Yahoo's Revival or Demise

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As large shareholders and activists are beginning to argue over the future of Yahoo!(YHOO), small investors remain confused on the matter. After missing the “mobile first” boat the company has struggled to stay relevant. Now, activists are coming forward with a variety of proposals, all of which suggest a significant restructuring of Yahoo.

First Proposal: Starboard Value

  • Sell the core business’s assets (To private equity or Verizon)

  • Keep Marissa Mayer

  • Keep Yahoo as a holding company for its stake in Yahoo JP and Alibaba

Investor Eric Jackson of SpringOwl  Photo: WSJ

Investor Eric Jackson of SpringOwl Photo: WSJ

The newest proposal comes from SpringOwl Asset Management’s Eric Jackson. Jackson is a long term investor in Yahoo and has followed the company for almost a decade. Jackson has been aggressive since he released his proposal and is actively contacting small & large investors for support. Check out his article in The Street or SpringOwl’s Proposal to get a better sense of what he is trying to communicate. Eric Jackson also defended himself and his proposal on Twitter which is also a good resource to understand his reasoning.

SpringOwl Estimates that a Yahoo! has spent $450 million on free food for employees over the past 4 years

SpringOwl Estimates that a Yahoo! has spent $450 million on free food for employees over the past 4 years

Second Proposal: SpringOwl

  • Keep the core business

  • Cut jobs and costs significantly (cut 75% of workforce, $2 billion worth)

  • Ditch Marissa Mayer

  • Boost focus on successful ventures: Yahoo Finance, Sports, Mail, and PC based content

  • Kill unsuccessful ventures

So what should investors believe?

I believe that it is possible to unlock more value in the company by holding onto the core business and stripping their product line down to their most successful services. In order for Yahoo to revive their core business they must be more focused, reimagine their design, and attract more small business customers.

The decision to keep Mayer on board should ultimately be up to the board, her employees, and shareholders — not the media and loud activists. It is widely accepted that her compenstation package is ludicrously high, for the size of the company and their poor financial performance over her tenure. Mayer is on track to receive $365 million over 5 years.

Focus

Yahoo needs to identify what they actually are and what kind of company they want to be perceived as in the future. Consumers are confused on what Yahoo is and what products they are really offering. Consumers aren’t sure whether Yahoo is a search engine, email management system, or media company(see polls further in report).

Media Company: Great

Search Engine: Great

Mail Management System: Great

Mixture of a Media, Search, and other scattered products: Terrible

The lack of focus within management has led people to wonder what Yahoo has transformed itself into. Millenials and youth are very confused with what Yahoo has become. Yahoo needs to indentify what it really is, and strip failing or unused products from the brand.

Between the two proposals, the SpringOwl option is the right way for the company to go. SpringOwl clearly is focused on maximizing shareholders value (while excepting more execution risk). If Yahoo manages to focus and narrow their product line down to “the core” they might be able to pull off a successful revival.

Here are some steps that the company should take in order to focus and maximize their best products:

  1. Cut workforce significantly and move to curating news from other outlets such as: CNBC, CNN, NYTimes and Buzzfeed

  2. Redesign homepage to feature Yahoo’s best: Mail, Finance, Sports, and search. Have a clutterless approach to design, get rid of product links that are unused: groups, games, screen, live, mobile, etc. (Top bar and side bar)

  3. Cut stock based compensation and excessive benefits

  4. Liquidate or shut down failed M&A ventures

  5. Reduce compensation for CEO Marrisa Mayer (Tie it to the performance of the core brand- not other investments)

  6. Re-Imagine the business plans behind Flickr and Tumblr to create viable platforms with monitization plans

The basic message that all investors should understand is: Yahoo!’s core business has never been worth less. Why sell when it is so low?

If management is able to turn the core business into a valuable asset and recover market share with a mobile-first strategy, investors would be significantly awarded.

