Yahoo pulled down the curtain on a six-month sale process with the (sort of) finale we all expected, with Verizon emerging from the scrum clutching a broken toy it had badly wanted. To steal an adjective from the companies' deal announcement, this is a "poetic" combination of Yahoo and Verizon's 2015 acquisition AOL. Both are web companies popular in the 1990s that have held up as well as Hootie & the Blowfish songs from that era.
The many missteps in the last four years under Yahoo CEO Marissa Mayer and during the prior decade of messes could fill a thousand business school case studies. So Gadfly will get the party started with a postmortem on what the technology industry can learn from Yahoo.
1) It’s crucial to manage down expectations: About a year after Meg Whitman took the helm at another disastrous tech company, Hewlett-Packard, she did something weird: The new CEO told investors that her company was a disaster and that she would need years to fix it. It was hardly a Patton-like inspirational message, and the company's shares face-planted to a 10-year low after Whitman's tough talk. But the move was genius. Whitman set herself a very low bar, reset the company's valuation and bought herself time to right the ship.
Mayer couldn't or wouldn't do the same at Yahoo. Instead, she trumpeted the company's increase in web traffic, with the help of some fibs. I can understand why. Yahoo's board hired her to make Yahoo great again (see point No. 2). “I’m an optimist. I think all leaders are," Mayer told my Bloomberg colleague Brad Stone for a 2013 article. She might have been better off taking advice from tech investor Marc Andreessen: "If it’s me, I’m setting expectations so low you can’t even see them," he said soon after Mayer was hired.
2) Beware the savior CEO: Try to think of technology company that had a phoenix-like rebirth. Steve Jobs did it at Apple. IBM came back from near death and is trying another makeover. It’s tough to come up with more examples because it's unimaginably hard to turn around any company, especially a tech company, once it starts to nose-dive. Mayer was hired for exactly this mission impossible of a tech renaissance, so is it any wonder the core parts of Yahoo are selling for 1/25th of the company's peak stock market value?
That doesn't mean a tech company should file for Chapter 11 once sales stop growing, but it does mean tech company boards might need decide more quickly when to sell a company or start milking it for cash rather than hoping to grow again.
3) You can't have dessert if you don't eat your vegetables: When executives invest in projects with long-term payoff, they need to win permission from investors by reducing costs drastically. Mayer talked eloquently about trying to replace Yahoo's fading revenue from old-guard web advertising like banner ads with more en vogue ad techniques on smartphones and with automated ad buying. She spent billions of dollars on acquisitions and struck pricey deals with partners like Mozilla to find new ways to make money.
But until recently, she didn't cut to compensate for the risky bets. In 2011, Yahoo had $4.1 billion in main operating expenses plus cost of revenue and $4.38 billion in sales excluding commissions paid to partners. Before the start of investor-forced cost-cutting, Yahoo's expenses in 2015 were 22 percent higher at more than $5 billion even though revenue had shrunk to $4.09 billion.
4) Don't forget about the people paying the bills: Yahoo, Google parent company Alphabet, Facebook and Twitter are newfangled tech companies that make nearly all their money the same way William Randolph Hearst did, by selling ads. And the successful ad-dependent tech companies know who pays the bills.
One of the many reasons Facebook has been so successful is it has two incredibly powerful executives, Sheryl Sandberg and Carolyn Everson, navigating the advertising side of the shop. Twitter would have been an even a bigger mess if it didn't have capable advertising leadership that kept the finances humming, until recently.
Mark Zuckerberg and Larry Page may not pal around with powerful ad boss Martin Sorrell, but the Alphabet CEO doesn't fall asleep and miss meetings with advertisers as Mayer did. Zuckerberg didn't hire a high-priced ad boss and then quickly fire him as the Yahoo CEO did. Mayer understandably focused on the company's technology operations, but she would have been better off if she found a strong advertising partner. Perhaps someone like -- "poetry" alert -- Tim Armstrong, her onetime Google colleague and now Verizon advertising executive who could very well pick up where she leaves off.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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