Yahoo leadership strategies and organizational development

Yahoo! Leadership

An Analysis of the Positive and Negative Impact of Leadership at Yahoo! Inc.

Because the quality of a company's leadership has such a profound impact on its performance and profitability, this topic has been the focus of a growing body of research over the years. In this regard, the research will show that the management at Yahoo! Inc. has had a myriad of positive and negative influences on the performance of the company. To illustrate this assertion, this study provides a review of the relevant peer-reviewed, scholarly and organizational literature to identify the positives and negatives about the leadership at Yahoo!, followed by a discussion concerning the influence that both positive and negative leadership has had on the company's performance in recent years. A summary of the research and salient findings are presented in the conclusion.

Review and Discussion

Company Overview

In just 15 short years, Yahoo! Inc. has emerged from the dot.com bust of the late 1990s to become one of the leading providers of Internet services to users, advertisers, publishers, and developers around the world today. According to the company's corporate profile (coincidentally also provided by Yahoo! Finance), Yahoo! Inc. (hereinafter "Yahoo" or "the company") provides an array of online properties and services to users as well as marketing solutions and tools to advertisers and publishers alike (Yahoo, 2009). The company's products and services include the following: Yahoo! Front Page, My Yahoo!, and Yahoo! Toolbar; search products consisting of Yahoo! Search, Yahoo! Yellow Pages, Yahoo! Maps, Yahoo! Local, Yahoo! Shopping, Kelkoo, Yahoo! Travel, Yahoo! Personals, and Yahoo! Answers (Yahoo). These powerful and sophisticated features provide its customers with a wide range of business solutions and useful tools that enable seamless online browsing and intelligent searches and are even accessible using a variety of mobile peripherals (Yahoo).

The company's communications and communities product line, including Yahoo! Mail, Zimbra Mail, Yahoo! Messenger, Yahoo! Groups, Yahoo! 360 degrees, and Flickr (Yahoo). The company also offers various information products, including Yahoo! News, a service that consolidates news stories; as well as Yahoo! Finance, the very service that provides their own company profile, key statistics, Security and Exchange Commission (SEC) filing, and a vast array of other useful tools that allow for easy analysis of company performance (Yahoo).

The company also offers services such as Yahoo! Sports; Yahoo! Shine for women; and Rivals.com, which provide online college and high school sports and recruiting information. The company's entertainment products include Yahoo! Music, Yahoo! Movies and Yahoo! TV, Yahoo! Games, Yahoo! Video, and omg! (Yahoo). Beyond the foregoing offerings, Yahoo also provide services for consumers such as Yahoo! Autos that provide users with the ability to research, price, and compare vehicles online; Yahoo! Real Estate for real estate information; Yahoo! Food, an online food destination; Yahoo! Tech that offers information on consumer electronics; Yahoo! Kids, an entertainment and educational Internet guide; and Yahoo! Health, a healthcare destination (Yahoo).

Finally, the company also offers services such as Yahoo! Digital Home, Yahoo! Mobile, and Yahoo! Desktop that provide its growing number of users with the ability to access the company's robust content and various online communities using any type of Internet-enabled device; in addition, Yahoo also offers Yahoo! Broadband; Yahoo! HotJobs, an online recruitment solution; and Yahoo! Small Business online services (Yahoo).

The company enjoys strategic partnerships with at&T, Inc.; Verizon Communications, Inc.; BT Telecommunications PLC; Rogers Cable, Inc.; and Newspaper Consortium (Yahoo). As reported in the company's most recent Form10-Q filing (November 7, 2008), Yahoo is.".. A leading global Internet brand and one of the most trafficked Internet destinations worldwide. We are focused on powering our communities of users, advertisers, publishers, and developers by creating indispensable experiences built on trust" (Form 10-Q, 2008, p. 2). The company also reports that it currently provides Internet services that are essential and relevant to a growing number of user communities, as well as advertisers, publishers, and developers, and seeks to grow these business units in the future (Form 10-Q, 2008). To this end, Yahoo has entered into a series of strategic partnerships over the years with various major well-known publishers, including eBay Inc., WebMD, Cars.com, Forbes.com, and the Newspaper Consortium (a consortium of more than 20 leading United States newspaper publishing companies) (Form 10-Q, 2008). The company was established in 1994 and currently maintains its headquarters in Sunnyvale, California (Yahoo).

