The Street to Yahoo: Be Aggressive

To avoid Terry Semel's missteps, new CEO Jerry Yang must move swiftly in making deals, spurring innovation, and attracting and retaining talent

by Catherine Holahan

Wall Street's applause for Yahoo's (YHOO) choice of a new chief executive didn't last long. While the shares got a boost immediately after the company said Jerry Yang would replace Terry Semel as the company's top Yahoo, the stock gave up part of those gains the following day, June 19. If he wants to hear the clapping resume, Yang will need to heed analysts' more immediate, resounding message: Be aggressive. Be very aggressive.

In recent years, some of Yahoo's biggest failings have stemmed from an overly cautious stance on acquisitions and an inability, or unwillingness, to pounce on new trends. Cases in point: Despite the 2003 purchase of online advertising pioneer Overture Services, Yahoo failed to tinker with the company's once-innovative formula for matching ads to search queries, enabling Google (GOOG) to dominate the market. And even after recognizing the need for a better method of generating sales from search-ad placement, Yahoo was slow to debut the new software, known as Panama.

More recently, Yahoo tarried before fully acquiring online advertising exchange Right Media after taking a 20% stake. It wasn't until Google announced plans to buy the competing DoubleClick for $3.1 billion (see BusinessWeek.com, 5/1/07, "The Promise of Display Ads")—and Right Media's value surged more than threefold—that Yahoo snapped up the remainder of the company. And Yahoo never inked a deal with thriving social network Facebook, despite months of talks.

Bringing Back the Fire

"Yahoo's strategy strikes me as too reactionary. It seems like they are in the 'me too' camp," says Scott Kessler, an analyst at Standard & Poor's, which is owned by BusinessWeek.com parent The McGraw-Hill Cos. (MHP). "They are not being as forward-thinking and pro-active as they should have been."

To succeed, Yahoo's co-founder will have to recapture some of the company's fire. Yahoo was on a hot streak from early 2003 to mid-2004, the period following the Overture deal, and its stock first climbed to more than $32 a share. Yang will have to encourage the company to recognize and incorporate interesting technological innovations faster.

One way Yahoo can do this is by moving more swiftly on acquisitions. Instead of wasting energy building homegrown versions of popular Web sites or deliberating for months over potential purchases, Yahoo should reach for the pocketbook when it sees a promising property. Imagine, for example, if Yahoo had pounced on Del.icio.us, a company it ultimately acquired, rather than first trying to build its social bookmarking site, "my web." Instead, Yahoo now has two sites attempting to provide similar services. Yahoo Senior Vice-President Brad Garlinghouse cited several such examples of "competing (or redundant) initiatives" in his lengthy "Peanut Butter Manifesto," a scathing internal memo leaked last November (see BusinessWeek.com, 12/6/06, "Yahoo's Shakeup").

Creating a Cohesive Vision

In that vein, when Yahoo acquires a company it shouldn't be afraid to put all its energy behind the acquisition and get rid of the also-ran initiative. Keeping both can fragment the audience for that type of site and, according to Garlinghouse's critique, unsettles employees who are suddenly faced with counterparts.