The Trouble With Yahoo

I like Yahoo. I check the website fairly regularly for news, finance, weather, local films and such. I even have one of my e-mail addresses on its domain. So you’d think I would have had a sentimental attachment to the company when I wrote my most recent book. Yet there are very few references to Yahoo in Break From the Pack.

The reason is because I find the company’s strategy to be fundamentally flawed. Under CEO Terry Semel, Yahoo has been trying to be a digital “one stop shopping” information and media center. Yet as I point out in my book, when companies try to be all things to all people, their resources get stretched thin, they lose focus in mission and capital allocation, they confuse people with too many “priorities”, they ultimately blur their brand, and most important, they find it much more difficult to dominate any sector of the markets they compete in. In fact, I argue that the most successful corporate strategies follow a variant of the “Powell Doctrine” which has been successful in the military theatre: Choose your battles very selectively, and then go in with overwhelming force. The goal, regardless of your corporate size, is domination. You can’t dominate anything if you’re trying to be great in everything. Indeed, chapter 6 is called “Dominate or Leave”, which means if you can’t realistically hope to dominate a particular market regardless of your initial size (like Whole Foods did in natural foods, Jet Blue in low price airline travel, and Google in search), then avoid it altogether, or if it's already on your books, bite the bullet and exit it even if it’s currently bringing in top line revenue.

The lead article in the November 18 Wall St. Journal describes an in-house memo by senior VP Brad Garlinghouse which apparently has become a manifesto within the company, and which vindicates my position. Yahoo may still be the most visited website in the U.S., but, as the Journal notes, it “…has suffered from slumping shares, slowing revenue growth, staff defections, and a delay in a crucial project aimed at boosting online ad sales. (Further), the company has been outmatched in key areas such as search advertising and social networking.”

So here comes Garlinghouse with his “Peanut Butter” memo. Arguing that Yahoo is spreading its resources like peanut butter on bread, thinly and evenly across all activities, Garlinghouse concludes that “thus we focus on nothing in particular.” His advice to his company: “Pick specific areas to focus on and make bigger bets on them while dropping nonessential activities.”

The Journal notes further that the memo identifies “…the absence of a focused, cohesive vision, which means (Yahoo) wants to do everything and be everything to everyone…. The result is a company that is reactive and scared to be left out (of anything).”

I read Garlinghouse’s original lengthy memo on the Web and in many spots found it to be as unfocused and uncohesive as he accuses Yahoo’s strategy of being. But once you get past the overgeneralized consultant-speak, the underlying message is worthy of consideration. That’s why the memo has resonated with many Yahoo managers. Even CEO Semel now says “We’ve got to get back to basics and again zero in on a few key priorities.”

But when you’ve already built a corporate mindset, infrastructure and personnel roster than revolves around one stop shopping, Semel’s insight is easier said than done. That’s where leadership comes in. Let’s see what happens next at Yahoo.