What Yahoo Needs from Bartz Right Now

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With a new chief executive chosen from well outside its decaying orbit, Yahoo (YHOO) now has one last chance to salvage itself from a slow spiral into irrelevance. On Jan. 13, the struggling Internet icon appointed Carol Bartz, the executive chairman and former CEO of computer design software firm Autodesk (ADSK), to succeed co-founder Jerry Yang at Yahoo's helm.

In her first public statements on behalf of the company, on a brief conference call with analysts, Bartz's no-nonsense style shone through. She noted that Yahoo is a strong company that "frankly needs a little management" and said she would take some time to talk with her staff before announcing any plans for what Yahoo should do from here on out. Bartz will still have Yang's counsel in his longtime strategy-setting role as Chief Yahoo, but Yahoo President Sue Decker, who was a top internal candidate for the CEO spot, will leave the company

For her part, Bartz will need a little educating. It's not that most people question her management prowess or her drive to succeed amid huge obstacles. She joined Autodesk as CEO 14 years ago and almost immediately got a diagnosis of breast cancer, returning to work while still in recovery. She also joined a company where she wasn't exactly embraced by the engineers but managed to expand the product line so Autodesk is now a $1.5 billion enterprise, while cutting costs early in the 2001 downturn to keep the business above water.

What Is Yahoo's Niche?

Bartz, however, has no Internet or media experience, so she probably won't change Yahoo's direction on a dime. She'll not only have to figure out Yahoo's operations but also learn where Yahoo fits into a still fast-changing Internet media world. "It will likely take months for her to learn the Internet business and how Yahoo actually works before she can develop an effective new strategy," Bernstein Research analyst Jeffrey Lindsay said in a note to clients.

Observers have no shortage of ideas for what she should do next. None of this advice, it should be said, is something Bartz has asked for outside the company. Indeed, Bartz put it in no uncertain terms that she wouldn't be hurried before she had a chance to examine operations more closely. "Let's give this company some friggin' breathing room," she declared in the conference call.

But investors, advertisers, and employees won't give her unlimited time to decide Yahoo's next steps. Here are five ideas that smart folks are hoping will get Yahoo back on track once and for all. Not all of them are entirely new, but they're all more relevant than ever as Yahoo stares down restless investors, weary employees, and a declining economy that is now taking a heavy toll on Internet advertising.

Focus, focus, focus. For the past year or so, Yang and Decker have repeated the mantra that Yahoo aims to be the first stop online for consumers and advertisers alike. But that amorphous vision has never resonated with many people outside the company. "They need someone to lead a redefinition of where they want to be, where their strengths are," says Bill Coleman, CEO of software maker Cassatt and a former colleague of Bartz at Sun Microsystems (JAVA).

Management will also need to end debate over whether Yahoo is a tech company or a media company, as many analysts and investors keep wondering. It simply has to be both, just as successful companies such as Google (GOOG) and Amazon.com (AMZN) are. The bigger imperative is to define what makes Yahoo special.

More than anything, Yahoo's uniqueness lies in its unmatched collection of curated media properties, from Finance to Sports, that have large, loyal, and distinct audiences that advertisers still love. That message has gotten lost in Yahoo's fitful attempts to be a search engine, a social network, and other flavors of the month. And Yahoo's leadership needs to focus on more than just message, but also make hard decisions about what not to do anymore—perhaps its international operations, maybe even search. "We expect Yahoo to reduce the number of operations it has" to focus on what it does best, says Scott Kessler, an analyst at Standard & Poor's, which, like BusinessWeek, is a unit of The McGraw-Hill Cos. (MHP).

Nuke the current management structure once and for all. Although former CEO Terry Semel was credited with turning Yahoo around in its youth, he helped create a "matrix" management system that required ideas to be vetted by many managers, slowing new services and making few people truly accountable for particular projects. Despite repeated vows to get rid of the matrix and constant reorganizations of management, that hasn't happened. "They need one person in charge to coordinate what they do," says Autodesk CEO Carl Bass.

And Bass and others think that's precisely what Bartz can do. "She has a forceful ability to make decisions, and that's a talent Yahoo needs," says Neil Sims, managing director at the executive search firm Boyden Global Executive Search.

Free the techies. There are still many talented engineers and programmers among Yahoo's more than 10,000 employees. Many frequently mention being shackled by that pesky management structure, which is true enough. But at the same time, engineers always need focus, and nowhere more than at Yahoo. Too many times they've come up with services, such as the Yahoo 360 social network, that look cool but go nowhere because they don't work as well as simpler services, such as Facebook. At Autodesk, Bartz "got various engineering groups to work together," says Gartner (IT) analyst Allen Weiner. "She brings adult supervision to Yahoo."

Dial up Microsoft CEO Steve Ballmer to talk about a deal. No, not for the whole company. That's not going to happen because Microsoft no longer wants to do it, and Yahoo will never sell out for anything close to its current stock price. Nor, in some people's estimation, is selling off the search business a great idea. Yahoo would be unwise to sever search, given the growing, potentially lucrative connections between search advertising and the display variety that are Yahoo's strength. Rivals Google and Microsoft (MSFT) are busily devising ways to tap those connections better.

A better choice, says S&P's Kessler, would be to forge a joint venture that combines Yahoo's and Microsoft's search businesses into one but gives both a stake in the operation. This is something others, such as Silicon Alley Insider's Henry Blodget, have been advocating for a long time, too. The advantages: no huge cash outlay, no huge integration issues, and a Yahoo board likely to be much more open to such a deal.

Nail the next generation of online display advertising. APT, Yahoo's latest attempt to automate the placement of display ads, is a start, but it hasn't yet come close to the ease of placing search ads. Because Yahoo is the clear leader in display ads, and advertisers clearly want it to succeed to provide richer venues for their marketing messages, it's in a unique position to be the leader.

Indeed, the entire advertising industry is desperately looking for what new ad formats will give them a way to do branding as effectively as Google's ads work for direct-response marketing. No one yet has sure answers. But if anyone can come up with them, it should be Yahoo, whose considerable experience in search, banner, and video ads—combined with unmatched relationships with advertisers and agencies—gives it a golden opportunity. Bartz must figure out how to seize it. One promising avenue: Corral Yahoo's many social networking efforts into something more coherent that will provide a way for marketers to forge deeper connections with consumers—in other words, steal a march on Facebook.

No doubt the new CEO will have her own ideas. And no doubt investors weary of Yahoo's struggles will welcome almost anything Bartz does that changes the status quo. "Given the recent stagnation at Yahoo, we think almost any movement from here will be forward," says UBS Investment Research (UBS) analyst Ben Schachter in a note to investors. But Bartz will have to move quickly to keep Yahoo from falling further behind.

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