Table 1 below provides a recapitulation of the company's key leadership team today.

Table 1.

Yahoo's current key leadership team.

Executive

Pay

Exercised

Mr. Jerry Yang, 40

Co-Founder and Chief of Yahoo!

Mr. Blake Jorgensen, 49

Chief Financial Officer

Mr. Michael J. Callahan, 40

Executive Vice President, Secretary and General Counsel

Mr. Michael a. Murray, 53

Chief Accounting Officer and Senior Vice President of Finance

Dr. Carol a. Bartz Ph.D., 60

Chief Executive Officer

Notes: Dollar amounts are as of December 31, 2007 and compensation values are cited for the last fiscal year ending on that date. "Pay" is salary, bonuses, etc. "Exercised" is the value of options exercised during the fiscal year.

Source: Yahoo! Finance, 2009.

Financial Performance

As can be readily seen in Figure 1 below, Yahoo's stock performance has consistently outperformed the NASDAQ, but, like the rest of the global economy, the company experienced some rocky periods following the dot.com bust in which it experienced a drastic decline in advertising revenues combined with the terrorist attacks of September 11, 2001.

Figure 1. Yahoo! Inc. (YHOO) stock performance vs. NASDAQ (IXIC): 1998 to date.

Source: Yahoo! Finance, 2009.

According to the company's most recent SEC quarterly report (November 7, 2008), the company anticipates relatively flat revenues in the coming months, but also takes pains to emphasize that it is well situated to take advantage of continuing growth in online use through its strategic partnerships, especially Google and at&T (Form 10-Q, 2008). In this regard, the company's most recent Form 10-Q states: "We believe our growing number of users, advertisers, publishers, and inventory, both on and off our network, over recent years has driven the increases in our marketing services revenues. We also believe our expanding offerings, including our enhanced algorithmic search technology, contribute to our growing number of users" (2008, p. 3).

Taken together, it would be reasonable to posit that Yahoo is well poised to take advantage of the continued growth in Internet access and online advertising, and its historic performance indicates that the company's leadership has played an integral role in helping Yahoo achieve its position in the market today and these issues are discussed further below, followed by an assessment of some of the more significant failures - at least in good judgment - that have plagued Yahoo to date.

Positive Leadership Contributions

Given the enormous number of business failures that occurred during the dot.com bust of the 1990s, it is reasonable to suggest that the company's leadership must have been doing something right to survive at all, not to mention emerging from the fiasco as a global provider of Internet services. For example, according to one chronicler of the company's successful history, "Looking back on Internet mania, one company stands out: Yahoo. it's as potent a symbol as any of the late 1990s phenomenon that swept popular culture, the stock market, the entrepreneurial set, and the economy at large" (Angel, 2002, p. 3).

When the company's leadership made the decision in March 1996 to take the company public, investors could not buy enough of its stock and Yahoo's stock continued to increase in value throughout the late 1990s and 2000, reaching a split-adjusted high of $237.50 (Angel). In addition, Angel reports that, "Yahoo's stock had jumped 584% in 1998. At the beginning of 1999, its market cap was $23 billion; three months into the year, it had already ballooned to $35 billion" (p. 150). In March 2000, though, the impact of the dot.com bust adversely impacted the company's stock, which was followed by the aforementioned terrorist attacks of September 11, 2001. Taken together, this double whammy represented an enormous adverse impact on the company, particularly since almost half of Yahoo's advertisers at the time were dot.com businesses themselves (Angel).

