Yahoo was broken before Mayer got there

marissa_new4Yahoo supremo Melissa Mayer made a huge mistake when she thought she could turn the search engine outfit around.

The press is claiming that the mess that is Yahoo is all her fault, but what they have been forgetting is that the company was doomed before she took over. Her only mistake was taking the job in the first place.

In the 1990s, dotcom boom Yahoo was king but as a search engine and web portal that was superseded by Google and Facebook.

It is still the world’s fifth most popular website and an enormous business: its revenues were $1.2 billion in the last quarter; that’s more than Twitter, or LinkedIn. But its biggest problem is that no one could work out what to do with it.

Terry Semel in the early 2000s failed to buy Google and then tried to become a gigantic media company. Then a series of chief executives failed to turn the company around and specularly failed to see the writing on the wall for the company. Jerry Yang turned down $45 billion from Microsoft and his successor Carol Bartz hacked off everyone and Scott Thompson, who left. For hacks like me who were around then Yahoo really was a joke and could do nothing right.

In 2012 Yahoo hired Marissa Mayer, a former Google superstar who looked like she could return the company to its glory days. She started off rather well. She wrote a billion dollar cheque for the social blogging service Tumblr and $30 million for Summly. She invested heavily in mobile apps.

Yahoo stock value doubled but this was mostly because of the only good decision the company ever made – to spend a billion getting a 40 percent stake in Alibaba, China’s internet retail goliath.
It still has 15 percent of Alibaba which is worth $30 billion when Yahoo itself is only valued at $31 billion.

Yahoo’s stake in Yahoo Japan, a separate company, is worth about $8.5 billion, this actually ascribes a negative market value to the core business.

As a result Yahoo’s internet business is worthless and it would be better off if it shut down and became a holding company for Alibaba shares.

It is a scenario which Mayer could not actually win or change. If she flogged the Alibaba shares she would be hit with a tax bill and she would be investing in rubbish. Instead the only sensible move is to spin off the core business and that would mean she failed.

She did make a few mistakes. Hiring and firing a chief operating officer who earned $58m in 15 months, cancelling working from home while bringing her baby and a full-time nanny to the office.

But these are minor to the central problem. Yahoo was a company which was designed to help people find their way around the web and it was no longer needed. Yahoo could not become something else without doing what Apple did – it went from making expensive PCs which no one was buying, to a maker of smart toys which were very “now.” Yahoo stuck to being consumer internet and doomed itself.