Yahoo must choose a path, build a team and do it fast
On January 13, Yahoo named Bartz, a Silicon Valley veteran, to be Jerry Yang's replacement as Chief Executive although Yang will remain as "Chief Yahoo" of the company he co-founded in 1994.
In addition, Yahoo President Sue Decker said she would resign. Until the announcement, Bartz, 60, was the executive chairman of Autodesk, a computer-aided design software firm, where she was CEO for 14 years before stepping down in April 2006.
According to Kendall Whitehouse, senior director of IT at Wharton; Lawrence Hrebiniak, Wharton management professor; and others, Bartz's biggest decision will be whether to outsource Yahoo's search service to Microsoft, which wants to take market share. Experts at Wharton suggest that outsourcing search to Microsoft could make sense for Yahoo by boosting revenues, cutting costs and giving the company a focus. The move could enable Yahoo to become a next-generation media company, says Whitehouse.
For now, Bartz says everyone needs to "give this company some breathing room". How much breathing room Bartz gets remains to be seen, but her challenges are clear, say experts at Wharton.
Her first mission is to calm the waters at Yahoo. The company has angry shareholders, a restive board member in Carl Icahn, who is itching for a search deal with Microsoft, and employees in need of a leader. In addition, employees have had to endure a year of dour media reports about Yahoo's future. And then there is the financial crisis that is hurting online advertising – the mainstay of Yahoo's business. According to Wharton management professor Rahul Kapoor, Bartz needs to make a few early moves to address the short-term concerns. The biggest of those, he believes, are employee morale and shareholder confidence.
Perhaps Bartz's more significant contribution to Yahoo will be in developing the company's long-term strategy, Kapoor adds. Bartz alluded to this during her introductory news conference by noting that, "It has been too crazy. That is going to stop. This is a company with enormous assets that frankly could use a little management".
Creating a coherent strategy for Yahoo will be a formidable task. Yahoo is a complex company that breaks down to three primary parts: Media and content, technology development and ad-funded search. Of those three legs, search is the item most in question.
"Strategically, a Microsoft deal looks like a good move," says Hrebiniak. "Ballmer wants to get this deal done and go against Google. Yahoo should take the money and find other opportunities."
Wharton management professor Keith Weigelt agrees. "Yahoo is losing the battle with Google slowly," he says. "I'd seriously consider the Microsoft search deal as a way to focus the company."
Yahoo would still have significant assets even if it sold the search business. The company "has done some intriguing work on the technology side", notes Whitehouse. Yahoo Pipes, a technology that aggregates web feeds to create new applications, and a venture with Intel to create TV "widgets", or on-screen software that complements television programming, are two examples of innovative technology from the company.
Meanwhile, Yahoo also has been busy rolling out the company's "Yahoo Open Strategy" intended to make it easier for developers to create software programmes that work across the company's various websites. Adding that technology to Yahoo's proven ability to aggregate users could create a powerful combination, argues Whitehouse. "A technology-focused company that understands media could be powerful."
The other option for Yahoo would be to become solely a media company. Yahoo has numerous properties – Yahoo News, Flickr, and Yahoo Finance – that are among the category leaders.
Bartz acknowledges the complexity of Yahoo, but says the main goal is to get focused on executing well. "The important thing is being best in all of our markets," she says.
Ultimately, Bartz's success will be judged on how she reshapes Yahoo's competitive position, Kapoor suggests. "Yahoo's big puzzle is how to create more value for its enormous user base especially in the wake of an ever-expanding threat from Google. Strategic reconfigurations will be the key to how Bartz affects Yahoo. This is a multiyear effort and she has her work cut out in the short term."
As Bartz addresses strategy and short-term challenges, she must also build a management team. Wharton observers say that she needs a mix of insiders and long-time colleagues she can trust. From there, she can focus on rebuilding Yahoo's management talent, which has been eroded due to turnover and layoffs.
Weigelt expects Bartz to hire a few outsiders, as she did at Autodesk. "You look back at Autodesk where she moved pretty quickly, fired underperformers and brought in her own lieutenants." But she will also need the help of Yahoo insiders – the most important of whom may be Yang. Weigelt expects Yang to step back and let Bartz run the company. Meanwhile, Bartz will have to hire a number two executive to carry out her plans.
Wharton management professor Peter Cappelli suggests Bartz "find an insider, someone with expertise in the media side, to help understand the ins and outs of the company and provide some balance as to what is possible."
The rationale for such a move is clear, he says: Bartz needs to move quickly. "If the top two people are outsiders, they are both trying to learn how things work at the same time. Also, you don't need two different outside perspectives."
Hrebiniak agrees. Given some level of discontent within the company, Bartz will need "a number two who can facilitate internally. She will need a peacemaker who can get consensus... and carry out her strategy."