Yahoo! Inc. Leadership: Positive and Negative Impacts

Introduction

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. In this regard, the research will show that management at Yahoo! Inc. has had a myriad of positive and negative influences on the company's performance. To illustrate this assertion, this paper provides a review of relevant peer-reviewed, scholarly, and organizational literature to identify the positives and negatives of Yahoo's leadership, followed by a discussion of the influence that both positive and negative leadership have had on the company's performance in recent years. A summary of the research and salient findings is presented in the conclusion.

Company Overview

In just fifteen short years, Yahoo! Inc. 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. According to the company's corporate profile, 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 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. These features provide customers with a wide range of business solutions and useful tools that enable seamless online browsing and intelligent searches, accessible via a variety of mobile devices (Yahoo).

The company's communications and communities product line includes Yahoo! Mail, Zimbra Mail, Yahoo! Messenger, Yahoo! Groups, Yahoo! 360°, and Flickr. Yahoo also offers various information products, including Yahoo! News, a service that consolidates news stories, and Yahoo! Finance, which provides company profiles, key statistics, SEC filings, and a vast array of other analytical tools (Yahoo).

Additional services include Yahoo! Sports; Yahoo! Shine for women; and Rivals.com, which provides online college and high school sports and recruiting information. Entertainment products include Yahoo! Music, Yahoo! Movies, Yahoo! TV, Yahoo! Games, Yahoo! Video, and omg! Consumer-facing services include Yahoo! Autos, which allows users to research, price, and compare vehicles; Yahoo! Real Estate; Yahoo! Food; Yahoo! Tech; Yahoo! Kids; and Yahoo! Health (Yahoo).

Finally, Yahoo offers services such as Yahoo! Digital Home, Yahoo! Mobile, and Yahoo! Desktop, which allow users to access the company's content and online communities from any Internet-enabled device. Additional offerings include Yahoo! Broadband, Yahoo! HotJobs, and Yahoo! Small Business online services (Yahoo).

The company maintains strategic partnerships with AT&T, Inc.; Verizon Communications, Inc.; BT Telecommunications PLC; Rogers Cable, Inc.; and the Newspaper Consortium (Yahoo). As reported in the company's Form 10-Q filing dated November 7, 2008, Yahoo is described as "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 provides Internet services essential and relevant to a growing number of user communities, as well as to advertisers, publishers, and developers, and seeks to grow these business units in the future (Form 10-Q, 2008). To this end, Yahoo entered into a series of strategic partnerships with major publishers, including eBay Inc., WebMD, Cars.com, Forbes.com, and the Newspaper Consortium — a consortium of more than twenty leading U.S. newspaper publishing companies (Form 10-Q, 2008). The company was established in 1994 and maintains its headquarters in Sunnyvale, California (Yahoo).

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

Table 1. Yahoo's current key leadership team.

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

Note: Dollar amounts are as of December 31, 2007; compensation values are cited for the last fiscal year ending on that date. "Pay" refers to salary, bonuses, etc. "Exercised" refers to the value of options exercised during the fiscal year. Source: Yahoo! Finance, 2009.

Financial Performance and Market Position

Yahoo's stock performance has consistently outperformed the NASDAQ; however, like the rest of the global economy, the company experienced turbulent periods following the dot-com bust, during which it suffered a drastic decline in advertising revenues, compounded by the effects of the September 11, 2001 terrorist attacks.

According to the company's most recent SEC quarterly report (November 7, 2008), the company anticipated relatively flat revenues in the near term, while emphasizing that it was well positioned to take advantage of continued growth in online use through strategic partnerships, especially with Google and AT&T (Form 10-Q, 2008). The filing 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 is reasonable to posit that Yahoo was well positioned to take advantage of continued growth in Internet access and online advertising, and its historical performance indicates that the company's leadership played an integral role in helping Yahoo achieve its market position — issues discussed further below, alongside an assessment of some of the more significant leadership failures that have also plagued the company.

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 Yahoo's leadership must have been doing something right to survive at all, let alone emerge as a global provider of Internet services. As one chronicler of the company's history notes: "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 share price continued to increase throughout the late 1990s and 2000, reaching a split-adjusted high of $237.50 (Angel). Angel also 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, the impact of the dot-com bust adversely affected the company's stock, followed by the September 11, 2001 attacks. Together, these events represented an enormous challenge, 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 and they tended to mesh well together: "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, it is to the leadership's credit that they had a vision and took the steps necessary — including substantial monetary investments — to bring their goals to fruition. As Angel adds, "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).

