 Feb 05 11:11 PM

[Tom B:]

"I've never owned any tech stocks for the same reasons Buffett won't buy them despite working in IT for all these years"

Most of my stocks are boring large-cap dividend stocks, like Merck, GE, UL.

2008 Feb 06 07:12 AM