Yahoo’s failures can be blamed on its shareholders, not Marissa Mayer

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There comes a time in every young CEO’s life when she will be tempted to compare herself to Steve Jobs, and it’s advisable that she resist this temptation as there will be no shortage of pundits who will line up to mock her. Still, one can forgive Marissa Mayer for giving in to the Jobsian mythology given the monumental task at hand and how much it parallels Apple’s own history: she must take a company, Yahoo, that has seemingly plateaued into its sunset years a mere two decades after its founding and kickstart a new era where it can once again achieve tech titan status in Silicon Valley. Faced with this challenge, the former-Googler has donned the figurative black turtleneck:

At a board meeting in April, Mayer admitted that she had not yet identified a “breakthrough product,” but she reminded those in attendance that Steve Jobs didn’t come up with the iPod until five years into his second tenure at Apple. At an F.Y.I. around that time, she read a speech that Jobs gave to Apple employees at the beginning of his turnaround. Afterward, channeling Jobs, Mayer told hundreds of employees sitting at URL’s, “Our purpose is to inspire and delight our users, to build beautiful services, things that people love to use and enjoy using every day, and that’s our opportunity.”

These anecdotes come from Nicholas Carlson’s book, Marissa Mayer and the Fight to Save Yahoo!, which was excerpted this week in the New York Times Magazine.  Mayer was hired as CEO in July 2012, and Carlson details with blow-by-blow, behind-the-scenes reporting how Mayer, riding high on her success at Google, quickly burned through her honeymoon period — a period when she was hailed as Yahoo’s savior — before she then descended back to earth to face hostile shareholders who have accused her of wasting assets and resources pursuing money-losing ventures.

At surface level — which is to say without context — her results so far are uninspiring. Quarterly revenue has dropped since her hiring. After the IPO of Alibaba, the massive Chinese company Yahoo had presciently invested in prior to her tenure, Yahoo’s stock took a nose dive, an indication that the market considers Yahoo’s core business to be faltering. She’s spent massive amounts of money on shiny new playthings — $1 billion for Tumblr, multi-million dollar contracts to lure talent like Katie Couric and David Pogue, as well as $109 million for a COO who was fired after 15 months on the job — that have yet to make much money.

But if you actually comb through the complaints launched by the activist investors who have formed in opposition to Mayer, you can see why Yahoo has faltered in previous years and why she must hold these naysayers at bay for as long as she can: the company’s top shareholders strive for nothing more than mediocrity and are merely interested in a short-term payout rather than the continued longevity of the company.

The fact that Yahoo has cycled through four CEOs in five years is a testament to the continued impatience of Yahoo’s shareholders, an impatience that doesn’t beleaguer CEOs at tech behemoths like Google, Facebook, and Amazon (try to imagine Mark Zuckerberg giving one iota of attention to a Facebook shareholder’s demands).  Here’s a company that’s been directionless for at least half a decade, and rather than giving breathing room to a woman who helped build Google’s gargantuan $55 billion annual business, investors are more interested in chopping up Yahoo, which still brings in $5 billion in annual revenue, and selling it for parts. Just look at the demands of Eric Jackson, a hedge fund manager who’s been the ringleader of the anti-Mayer brigade:

Smith published an open letter calling for Yahoo to divest itself of its Alibaba assets, return the money to its shareholders and then merge with AOL. Redundancies could be eliminated, thousands of people could be fired and two former Internet superpowers would be downsized into a single and steady (if uninspiring) entity that sold ads against its collective online properties — news, blogs and Web products like email, maps and weather. “We trust the board and management will do the right thing for shareholders, even if this may mean accepting AOL as the surviving entity,” Smith wrote.

These are not the words of someone who’s even pretending that his interests lie in Yahoo’s return to dominance, or anything besides quickly lining his own pockets. His justifications for declaring Mayer a failure are ludicrous when you place Yahoo’s struggles within the context of how other Silicon Valley companies have continued to dominate within their respective industries. Facebook purchased Instagram for $1 billion and WhatsApp for $19 billion long before they showed much revenue potential because Zuckerberg recognized the shifting demographics that could quickly turn his company into another Myspace. For years now Jeff Bezos has accepted razor thin profit margins at the expense of building out massive infrastructure so that Amazon can cement itself as the delivery mechanism for both digital and physical products. And Google has spent billions snapping up startups and engaging in “moonshot” products, adopting what can only be considered extreme paranoia that its near-future is threatened by some unforeseen disruption.

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Yahoo’s investors, on the other hand, have already declared the $1 billion spent on Tumblr to have been a waste of money a mere year after its purchase, which is nothing short of ludicrous. In fact, Tumblr shows every sign that it has enormous potential, and so far Yahoo has been a much better steward of the platform than it was for other companies it purchased and then later neglected (e.g. Flickr and Delicious). Currently, Tumblr is the quickest-growing platform among those in their teens and early 20s, and, because its content is hosted on the open web, it has the potential to monetize both logged-in and more casual users in ways that would be difficult for closed platforms like Facebook.

Mayer, recognizing the tremendous potential on video and native advertising, has made significant investments in Tumblr’s video player in the hope of competing with YouTube. She purchased a video advertising company and has begun to lure YouTube stars onto the Tumblr platform.

Perhaps her biggest setback so far has been the state of Yahoo when she took over; Mayer has had to spend a significant amount of her two years on the job streamlining the business so it’s more focused. The most shocking detail I read in Carlson’s piece is that Yahoo Mail, a tool with which users send 30 billion emails a day, didn’t even have a standalone mobile app. When an internet company you take over is failing to meet even the basic requirements for existing in a smartphone-dominated world, you can be forgiven if you don’t spring out of the gate with a paradigm-changing new product. Expecting Mayer to turn Yahoo around in such a short time period is as silly as conservatives’ criticisms aimed at Obama for not immediately fixing an economy that was on the brink of collapse when he took office.

The truth is, it’s much too early to decide whether Mayer’s bets will pay off, and to pretend otherwise, especially when you stand to cash out from a Yahoo merger with AOL, suggests you’re either naive or intellectually dishonest. Many of these activist investors who are ready to dust off the guillotine a mere two years after Mayer’s hiring will also pretend to worship at the altar of Steve Jobs, but their impatience belies their supposed understanding of Jobs’s longterm vision and his risky bets. When Jobs regained the throne at Apple in 1997, the struggling company’s annual revenue stood at $7 billion. In 1999, two years after his hiring, revenue had fallen to $6.13 billion. I’m sure that Apple’s current shareholders can be thankful that Yahoo’s impatient activist investors didn’t hold the same kind of sway for 1999-era Apple as they do at Yahoo today. If they had, Jobs’s deity-like status might never have come to pass, and a line of revolutionary products that forever changed the trajectory of technological progress would have remained merely an idea sacrificed at the hand of those who don’t have the patience or imagination to maintain the courage of their convictions.

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Simon Owens is a tech and media journalist living in Washington, DC. Follow him on TwitterFacebook, or LinkedIn. Email him at simonowens@gmail.com. For a full bio, go here.