Monday, November 20, 2006


Yahoo! is in trouble, according to an internal memo that could see its workforce slashed.

A confidential internal memo reported in The Wall Street Journal has revealed that Yahoo! needs a dramatic organisational shake-up and cuts in its work force of up to 20%, according to an internal memo written last month by senior vice-president Brad Garlinghouse.

Garlinghouse, described as a second-tier Yahoo! executive who has taken increasing powerful roles in the company since joining three-and-a-half years says that Yahoo! suffers from a "lack of consistent leadership, business focus” and a "single cohesive strategy".

"We lack a focused, cohesive vision for our company. We want to do everything and be everything -- to everyone."

The document was published in the Saturday edition of The Wall Street Journal and a Yahoo! spokesman has confirmed it is authentic.

According to the WSJ article , Yahoo! shares have fallen about 31% since the start of the year, compared with a roughly 20% rise for Google. EMarketer predicts Google will command 25% of U.S. online-ad revenue this year, compared with 18% for Yahoo, when certain marketing expenses are factored out. Both had a roughly 19% market share last year, according to the research firm. Yahoo's quarterly revenue has essentially plateaued near $1.5 billion for the past four quarters it reported.

Yahoo last month said third-quarter net income dropped about 38% from a year earlier, largely because of changes in accounting for stock options, and it lowered its 2006 revenue projections, citing competition for ad dollars.

The Journal story also describes rumours that chief operating officer Dan Rosensweig and chief financial officer Sue Decker could be elevated to become co-presidents, in preparation for the retirement of chairman and CEO Terry Semel, age 64, who joined Yahoo! five years ago.

The call for restructuring follows a series of embarrassments that have caused Yahoo! shares to lose 31.5% of their value so far this year as it struggles to keep up with rival Google.

Google has been piling the pressure on Yahoo! after its YouTube acquisition. Despite being told by some that it is just about to enter a world of legal trouble with its huge $1.65bn acquisition of YouTube, Google is seen as leading the way in terms of dotcom innovation.

Google has made some inspired acquisitions with the likes of Blogger and Picasa, as well as others. Now people are looking to see what Yahoo! will do, and whether it will be able to clinch a deal to buy the number two social networking site to recapture momentum from Google.

It badly needs something major. If Yahoo! waits around too long it will be beaten to the punch as the sector gains in confidence and, more importantly, the valuations continue to rise. Second-tier players are seeing their valuations rise in turn. Facebook looks like it will cost $1bn. This is a price that Viacom has already blinked at before slinking away.

The memo, which is for some reason known as "The Peanut Butter Manifesto" because it argues that Yahoo's investment strategy is like spreading peanut butter too thinly on bread – calls for a "radical reorganisation" of the web giant.

Garlinghouse says Yahoo! should cut its staff by as much as 20% as part of a plan to reshape the current business "There are so many people in charge (or believe that they are in charge) that it's not clear if anyone is in charge. I believe we must embrace our problems and challenges and that we must take decisive action," the memo states bluntly."

He focuses on deleting a variety of duplicative groups that pit established business units against new initiatives, including music, photos, search, applications, social networks, global strategy and even who controls the Yahoo! homepage.

Is anyone running this company?

In a statement, Yahoo's leadership has defined three areas of focus for its business.

"The memo itself highlights that we have an open, collaborative culture and a senior management team that is intensely committed to helping Yahoo! fulfil its potential as an internet leader," the Yahoo statement said.

The WSJ says the memo has received support from Yahoo! senior management and that Garlinghouse had been asked to head an internal committee to investigate the issues he raises.

The memo itself was written in response to a New York Times article last month that Garlinghouse describes as "a painful public flogging".

"While it lacked accurate details, its conclusions rang true, and thus was a much-needed wake up call," the Yahoo executive writes. "It's time for us to get back up."


At 3:58 PM, Anonymous Lisa Scully-O'Grady said...

Well this memo will either make or break Garlinghouse's career. Either way it is refreshing to see that someone has the courage to risk being unpopular with the senior management by spelling out a few painful hometruths. It's good for Yahoo that management is responding so positively.


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