The Yahoo! (YHOO) board of directors is known throughout Silicon Valley as a leaky ship whose internal deliberations often turn up on blogs or in other media outlets. Aware of this reputation, the company’s four-member chief executive search team took precautions worthy of a John le Carré novel before meeting Google (GOOG) veteran Marissa Mayer for the first time last month. No one inside Yahoo was told, and the interview was conducted 10 miles away from headquarters in the Palo Alto offices of law firm Skadden, Arps, Slate, Meagher & Flom. When Mayer met with the entire Yahoo board in mid-July, the company’s directors were bused from Yahoo’s offices to another law firm on Page Mill Road in Palo Alto. The idea was to evade potential tails, and anyone who had figured out the first interviews had taken place at Skadden, according to a person briefed on the process who was not authorized to speak on the record. In a morning-long conversation, Mayer wowed the board, including hedge fund manager Daniel Loeb, whose agitations led to the ouster of previous CEO Scott Thompson over exaggerations on his résumé. And on July 16, Yahoo finally did something it hadn’t done in a very long time—it pleasantly surprised the world.
Mayer, 37, now becomes a celebrity CEO—the kind of leader whose every move draws scrutiny. She’s vivacious and hyperintelligent, with an unusually geeky laugh (a YouTube compilation of her guffaws has more than 250,000 views) and a reputation for obsessive focus on the details of product design. She was one of the first employees at Google, the company that first rode to prominence on Yahoo’s coattails as its search provider and then quickly surpassed it. Over the years Mayer ran Google’s search group, worked on products such as Gmail, and most recently led its maps and local division. Though a spot on Google’s top executive team eluded her, she’d always been one of the company’s best spokespeople.
Now she brings that media fluency to the demanding task of finding the silver lining in the tribulations of a longtime rival. “I always had an incredible amount of respect for Yahoo,” she says. “I think it’s a terrific brand with a fantastic worldwide following and a huge amount of potential in terms of the range of products it has for users and advertisers.”
Mayer will have her hands full. Yahoo is a company with deep problems—declining quarterly revenues and market share, a downtrodden workforce, and a dearth of talent within its depleted engineering corps. As former Yahoo manager Michael Smith wrote in a blog post a few months ago, “Yahoo could easily cut 20 to 25 percent of its staff without actually cutting much of its capabilities.” Mayer is the seventh CEO in five years. That turnover has contributed to a metastasizing identity crisis and an oft-repeated question: Just what is Yahoo supposed to be, anyway?
Yahoo’s mission, according to the boiler plate on its press releases, is to create “deeply personal digital experiences.” But that territory has been usurped by social media upstarts like Facebook (FB) and Twitter. Yahoo’s share of overall online ad revenue in the U.S., which peaked at 15.7 percent in 2009, is dropping like an anvil and hit 9.5 percent last year, according to research firm EMarketer. “I used to think success for a Yahoo CEO would mean a successful sale of assets and a private equity sale for the rest of the business,” says Jordan Rohan, an analyst at Stifel Nicolaus. He characterizes Mayer’s move from wealthy, tech-savvy Google to browbeaten Yahoo as “a little bit like the mayor of Palo Alto being asked to run the city of Detroit.”
That’s the bad news. Here’s the good: Yahoo controls some of the most visited properties on the Internet, with more than 700 million monthly users. It also has a healthy balance sheet with $2.4 billion in cash. It owns stakes in overseas companies like Yahoo! Japan and Alibaba.com, a Chinese Web company, that are worth up to $10 billion.
One area of opportunity is mobile, which none of the major tech powers has conquered the way Google dominates conventional Internet search ads. Consumers may have flocked to smartphones and tablets; advertisers haven’t been won over—yet. That gives Mayer a plausible opening to leverage Yahoo’s traditional strengths (like Yahoo! Sports) and revive some of its once-hot properties (its photo-sharing site Flickr comes to mind). Even with mobile, Mayer is likely to find some scar tissue. A decade ago, Yahoo worked aggressively to bring e-mail, instant messaging, photos, and other services to cell phones. That was well before the iPhone and most of those efforts were scrapped. “She has to get Yahoo back on the radar,” says Chetan Sharma, a mobile industry consultant.
Yahoo has developed a reputation as a dreary place to work and an inept purchaser of startups. If Mayer can straighten things out and recommit Yahoo to product development and innovation, the company could reestablish itself as a credible player in tech. It could even become an effective startup buyer again. That’s one reason venture capitalists like Marc Andreessen are excited about Yahoo’s surprise hire. “The damage is deep and the repair job is going to take a lot of work,” the Netscape co-founder says, but “she’s a fantastic choice and I’m happy for them that they got her. If it’s me, I’m setting expectations so low you can’t even see them.”
Mayer herself declines to divulge any details of her plans, saying only that she’ll focus on creating great products and “innovative and compelling end-user experiences.” She was more forthcoming about her personal road map, divulging on Twitter that she’s pregnant and due in October, and saying she’ll work through a brief maternity leave. On July 17 she tweeted her delight over a “fun Yahoo layette set” given to her by her new communications department, and included a link to a cute picture of a onesie and baby blanket with company logos. Like many proud parents, the photo-sharing site she linked to wasn’t Yahoo-owned Flickr—she used Instagram, which Facebook is buying.