Hardware companies,
like Apple or Fitbit, profit from gadgets. For everyone else, though, it more
or less comes down to advertising. Social-media companies, like Facebook or
Twitter, may make cool products that connect their users, but they earn revenue
by selling ads against the content those users create. Innovative media
companies, like Vox or Hulu, make money in much the same way, except that
they’re selling ads against content created by professionals. Google, which has
basically devoured the search business, still makes a vast majority of its
fortune by selling ads against our queries.
Yahoo essentially
invented the online-advertising business.Yahoo quickly expanded beyond its
directory to create a multitude of ad-supported products. The company aimed to
be all things to all web users, and for most of a decade, it was a wildly
successful strategy. In 1997, Yahoo added chat rooms, classified ads and an
email service. In 1998, it introduced sports, games, movies, real estate, a
calendar, file sharing, auctions, shopping and an address book.
a new
generation of start-ups was focusing on perfecting one single product. Soon
enough, Yahoo was losing out to eBay in auctions, Google in search and
Craigslist in classifieds. Then Facebook came along, replacing Yahoo as the
home page for millions of people. The advertising dollars soon followed, and
Yahoo’s revenue flattened.
Yahoo had only two
ways to increase its revenue.
- could display more ads by attracting more people to its products — a plan that would require inventing (or acquiring) new products, improving old products or some combination.
- Alternately, it could elevate ad prices by upgrading its content.
Yahoo had fallen so
far behind its competitors in building successful back-end technology, like
real-time advertising auctions and search, that it should cede most of those
businesses altogether. In the process, the company could also shed more than
half of its 15,000 employees
Marissa Mayer, the
wunderkind engineer who oversaw the user interface of Google’s search engine
In 2005, Yahoo
invested $1 billion for a 40 percent stake in a little-known company called
Alibaba. It turned out to be a remarkably prescient bet. Weeks before Mayer was
hired in July 2012, Yahoo sold half its 40 percent stake back to Alibaba for
$7.1 billion. As a part of that deal, Alibaba was offered incentives to hold an
initial public offering within the next few years. Suddenly the easiest way for
Wall Street to make a bet on Alibaba — a hot start-up in a hot market,
guaranteed an I.P.O. — was through an investment in Yahoo.
This was a
tremendous benefit to an incoming C.E.O., essentially offering a two-year air
cover. Without having to manage the company’s stock price, inevitably one of a
chief executive’s most distracting tasks, Mayer could focus on acquiring
start-ups, jump-starting products and making strategic changes. Moreover, in
two years she would be able to use the Alibaba cash to reinvest in her putative
growth.
Steve Jobs may have
resurrected Apple, and IBM was able to reinvent itself from a P.C. company into
a business-services firm.
Hours after entering
Yahoo’s complex on the morning of July 17, 2012, she set up her computer to log
into the company’s code base so she could personally make changes, much like
the founder of a tiny tech firm might do.
- Cafeteria and company phones upgrade
Mayer wanted to
narrow its product portfolio down to approximately a dozen from more than 100,
determined to ensure that Yahoo had the best mobile app for each.
Mayer would
regularly interrogate designers about the minutest details of display and user
experience.
Mayer also announced
that she wanted to repair Yahoo’s search engine, her specialty at Google.
Mayer added a
tool to the company’s internal network that allowed employees to view their
stock compensation.
Mayer quickly became
infatuated with the idea that Yahoo could attract more sophisticated consumers.
She was less sure,
however, about how to monetize them.
Yahoo Shine, with
its $45 million in yearly revenue, was shot down.
Failed in strategic
hires
Mayer’s largest
management problem, however, related to the start-up culture she had tried to
instill. Mayer also favored a system of
quarterly performance reviews,system was meant to encourage hard work and weed
out underperformers, but it soon produced the exact opposite. Because only so
many 4s and 5s could be allotted, talented people no longer wanted to work
together; strategic goals were sacrificed, as employees did not want to change
projects and leave themselves open to a lower score.
Starboard began its
campaign to force an AOL merger
Major Yahoo
shareholders have recently begun collaborating on a series of spreadsheets that
calculate that AOL and Yahoo are worth between 70 and 80 percent more when
combined than they are apart. Some investors are further attracted to the
merger because it will bring AOL’s chief executive, Tim Armstrong, into Yahoo.
Like Mayer, Armstrong made his career as an early Google employee — but he was
in charge of its sales force.
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