IP Democracy: Is Yahoo! Too Mature to Turn Things Around?

The big news today is the shake-up of online giant Yahoo!. The company announced yesterday a reorganization that has pushed out COO Dan Rosenzweig along with Lloyd Braun, the controversial head of Yahoo! media group, while giving greater responsiblity to Sue Decker, the company’s CFO, who will now head two of three new groups — one focused on advertisers, one focused on publishers. (The third group is a technology unit, to be headed by CTO Farzad Nazem.)

CEO Terry Semel, however, is staying, despite rumors that he too would lose his place in the reorganization.

This management turnover and turmoil all stem from declining growth at a company that has a finger in every Internet pie — too many pies some argue, leaving Yahoo! with a bloated yet scattershot business strategy and inability to deftly navigate the crazy waters of Web 2.0. Although the press and blogosphere are rife today with articles, analysis and fact-sifting about the goings-on at Yahoo!, one easy way to understand the decline of the Internet’s top portal is to look at the company’s trajectory since 2001, when Terry Semel took over.

At that time, in the midst of the dot.com bust, Yahoo! was in danger of becoming another…Netscape. The company’s revenues were declining at a rapidly alarming rate (down 41% in Q3 01). Semel had been brought in as Mr. Fixit, and sure enough he did repair Yahoo! He reorganized the company and injected business discipline into every unit.

Semel was the right guy with the right talents to turn Yahoo! from a rudderless dot.com mess into a well-run advertising giant that, until this past year, posted record quarterly growth increases. (Look at this glowing piece from the October 1, 2002 issue of Business Week.)

In other words, Yahoo! went from a flailing dot.com adolescent, at a time when disorganization was no longer being tolerated by Wall Street, into business world adult under Semel’s direction. However, the seeds of Yahoo!’s current troubles stem from this very maturation because along the way, while Yahoo! got its act together and grew up, a few rivals (read specifically Google) grew into their own teen years at a time when investors and the business world were once again ready to embrace new, unruly and untested ideas.

But Yahoo! was stuck with its mature “corporate” operating philosophy, which led to fiefdoms, swelling executive ranks (and nothing kills entrepreneurial spirit and fosters finger-pointing like overpadded management) and lack of, well, vision. As Semel himself says on Yahoo!’s blog, “We need a revitalized structure to heighten accountability and streamline decision-making while allowing us to better focus on serving our key customers.”

Maybe the reorg will do something to thin the executive ranks further and make decision-making easier. But what about Yahoo!’s vision? How will the middle-aged Internet giant fare against younger, more impassioned rivals? I don’t see anything in this reorganization that will give Yahoo! back its vision, its passion, its drive, and that’s what needed to turn things around.

Om sort of hit on this idea yesterday when he wrote

What Yahoo needs is an ability to form an emotional connection with its users. Instead of being just MyYahoo users, they should have a religious fervor with Yahoo’s services.

Without revitalized spirit and vision, Yahoo! can certainly stabilize its business, at least for some period of time, but growth will be hard to find. But that’s true of most adults.

Posted by Cynthia Brumfield on December 6, 2006 9:23 AM to IP Democracy