Yahoo's Revolving Door Spins Again

Yahoo! has cranked out corporate drama for the better part of its decade-long slide. So consider Carol Bartz’s Sept. 6 exit the company’s equivalent of MacBeth—grueling, emotional, bloody, and riveting. In two meetings held over the summer, the company’s eight independent directors concluded that the chief executive officer should go after 30 months on the job. Roy Bostock, Yahoo’s chairman, scheduled a meeting with Bartz in a New York area airport to deliver the bad news, but stormy weather intervened, according to a person familiar with the day’s events. Bostock was forced to fire her by phone. A few minutes later, Bartz, widely known as an expressive and sometimes volatile executive, sent an e-mail to Yahoo’s 13,000 employees. “I am very sad to tell you that I’ve just been fired over the phone by Yahoo’s chairman,” she wrote. “It has been my pleasure to work with all of you.” Shortly afterward, the company disabled her account.

Bartz’s two-year transition from savior to outcast sums ups Yahoo’s own transformation over the last decade. The company, one of the dominant players of the Web 1.0 era, has struggled to retain its employees, expand its core business, and even find an identity. (Whether it’s a media or a technology company is a constantly debated question.) Now, more than three years after it turned down a lucrative acquisition offer from Microsoft, Sunnyvale (Calif.)-based Yahoo is facing yet another crisis. The company has appointed Chief Financial Officer Tim Morse as interim CEO and is planning to hire strategic advisers to study its next move. That is likely to involve selling its valuable stakes in two highflying Asian Internet companies, Alibaba and Yahoo! Japan, instead of putting the company up for sale, according to a person directly familiar with the thinking of the Yahoo board who is not authorized to speak on the record.

Bartz’s tenure was decidedly mixed. She streamlined the staff, jettisoned side businesses like the help-wanted site Hotjobs, and outsourced the expensive and losing search battle to Microsoft. By all the measures that matter to investors, though, Bartz was a disappointment. The stock has remained at around $13 a share, and over the last year Bartz has feuded publicly with a chief ally, Jack Ma. The Alibaba Group CEO spooked Yahoo investors when he spun off one of his company’s most valuable assets, the payment tool Alipay, without compensating Yahoo shareholders. In July, Yahoo missed its second-quarter revenue target, an unexpected failure that Bartz blamed on turnover in the crucial display advertising sales team. “The slowdown in their display business is simply from her inability to keep the display team together over the last 18 months,” says Ross Sandler, an analyst at RBC Capital Markets. “She’s responsible for the underperformance in that business.”

Armchair investment bankers in Silicon Valley are now running to their Twitter accounts to speculate about Yahoo’s next move. Analysts believe bids to buy Yahoo are possible from the likes of Microsoft, Disney, and News Corp.. Its core media and communications properties, such as Yahoo! Finance and Yahoo! Mail, still attract 178 million visitors a month. One fanciful scenario has private equity firms packaging AOL and Yahoo, creating a Web advertising behemoth. All those companies declined to comment.

The likelier outcome is that Yahoo sells its Asian stakes and uses that capital to make a large acquisition, according to the person familiar with the board’s thinking. (It’s among the companies bidding for Web video site Hulu.) Of course, Yahoo has tried—and failed—in the past to buy streaking businesses, including a bid for Groupon in 2010.

With more dynamic competitors always ready to steal advertisers, employees, and promising acquisition targets, deteriorating Internet companies tend to see their tailspins only accelerate. To avoid that, Bartz’s successor will have to start by finally solving Yahoo’s identity crisis, says former Yahoo executive Dave Goldberg, now CEO of Web firm SurveyMonkey. “Yahoo needs to be more focused,” he says. “But until you can answer the question ‘What is Yahoo?’ it’s hard to say what you should keep and what you should get rid of.”

— With assistance by Ari Levy, and Douglas MacMillan


    The bottom line: Yahoo is likely to sell off its valuable Asian properties and make a high-profile acquisition with the proceeds.

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