The company's early leaders brought a variety of leadership styles and traits with them, but Angel emphasizes that despite their fundamental differences in style and philosophy, there was a definite synergy involved and they all tended to mesh well together. As this author points out, "The Yahoo team had a sophisticated, nuanced view of what it takes for a company to stay ahead and an appreciation of the importance of intangibles like image. The [original leadership team] understood that leadership can be both real and perceived. You can still be the perceptual leader of a category" (p. 54). During this early evolutionary period of the Internet and home computers, it is to the company's leadership's credit that they had a vision and took the steps necessary - including no small amounts of monetary investments - to bring their goals to fruition. In this regard, Angel adds that, "They were ahead in enough of the product areas, either through acquisition or development of their own, to be able to convince consumers or the community or the virtual communities that they could stay ahead of the curve, that they were innovators" (p. 54).

Indeed, the fact that the company's leadership team survived at all during its formative years speaks highly of the founder's vision and perseverance. In fact, Jerry Wang was originally rejected by a venture capital firm for suggesting to use what Hargrove (2001) indicates was "such a ridiculous name as Yahoo" (2001, p. 271). As Ashby and Miles (2002) also emphasize, countless up-and-comers at the time failed to make good on their plans for growing their businesses during the 1990s for a variety of reasons: "The decade departed in a rush of technology-driven euphoria that is not likely to be seen again for a long time; 21-year-olds are not likely to have another opportunity to raise millions of dollars on the strength of simplistic business plans favored simply because they contained the word 'Internet'" (p. xvii).

Despite these early problems with financing and credibility, the company's co-founder Wang and others believed that the time was ripe for their brand of online offerings and made a major management decision to allocate $4 million for a year's worth of media advertising, including television and radios spots, that helped fuel the company's early growth and ultimate success. Although hindsight might be 20-20, this was a lot of money for the upstart company and such an investment in promoting the company must be credited to the company's visionary leadership. According to Angel, "Hungry for more first-mover points, Yahoo plunked down some $4 million (small change compared to the $50-odd million it spends on advertising today) for a year's worth of TV and radio ads aimed at winning consumers' emotional allegiance.... Each of the quirky, entertaining ads closed with the now-famous 'Do you Yahoo! ' tag line and the signature yodel: Ya-hoo-oo-oo!," which are likely familiar to anyone who watched television or listened to the radio in the past decade or so (Angel, p. 55).

The company was also faced with some fierce competition from other Internet service providers, especially AOL, MSN and for a time, Terra Lycos, which by April 1999 had secured more than half of the available Internet users (Angel). In response, Yahoo's leadership team determined that the best way to differentiate its services from its competitors was by adding more and better services than what was available elsewhere. In this regard, Angel reports that, "Yahoo had to be nimble in order to regain its leadership by winning the majority of new Web users -- and keeping the ones it already had from straying to a competitor. The best way to do this at the time was to add the best new services -- thus, the steady stream of exploratory talks with upstarts and even competitors, like Excite" (pp. 150-151).

These initiatives managed to pull Yahoo out of its management and economic doldrums and helped it regain a leadership position in the industry. For example, by October 2001, Yahoo occupied by number three spot among Internet service providers, lagging behind only AOL-Time Warner (following its mega-merger, the largest of its kind up until this point in time) and Microsoft as shown in Table 2 and Figure 2 below.

Table 2.

Comparison of U.S. visitors to ISP providers: Month of October 2001.

Provider

Number of visits (in millions)

AOL Time Warner

Microsoft

Yahoo

Terra Lycos

X10.com

Vivendi-Universal eUniverse Network

Source: Dingle & Hughes, 2002, p. 76.

Figure 2. Comparison of U.S. visitors to ISP providers: Month of October 2001

Source: Based on tabular data in Dingle & Hughes, 2002, at p. 76.

