Yahoo's Search for a Vision

Of the many possible paths the struggling Internet company and CEO Yang can take, a strategic direction must be step one

by Robert Hof

Everyone from Wall Street analysts to former employees to advertising firms seems to know just what struggling Internet pioneer Yahoo! (YHOO) should do to turn itself around. And each "solution" is a doozy: Lay off hundreds or even thousands of employees. Get out of the search ad business and just use Google (GOOG). Sell out completely to Microsoft (MSFT).

As persistent as all these rumors have been over the past year or more, the most radical versions of those moves are still unlikely to happen until Yahoo addresses it's overriding problem: Its leaders—in particular co-founder and Chief Executive Jerry Yang—need to decide once and for all what Yahoo stands for in a new era dominated by search and social networking. And they must clearly articulate how they're going to get it there.

Start at the Top

So far, that hasn't happened. Last October, Yang outlined a strategic direction that to many observers was more of a three-pronged to-do list than a cohesive vision of Yahoo's future. He said Yahoo would look to be the starting point for Internet users, extend its ad offerings to other sites, and open up its technology base to outside programmers and publishers to come up with spiffy new services for the company's Web pages.

But many people, most of all investors, don't think any of that will help consumers understand why they should spend more time using Yahoo than Google, Facebook, MySpace (NWS), or countless other services growing much faster in popularity. Even people at Yahoo, says one executive, aren't sure which projects they should focus on, so efforts to improve services continue to move slowly. "I don't think they understand where to go," says Sramana Mitra, a Silicon Valley Web strategist who has written extensively about Yahoo's challenges on her blog. "They're running around like chickens."

With inadequate direction from Yahoo's leadership, it's no surprise that nearly everyone has advice. Here's the rundown on the possibilities—none of which seem likely to get Yahoo back on track in the absence of more fundamental thinking on Yahoo's raison d'être:

Slash and burn. Fire 2,000 employees, Bernstein Research analyst Jeffrey Lindsay advised in a Jan. 11 report. He said that would give Yahoo more profits to pursue initiatives such as mobile search and video as well as acquisitions. The company is mulling layoffs, but more in the range of hundreds of employees. Deeper cuts, flagged privately by people at Yahoo as unlikely, sound more like wishful thinking by investors than sound advice. They presume that Yahoo is stumbling toward death's door when it's not: In its fourth-quarter report Jan. 29, the company is expected to show a 15% gain in sales, to $1.4 billion, though profits are expected to fall.

And despite a stock price that's fallen 41% from last year's Oct. 26 peak, a steady departure of executives, and continuing losses in its share of the Web search market to Google, Yahoo boasts strengths that belie the dire predictions of doom by naysayers. Yahoo gets 500 million visitors a month, still the most on the Web, and remains a leader in key areas such as e-mail, sports, and financial news and information. "They continue to have a ton of traffic," says Kevin Lee, executive chairman of digital ad firm Didit.