How does one go about finding a CEO? If you’re Wal-Mart, you designate your heir like a Viking chief, picking the strongest of your children. If you’re Yahoo!, however, you put “Affirmative Action Hire” or “Easy, Breezy, Covergirl” in your third-rate search engine and hope for the best. What dubious specimen does the search engine spit out? One Marissa Mayer.
When Mayer and Yahoo! first jumped into bed together, it began like any relationship between a glamorous young woman and an ageing, increasingly desperate sugar daddy. She erratically spent all of Yahoo!’s money. Not only that, but she spent it on Tumblr. For goodness’ sake, the new CEO of the company and she blows a billion dollars on Tumblr.
The jokes write themselves. But just in case you’re out of ink: a token female CEO who immediately goes on a disastrous spending spree — colour me shocked!
Investors seem to be clocking on to the disastrousness of their board’s decision, and are at last pushing for the beleaguered CEO’s removal. Eric Jackson, CEO of SpringOwl Asset Management, recently wrote an op-ed for Vanity Fair explaining why investors wanted her gone. “Mayer’s leadership run at Yahoo may only have four more weeks,” he predicted.
This followed a letter to the board of directors from the CEO of Yahoo! investor Starboard Value L.P., Jeffrey Smith, who bluntly stated that Meyer and other board members needed to go. “Dramatically different thinking is required,” wrote Smith, “Together with significant changes across all aspects of the business starting at the board level, and including executive leadership.”
Jackson has, notably, been beating the anti-Mayer drum for a while. “Yahoo is about to have a massive heart attack from obesity,” warned Jackson late last year, who, in a blistering 99-page report, recommended firing Mayer and reducing the company’s head count by at least 3,000 employees.
The current round of investor discontent stems from Mayer’s failure to spin off the company’s stake in Chinese e-commerce company Alibaba, which accounts for the bulk of Yahoo’s market value. As for Yahoo!’s legacy properties, they remain stuck in the past. Yahoo! Mail, once a titan, goes down more often than I do. Mayer’s response? Post about it on Tumblr. You can’t make it up.
Yahoo!’s reluctance to embrace mobile, in particular, leaves me flummoxed. Did they really think the desktop computer was the wave of the future? Yahoo!’s business strategy seems to be based on Prince’s song 1999. It never entered the next millennium.
New products launched under Mayer’s watch have proven disastrous. It seems the proposals emerging from Yahoo!’s talent-deprived labs are as heinous as Marissa’s fashion sense. Yahoo somehow messed up their entry into the twenty-first century with Snapchat’s “discovery” feature, a feature that worked extremely well for other companies such as BuzzFeed, which now derives 21 per cent of traffic from Snapchat.
Yahoo, however, decided to hire the hip, young, and absolutely still relevant Katie Couric to represent them on the platform. Shortly after launch, they were quietly fired by Snapchat.
Of course, no story of Yahoo!’s bad product decisions would be complete without a mention of Livetext, a hybrid of a German impressionist take on video chatting and this newfangled concept of “texting.” You could awkwardly watch, but not talk, as you texted your loved ones and friends. Livetext’s introduction ranks up there with the Hindenberg, the Titanic, and Jar-Jar Binks.
Then there’s Mayer’s compensation scheme. Executive pay at Yahoo! is essentially based on Alibaba’s stock price, a compensation scheme so wrongheaded we at least know Yahoo! developed it in-house. Executive pay is most effective when the short and long-term incentive schemes result in “pay for performance.”
But, of Mayer’s $365 million pay over five years, only 3.3 per cent will actually be affected by her performance. So really, why should she care how well Yahoo! does? She can just fail upwards to a bigger company. Or even, Heaven forfend, run for President.
Compensation throughout the rest of the firm is no better. Mayer knows one way to make people like you is to bribe them. Employees get perk after perk: iPhones, lavish parties, free lunches. I have to admit, I am slightly jealous of the firm’s $108,000,000 a year food budget. Imagine the amount of cruelly-sourced foie gras you could buy with that, now it’s once again legal in CA.
