An exodus of high-profile, innovative managers leaves a leadership vacuum, and troubling implications for Yahoo's future
Another day, another high-level exit—or four—from Yahoo! (YHOO). The most recent round includes several prominent Yahoos: Joshua Schachter, founder of del.icio.us, the online bookmarking service acquired by Yahoo in 2005; Vish Makhijani, general manager of Yahoo Search; Qi Lu, executive vice-president for search and advertising technology; and Brad Garlinghouse, senior vice-president for communications and communities and the author of a scathing 2006 memo dubbed the "peanut butter manifesto" that accused Yahoo of losing its focus (BusinessWeek.com, 6/12/08).
Garlinghouse and the others are among more than 50 high-profile Yahoo executives and managers who have left the company in the past three months or intend to leave, raising concerns that a leadership vacuum will ensue in light of failed merger discussions with Microsoft (MSFT), and amid withering public criticism of Yahoo management by billionaire investor Carl Icahn. The exodus makes it harder for remaining executives to persuade shareholders the company has the means to turn itself around.
Plummeting Stock Price
Especially troubling about the departures for Yahoo, many of those leaving had been at the forefront of efforts to build promising products and services for the future. Caterina Fake, who joined Yahoo when it purchased Flickr, the photo-sharing site she co-founded, is among those on the way out. She was considered vital to driving innovation at Yahoo. Fake headed Yahoo's Technology Development Group, responsible for overseeing Yahoo's popular "Hack Days," semiannual events that let employees step away from everyday duties and test new products and ideas. Fake also spearheaded the movement to create Brickhouse, Yahoo's San Francisco-based incubator for new, potentially game-changing ideas (BusinessWeek.com, 2/9/07).
Fake's departure, along with that of her husband, Stewart Butterfield, follows news that Jeff Weiner, executive vice-president of Yahoo's Network Div., and Usama Fayyad, Yahoo's chief data officer, have resigned. Fayyad was seen as key to driving new ideas. He developed the strategy instrumental to how Yahoo targeted and personalized advertising. Fayyad, who oversaw Yahoo's research arm, also was responsible for developing new ways to use the Web. In an e-mail, Fayyad said that he will remain with Yahoo until September. "Losing Fayyad is clearly a negative," UBS (UBS) analyst Benjamin Schachter wrote in a June 17 note to investors.
Yahoo played down the importance of the exits. "We have a deep and talented management team across all areas of the company…and we continue to recruit outstanding talent," the company said in a statement. But a steady drumbeat of leaked farewell messages and resignation letters is doing nothing to shore up a stock price that's plummeted 13%, to 22.73, since June 11, when Microsoft reiterated it's not interested in purchasing Yahoo.
The Lure of Smaller Companies
The reasons for the departures are varied. Some who are leaving are dismayed by a planned reorganization being orchestrated by Yahoo President Sue Decker, according to blogger Kara Swisher, who cited unidentified sources. In conversations with BusinessWeek.com, several executives blamed what they see as a lack of management focus and an inability to take the kind of risks necessary to keep pace with a fast-changing Internet landscape. "If you are on the Internet, you have to be fast and you have to take risks," says a former Yahoo who asked not to be identified. "The organizational structure that Yahoo has is completely antithetical to the industry they are in."
The person echoes frustrations that have long been felt within Yahoo, even before co-founder Jerry Yang assumed the CEO role in 2007. When an employee has a new idea at the company, it often must go through a dense approval process intended to keep the company from rolling out changes that could upset its massive user base. The disadvantage of these well-intended checks is that new ideas may be slowly implemented.
Those sentiments alone may not be what's driving away would-be innovators. After all, Yahoo has benefits over more nimble startups. These include deeper pockets and the prospect of creating products that could eventually reach an audience of more than 142 million users a month.
But the perception rounds out a negative view of the company that has been made worse by a round of layoffs in February, a plunging stock price, and a barrage of negative headlines ranging from Icahn's criticism of Yang's leadership to regular reminders that Yahoo lags Google (GOOG) in Web search. "The problem here isn't that there is not enough innovation happening; the problem is similar to any large companies' problem: How do you spread news of all the good things happening," says Jeremy Zawodny, a prominent Yahoo developer and longtime evangelist blogger for the company. "The [negative] news is in our faces all day long. The more people read, the more they are going to fall into the trap of believing it."
Even Zawodny, however, understands the allure of a smaller company for many Yahoos. Zawodny announced this month that, after 8 years at Yahoo, he is leaving for online classifieds site Craigslist. "In a small company [the attitude] is, 'Hey, let's launch it and let's see if the users like it,'" Zawodny says. "There was a time a few years ago where Yahoo had more of that mentality. But as companies get bigger and bigger, many of them reach a point where they can't do that as quickly."
Fewer New Hires
Yahoo has taken measures to spark more innovation by capturing a small company feel. In February, 2007, it launched Brickhouse to give employees with interesting, potentially lucrative ideas a chance to escape their normal work duties and develop a new project full time. The division is being led by Chad Dickerson, the longtime director of Yahoo's developer network. An e-mail to Dickerson returned a notice that he was on vacation. But Yahoo spokeswoman Kim Milosevich says Brickhouse is still going strong. "Brickhouse continues to be a hub of internal innovation at Yahoo, having successfully launched two new products," Milosevich wrote in an e-mail, referring to Y! Live, a live Webcam service, and Fire Eagle, a service that shares location information to social networking services and other applications. Brickhouse is even hiring. In a May 19 blog entry, Dickerson placed want ads for three positions, including a software engineer.
But the ability of Brickhouse, and Yahoo overall, to draw the kind of innovators they want for such open positions is made more difficult by the high-profile departures. Many of those responsible for Brickhouse's very creation are now gone. Bradley Horowitz, once head of the division that oversaw Brickhouse, left for Google in February. Former Brickhouse head Salim Ismail opted to take a severance package in February rather than stay on. And now Fake, who was on maternity leave, is not coming back. "They are definitely losing some talent and institutional knowledge, and we think that's a problem," says Dema Zlotin, co-founder and vice-president for strategic services at Covario, an online marketing analytics firm.
Of course, not all of the departures are necessarily bad for Yahoo. Some of those leaving are in areas where Yahoo has had mixed success. Yahoo's search technology has failed to match Google's, and Yahoo shut down its music offering in February, making many jobs in that division irrelevant. Indeed, the company has reportedly slowed hiring efforts in the past month, indicating that the organization may feel it can afford to lose a few more people before it brings in new blood.
Still, to hire the kind of employees Yahoo wants both now and in the long term, it needs to be seen as a healthy work environment full of innovation and new ideas. Otherwise, smaller startups and Google will continue to lure away not only key members of its existing ranks, but those needed for its future.