The fact that some of these ISPs have gone the way of the wind and others are scarcely recognizable today is proof positive of the soundness of the management decisions made by the company's leadership team during this turbulent period in its history. From a strictly pragmatic perspective, then, the company's leadership did win that round and went on to form strategic partnerships with a wide range of vendors and telecommunications companies in ways that enhanced its services while also providing it with the clout it needed to stay the course while its competitors fell by the wayside. For example, Angel reports that, "Yahoo's next generation of deals were geared toward getting its expanding cadre of services in front of more new PC users. In early January 1999, Yahoo and Hewlett-Packard (HP) inked a deal for My Yahoo to be the start page on new HP Pavilion PCs. A week later, Yahoo and IBM announced a similar deal for new IBM Aptivas. Distribution deals with Toshiba and Micron followed" (p. 151). The company's leadership philosophy at this pointing time was to concentrate on growing its business through acquisitions and via cross-promotions with content providers (Angel).

As noted in the company overview above, today Yahoo offers both consumer and business services for a vast array of products and services and a growing number of users are turning to Yahoo first instead of trying to search for what they want elsewhere. From this perspective as well, the company's leadership has been highly successful and the company continues to enjoy earnings that, although currently flat, are projected to increase significantly in the future. Some pertinent highlights from the company's most recent Form 10-Q filing as well as previous filings that are reflective of the positive impact of the leadership at Yahoo are provided in Table 3 below.

Table 3.

Excerpts from Form 10-Q (Quarterly Report) and Form 10-K (Annual Report) SEC filings reflective of positive impact of Yahoo leadership.

Date of Filing

Summary/Key Findings

Comments

August 8, 2008 (Form 10-Q)

In the first half of 2007, the company repurchased approximately $1.0 billion of common stock and also entered into a $250 million structured share repurchase transaction. In the first half of 2008, the company also repurchased $79 million of common stock.

August 8, 2008 (Form 10-Q)

The growing audience of users makes Yahoo! Properties more attractive to advertisers and increases their spending on marketing services.

The growth in users on Yahoo! Properties and on the Internet overall reflects the increasing acceptance, importance, and dependence of users on the Internet. As a result, the company believes advertisers are shifting a greater percentage of their spending from traditional media to the Internet to reach this growing online audience.

May 8, 2008 (Form 10-Q)

During the three months ended March 31, 2008, the company implemented a strategic workforce realignment to more appropriately allocate resources to our key strategic initiatives.

May 8, 2008 (Form 10-Q)

The company's increased base of paying users grew across most of our Offerings. Their fee-based services include Internet broadband services, sports, music, games, personals, and premium mail offerings, as well as services for small businesses.

The company has also been working with its broadband Internet access partners to renew and extend their strategic relationships. During this process, the company is seeking to add new opportunities to improve on its historic strengths in portal, search, and mail.

February 27, 2008 (Form 10-K)

The company's revenues for the year ended December 31, 2007 increased 8% year over year to approximately $7.0 billion, with fee paying users up 17% year over year, and Page Views up 11% year over year.

February 27, 2008 (Form 10-K)

In the fourth quarter of 2006, the company launched a new search marketing system, referred to as Project Panama, and Yahoo has completed its migration plan for the company's active advertisers worldwide onto the new system. The new search marketing system, including the new ranking model which was launched in all of the company's major domestic and international markets in 2007, in addition to ongoing enhancements in which it is investing, enables Yahoo to provide a more relevant search experience to users, more valuable customer leads to advertisers, and additional opportunities to its Affiliate and distribution partners.

By providing a platform for users that brings together the company's search technology, content, and community while allowing for personalization and integration across devices, the company will become more essential to, increase its share of, and deepen the engagement of, its users with the company's products and services. This deeper engagement of new and existing users and the company's new search marketing system, coupled with the growth of the Internet as an advertising medium will enable Yahoo to further increase its revenues in the future.

February 27, 2008 (Form 10-K)

For the year ended December 31, 2007 as compared to 2006,-Page Views increased 11% and revenue per Page View increased 7%, and for the year ended December 31, 2006 as compared to 2005,-Page Views increased 15% and revenue per Page View increased 10%.