Even with these perks, more than a third of Yahoo!’s workforce has left within the past year, a brain drain that is causing Mayer a significant headache. Parties and iPhones are good for retaining average employees, but top talent stays for higher salaries, clear career development plans, and opportunities not only to flex their muscles but to learn new skills as well. Despite a sea of freebies, Yahoo can’t provide the kind of challenges and excitement required to retain top minds. That’s the real sign that the company is, in the long term, screwed.
Even those staying aren’t particularly confident in the company’s prospects. According to surveys conducted by Glassdoor, only 34 per cent of Yahoo’s current employees foresee the company’s fortunes improving. That compares to 61 per cent at tanking, scandal-struck Twitter and 77 per cent at Google.
According to Mayer, all is not lost. She’s proud of how she’s allocated Yahoo!’s capital. The problem is nobody else is pleased with her profligacy. It’s estimated that she’s misspent $10 billion (yes, billion) of Yahoo!’s capital. Mergers and acquisitions valued at zero, fruitless planting of seed money in R&D, and bad stock purchases all have the hallmarks of a shop-til-you-drop run on the company coffers.
In the interests of fairness, I must point out that Mayer’s time as CEO has not been without some glimmers of promise. For example, she has finally figured out that there’s a future beyond desktop. Her “MaVeNS” scheme (a tortured acronym that stands for “Mobile, Video, Native Advertising and Social”) is a quiet growth area for the company.
As our own Christ W. Street noted in November:
If Yahoo were a stand-alone “MaVeNS” company, it would have up to an $8 to $15 billion valuation on a screaming 50 percent growth rate. That would be similar to hot stocks like Tableau (NYSE:DATA) or FireEye (NASDAQ:FEYE), according to Brian Nichols at Premium Research.
Yahoo’s Internet business’ may be declining, but the company is still one of the most-visited websites in the world. It received 210 million unique visitors in October, according to comScore, making it the No. 3 site behind Google and Facebook. To a weaker competitor like Microsoft, the business would still be worth at least one times revenue, or about $3.6 billion.
Yahoo also has an ownership stake in Yahoo Japan that was valued recently by Reuters at $8.8 billion, and $5.8 billion in cash after subtracting out Yahoo’s debt.
Despite the opportunities, Mayer seems incapable of taking the tough decisions needed to move Yahoo! forward. A major point in Eric Jackson’s report is the company’s apparent inability to fire people. Let’s be honest: this wasn’t entirely unexpected, as it’s a known fact that women suck at firing people.
Despite representing 4.2 per cent of the Fortune 500, not one company with a woman CEO has engaged in meaningful downsizing. This brings us to the important question of why Marissa Mayer won’t fire anyone, especially as the company has been estimated to have over double the number of employees that it needs.
Well, you see, Mayer is a product of Silicon Valley’s troubling obsession with diversity, which saw the hiring of a young, pregnant woman as more important than doing what was best for the company.
Silicon Valley, for the last 30 years, has been a hub of American economic and technological innovation. It’s also, save for a few Bay Area libertarians, a curious epicentre of bleeding-heart liberalism. As shown by Ms. Mayer’s off-the-track record, this may well be its undoing, especially with emerging tech markets such as India, China and even Europe nipping at the Valley’s heels.
What to do? Probably, nothing more than watch the ouroboros devour its own tail. Speaking out against the progressive orthodoxy can be damaging to your career in Silicon Valley. Brendan Eich, the CEO of Mozilla, was notoriously sacked for a small donation to a charity that campaigned for traditional marriage.
As Marissa Mayer gleefully drives Yahoo! off a cliff in a brand-new Rolls-Royce, will Silicon Valley think twice about its philosophy of diversity over talent? Or will the progressive principles that choke the arteries of San Francisco continue to flow? Breitbart Tech will be watching closely.
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