Yahoo’s Turnaround Efforts Straight from Steve Jobs’ Playbook

Carol Bartz, the still new CEO of Yahoo, convened her first meeting for Wall Street analysts a few weeks ago. Forget the specifics for a moment. She could have been talking about another iconic Silicon Valley company that had gone astray under experienced but ineffectual leaders who had been brought in from other industries to shore up damage done by the company’s precocious founders.

When Steve Jobs returned as interim CEO in 1998, Apple was perilously close to financial collapse. Jobs acted decisively in his first few months, killing the Newton PDA, rescinding the company’s nascent “Mac Clone” strategy, paring a gangly product portfolio down to two basic machines, and sealing a controversial deal with archenemy Microsoft that gave Gates & Co. a chunk of Apple stock in exchange for an investment of more than $100 million and the commitment to keep developing software for the Mac.

Bartz, who has occupied Yahoo’s corner office for barely 10 months, has had to move quickly to repair a hemorrhaging brand and restore morale to a company that was a pioneer of Internet cool. She wasn’t a returning founder, but she had street cred as the successful CEO of Autodesk, the leading maker of 3-D design software. In Jobs fashion, Bartz shut down dead-end services such as online video site Jumpcut and Web 1.0 darling GeoCities, and she is expected to kill plenty more. She has eliminated layers of management, cut 5 percent of the workforce, and wasted no time hammering out a search/advertising deal with big, bad Microsoft — the suitor that her predecessors, led by former CEO and co-founder Jerry Yang, had spurned more out of emotion than as an expression of shrewd business strategy.

The nettlesome shareholder activist Carl Icahn was so pleased that in October he stepped down from Yahoo’s board. In his resignation letter, he told Bartz: “I wish you could be cloned because so many of the companies in the country could use a Carol Bartz as CEO. My resignation in a way is a compliment to you in that I do not believe that Yahoo any longer needs an activist shareholder.” In its most recent quarter, Yahoo surprised Wall Street by tripling profits and projecting a return to revenue growth.

In short, Bartz has made Yahoo’s business coherent again, not just to Wall Street but to her own 13,500 employees. And like Apple after the return of Jobs, Yahoo again has a reason for being.

Her presentation to the analysts was a brilliant reality check for all who had written off Yahoo as a hopeless has-been. “Here we are, a 14-year-old Internet company that somehow got boring,” she said. “But we’re the largest communications engine in the whole world. When we can serve up impressions of 9 billion ads a day through our networks, that’s innovation, and that’s scale. You don’t just start up an Internet company and do that. We know how to do these things.” She was just getting warmed up: “We’re not a search company; we’re not a display company. We’re a broad-based Internet company that serves up content to millions of people. We’re not here to wow you today; we’re here to intrigue you and impress you.”

Jobs went on to build Apple back up into a multidimensional business that has grown right through this lousy economy. But early on, he knew better than to try to fix everything at once. Apple’s most important asset at that time was its brand — it was, after all, the creative force that had unleashed the personal computer industry. That strong brand identity helped Apple retain top-notch engineering talent despite meandering leadership. So when Jobs scaled back the number of products, Apple’s engineers were able to move faster yet also crank out better products. Each success bred more confidence and built a stronger base from which the company could methodically broaden its product reach.

Yahoo isn’t all that different. More than any other first-generation Internet company, Yahoo took the intimidation out of exploring the Web and demonstrated that the user really could find his way around. The company also was the first to recognize the value of the demographic data it could glean from tracking what surfers were looking at. Despite the drama of the past couple of years, Yahoo continues to rank up there with Google and Facebook as one of the most trafficked sites in the world. It possesses brand recognition that money can’t buy.

Yahoo will have to prune back even more to blossom and grow again. And the deal with Microsoft, not unlike Apple’s deal with Redmond, buys Yahoo time and gives it a partner that lends it stability and credibility.

Of course, Yahoo is not Apple, and Carol Bartz is not Steve Jobs coming back to rescue his baby. But Microsoft’s role in the comeback strategies of each (once its deal with Yahoo wins regulatory clearance) is key: For Yahoo, just like for Apple, the deal serves to remove a degree of strategic uncertainty at the very core of the company’s business. The lesson here is that when you are called on to bail out a sinking ship, it helps to lighten the load and fix the holes first, and only then figure out where you really want to go. Do that, and your crew will fall in with you.


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