Sources: As indicated.

All of the foregoing positive leadership impacts, though, do not necessarily mean that Yahoo has been without its problems, the foremost among which is its cozy relationship with the Chinese government which is discussed further below.

Negative Leadership Impacts

While it is hard to argue with purely economic success, the company's leadership team has not been without its stumbles and in some cases, outright failures when it comes to using good judgment in terms of its apparent willingness to simply turn over and play fetch when it comes to making a buck, no matter how distasteful the process might be. In this regard, the company has received some negative publicity as a result of its willingness to conform to the censorship of its services by the Chinese government in recent years, a step that is costing Yahoo an enormous amount of resources as well as some goodwill among its Western users. For example, a recent report from Lloyd (2008) notes that, "On August 1, 2002, the Chinese government enacted legislation requiring ISPs to self-censor their websites. If an ISP does not comply, the government may shut down the Web sites" (p. 299). Prior to the Chinese law being passed, a number of Western companies and organizations, including Yahoo, entered into a voluntary, government-sponsored so-called "Public Pledge on Self-Discipline for the China Internet Industry" (Lloyd).

According to Lloyd, the voluntary program stipulates that companies such as Yahoo "agree to refrain from producing, posting or disseminating harmful information that may jeopardize state security and disrupt social stability" (quoted at p. 300). Notwithstanding the potential market for the company's service in this burgeoning economic powerhouse, some critics suggest that Yahoo's leadership is misguided by accommodating such restrictions on free speech, particularly when such initiatives are costing the company so much money in the process. In this regard, Lloyd also notes that, "The U.S. companies that signed the pledge or otherwise censor versions of their sites specifically for China are spending hundreds of millions of dollars on such censorship through personnel training and the purchasing and maintenance of equipment. Complying with China's censorship standards also presents practical difficulties for a search engine, as the Chinese government will not give companies a list of the government's blocked sites or keywords" (Lloyd, p. 300).

Even more alarming, though, the company's leadership is actually being complicit with the Chinese government's efforts to crack down on dissidents and human rights activists in its operations in China. For example, Lloyd reports that, "U.S. companies also provide China with various pieces of its Internet filtering software. Yahoo! has even given the Chinese government personal information about alleged dissidents" (emphasis added) (p. 300). In response to these allegations, leaders from Yahoo were directed to attend a Congressional hearing for actually aiding and abetting the Chinese government's censorship efforts on February 15, 2006; at the hearing, House committee members described Yahoo's actions in China as nothing short of "abhorrent" and "astonishing" (quoted in Lloyd at p. 300). In their defense, which must be considered lame by any measure, Yahoo's leadership team responded by suggesting that their efforts today would produce long-term benefits but the Congressmen were not buying this rationale and it is likely the American public is not either (Lloyd).

On the plus side, though, the Yahoo representatives did ask the Congressional committee members for additional assistance in overcoming these restrictive censorship policies through trade negotiations; however, Lloyd suggests that this request was most likely because the current censorship law is costing the company so much money rather than because of an inherent freedom of speech issue. According to this author, "The companies involved in the hearing seemed to welcome U.S. legislation that could provide U.S. companies with an excuse to give the Chinese government for not complying with China's censorship laws" (Lloyd, p. 300).

Nevertheless, unless and until Yahoo's leadership changes its stance on this fundamental freedom of speech issue, the company will likely continue to be the brunt of criticisms and negative publicity in the West, and it is clearly doing a disservice to its Chinese customers, especially the alleged dissidents it is so willingly selling out to the Chinese government. According to Crossland (2007), this is particularly true in the Age of Information where a global competitor must conform to certain ethical standards in order to survive. In this regard, Crossland emphasizes that, "Without ethical leadership, growth is at best a ruse and at worst an economic calamity. Any growth strategy that does not include the satisfactory growth of leadership talent will eventually wander into sticky thickets. Corporate case studies are replete with examples. Linking growth and leadership requires an understanding of how they interact" (p. 14).