Design

Yahoo’s failures don’t all revolve around the company’s failure to adapt to mobile. Marissa Mayer has failed to impliment a clean intuitive design for the Yahoo platform. Yahoo’s whole design aesthetic has been ditched in order to fit the most revenue enducing content on the page. Conveying a “simple” design isn’t as easy as it may seem. Having a clear, simple design is actually quite a complex process. For more on simple design: A great read on the “simple” designs by Robert Hoekman Jr. from Wired Magazine

If you visit yahoo.com(you may not have visited in while) you might confuse it with comcast.com. It is cluttered, it has sidebars on each side, rotating stories in the center, a large active ad banner, a search bar at the top, a header bar above that, and a multitude of ads for Yahoo’s products.

Photo: Bloomberg Finance

Photo: Bloomberg Finance

“It was her keen design aesthetic that in part led to her success at Google…Mayer’s most enduring legacy at Google may prove to be the company’s search engine homepage, with its minimalist feel, ample white space and bright blue, red, yellow and green colors. She is credited with pushing for that clean, approachable look”

— CNN on Marissa Mayer’s hiring in June 2012

So if Mayer prided herself in keeping Google’s homepage clear and simple, why is Yahoo!’s the opposite?

A comparison between Google’s Homepage and Yahoo!’s Homepage

A comparison between Google’s Homepage and Yahoo!’s Homepage

Bing’s Homepage features a clear focus on search, with a sideshow on trending news and a clear simple background feature image.

Bing’s Homepage features a clear focus on search, with a sideshow on trending news and a clear simple background feature image.

While Yahoo has a media business and Google doesn’t, it still doesn’t make up for their poorly designed, cramped homepage. If Yahoo wants to continue to run their search engine, they need to focus on it and make it a significantly different experience than Google or Bing (Search engines ranked 1st and 2nd, respectively). Having a sidebar with 20 of Yahoo’s services will make users feel incredibly overwhelmed and confused with Yahoo’s identity.


 

A poll conducted on Twitter (312 responses)

 
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It is clear that Yahoo is having an identity crisis. When asking a random sample of Twitter users* the question, “What is the company Yahoo to you?” there is no clear choice (besides not using Yahoo). When asked if they were more likely to use Yahoo if it was redesigned, less than 45% said “yes” or “they would at least try it”. This comes from Yahoo’s denial to deal with their out of date design and lack of identification with an an ever increasing younger audience.

Lack of concentration on Small Business

One of Facebook, Google, and Twitter’s best features is that small businesses can access and purchase their services with ease and efficiency. With a few clicks on my iPhone I was able to promote 3 tweets, garner almost 6,500 impressions and poll almost 1,000 people. Hypothetically, if I wanted to buy advertising services from Yahoo, I would need to schedule a callback?* If a small business owner had the choice between purchasing and managing their ad campaign completely by themselves online(offered by Facebook, Google, and Twitter) they would probably skip advertising on Yahoo all together and pick the competitor’s solutions.

I’ve reached out to Yahoo! and their competitors regarding this topic and have yet to receive a response.

The core business of Yahoo! works, it just isn’t anything special, easy to use, or attractive to new customers.

While Eric Jackson’s SpringOwl recommends suspending all development into “hail-mary” products or acquisitions, Yahoo will need to spend a significant amount of capital to re-focus the brand and alter its design to attract and retain users.

If Marisssa Mayer wants to remain in control of the company, I suggest she address investors, employees, and activists’ concerns. It is tough to argue that someone else has more experience than Mayer does, and she did specialize in product management at Google. The company without a doubt still has very tough times ahead, with significant layoffs needed.

Investors should hope the board chooses a less dramatic plan than Starboard’s “gut and run” and SpringOwl’s “cut and squeeze” scenarios. The proposals bring across a multitude of valid points that the board should consider, but it is clear that Yahoo should focus their brands and work on design if they want to bring more value to the table for either scenario(or an entirely different scenario).

Disclosure: I do not hold any positions in YHOO and do not plan to make any in the next 30 days.

*Each poll consisted of roughly 300 Twitter users and was measured over a period of 24 hours.

*Information taken directly from advertising.yahoo.com




Christian PrenzlerComment