What’s Yahoo To Do?

Is there any way the once-great Internet company can reclaim its former glory?

Fired Yahoo CEO Carol Bartz

Give Carol Bartz a break. When she was hired as CEO early in 2009, Yahoo was a floundering, once-great company that needed to slim down and reorganize to reckon with a future dominated by Google and social-networking giants. When she was fired as Yahoo’s CEO on Tuesday afternoon, Yahoo was still a floundering, once-great Internet company. In two and a half years under Bartz, however, the firm had certainly slimmed down and reorganized. Bartz shed many popular but underperforming sites—including Delicious and MyBlogLog —and laid off a couple thousand people. Employees didn’t love this, of course, but if you look at the financials, Bartz was vindicated. In her first full year as CEO, net income rose 43 percent, and in her second year, it rose 105 percent. All the while, Yahoo remained an enormously popular destination. When Bartz took over, Yahoo’s collection of sites ranked just behind Google’s in ComScore’s list of Top 50 Web properties. Two years later, it was just ahead of Google.

Despite these numbers, everyone hated Bartz., which compiles anonymous employee reviews of corporate leadership, shows that by the end of her tenure, only 33 percent of Yahoo employees approved of her leadership. A lot of the statements posted to the site said the same thing: Bartz and other executives had no vision for what Yahoo should be. Bartz solved half of Yahoo’s problem—she’d gotten rid of a lot of sites and signed a deal with Microsoft that outsourced the company’s search business to Bing. But the other half, coming up with something new to make Yahoo relevant again, has eluded her. For that, she deserved to be fired.

But don’t be too hard on her—coming up with a plan for what Yahoo should be is an enormously challenging task, one that will probably prove daunting for anyone who heads the company. Yahoo’s problem is simple and huge: It’s popular, but it’s no longer at the center of people’s lives. How can it fix that?

What made Yahoo a great business, long ago, is that there was a reason to visit it multiple times a day. Yahoo was the first site to do a bang-up job organizing the Web, and it was the first site to capitalize on that prowess by adding all kinds of useful doodads that made you stick around. This was the famous “portal” strategy of the early dot-com years—you’d go to Yahoo to get to someplace else, but in the process, you’d get caught up in Web email, stock quotes, news stories, the weather, horoscopes, job ads, videos, and personals. The portal idea is mocked now, because after Google came along, people realized that you could get to wherever you wanted on the Web in seconds. But it’s worth remembering that Web portals were a terrific idea for a long time. Indeed, for much of the last decade, people spent more time on Yahoo than on any other site online.

For the last few years, Yahoo has been trying to figure out what’s next. It tried being a search engine, but it couldn’t match Google. It tried being a social network, but it couldn’t match MySpace and then Facebook. (In 2006, Yahoo offered Mark Zuckerberg $1 billion for his company; he turned it down.) It purchased dozens of start-ups in the hope that something would stick, but even the successful ones (like Flickr) didn’t really help the company’s larger ambitions. So instead it stuck with being a kind of hollowed-out portal—it’s still got news, entertainment, and email, but it doesn’t offer any unique Web utility, anything to keep people coming back all the time. It’s a Web zombie: There’s lots of stuff there and people keep coming back, but it’s increasingly irrelevant in the world it created.

The obvious solution for Yahoo’s board, now, is to hire a smart digital innovator as CEO—Evan Williams of Blogger and Twitter; Mike McCue of Flipboard; or Bradley Horowitz, a former Yahoo exec who’s now running Google+—and demand that he come up with something new. But even if Yahoo hires the best, most inspiring, Steve Jobs-ian CEO it can find, it’s going to have a hard time coming up with something amazing, because amazing is a very difficult bar to hit. Building an exceedingly popular and profitable Web product is a tricky thing—few companies do it once, and I can’t think of a company that has done it twice. Google has built many fantastic sites, but nothing to rival its search engine. If Google search suddenly stopped working tomorrow, it would be a rudderless collection of sites not unlike Yahoo.

In 2008, Microsoft CEO Steve Ballmer launched a hostile bid to purchase Yahoo for more than $44 billion in stock and cash—62 percent more, at the time, than Yahoo shares were trading at. Jerry Yang, Yahoo’s co-founder, inexplicably rejected the deal, and Microsoft walked away. It’s hard to say whether Microsoft would have been a good home for Yahoo—Microsoft’s own Web properties are still losing gobs of money—but the merger could have given Yahoo a few strategic opportunities that would have served it well. Under Microsoft, for instance, Yahoo’s sites could have been integrated into mobile phones. The merger would have also given Yahoo resources to hire great engineers, and enough of a grace period from bottom-line hungry investors to work on a grand new plan for the company. More and more, these days, rejecting Microsoft looks to have been a fatal error for Yahoo. The company is worth about a third of what Ballmer offered for it—and it’s hard to see how it can ever recover its former glory.