The fact that the company survived at all during its formative years speaks highly of its founders' vision and perseverance. Jerry Yang was originally rejected by a venture capital firm for suggesting, as Hargrove (2001) notes, "such a ridiculous name as Yahoo" (p. 271). As Ashby and Miles (2002) also emphasize, countless up-and-comers at the time failed to deliver on their ambitions: "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 early problems with financing and credibility, co-founder Yang and others believed 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 radio spots — that helped fuel the company's early growth. 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" (p. 55).

The company also faced fierce competition from other Internet service providers, especially AOL, MSN, and Terra Lycos, which by April 1999 had secured more than half of available Internet users (Angel). In response, Yahoo's leadership determined that the best way to differentiate its services was by adding more and better offerings than those available elsewhere. Angel reports: "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 helped pull Yahoo out of its economic doldrums and restored its leadership position in the industry. By October 2001, Yahoo occupied the number-three spot among Internet service providers, trailing only AOL-Time Warner and Microsoft. The fact that several of those rival ISPs have since disappeared or become barely recognizable is proof of the soundness of the management decisions made during this turbulent period. From a pragmatic standpoint, Yahoo's leadership won that round and went on to form strategic partnerships with a wide range of vendors and telecommunications companies that enhanced its services while also providing the staying power its competitors lacked. 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 point was to concentrate on growing its business through acquisitions and cross-promotions with content providers (Angel).

Today Yahoo offers both consumer and business services for a vast array of products, and a growing number of users turn to Yahoo first rather than searching elsewhere. From this perspective, the company's leadership has been highly successful, and the company continues to generate earnings that, although currently flat, are projected to increase significantly in the future. Some pertinent highlights from the company's SEC filings that reflect the positive impact of Yahoo's leadership are provided in Table 3 below.

Table 3. Excerpts from SEC filings reflective of positive leadership impact.

August 8, 2008 (Form 10-Q): In the first half of 2007, the company repurchased approximately $1.0 billion of common stock and 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. Growth in users on Yahoo! Properties and on the Internet overall reflects the increasing acceptance, importance, and dependence 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 key strategic initiatives. The company's increased base of paying users grew across most of its offerings, including 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 strategic relationships, seeking to add new opportunities that improve on its historic strengths in portal, search, and mail.

February 27, 2008 (Form 10-K): 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. The new search marketing system, including a new ranking model launched in all major domestic and international markets in 2007, enables Yahoo to provide a more relevant search experience to users, more valuable customer leads to advertisers, and additional opportunities to affiliate and distribution partners. By providing a platform that brings together search technology, content, and community while allowing for personalization and integration across devices, the company aims to become more essential to its users and to deepen engagement with its products and services.

February 27, 2008 (Form 10-K): For the year ended December 31, 2007 compared to 2006, page views increased 11% and revenue per page view increased 7%. For the year ended December 31, 2006 compared to 2005, page views increased 15% and revenue per page view increased 10%.

Conclusion

The research showed that Yahoo! Inc. is a leading global provider of a wide range of Internet-based products and services, delivered through its own business units as well as through strategic partnerships with major telecommunications and entertainment providers. The company maintains its headquarters in Sunnyvale, California and was founded in 1994. The research also showed that the company enjoyed a significant degree of success based on the vision of its founders and managed to weather the dot-com bust of the 1990s while many competitors failed.

There were a number of positive impacts resulting from the company's leadership identified throughout the literature, but there were also glaring instances of negative impact — in particular, the company's baffling decision to voluntarily censor its search results at inordinately high cost in order to satisfy the Chinese government's demands, as well as the even more disturbing finding that Yahoo provided information to Chinese authorities concerning potential dissident citizens. The fact that the company continued to engage in these unsavory practices suggests it was pursuing growth at any cost. Other negative impacts were identified as well, but in the final analysis, those missteps arising from unforeseeable global economic downturns are more forgivable. The voluntary censorship issue in China, however, cannot be so easily overlooked and may come back to haunt the company in the future.

References

Angel, K. (2002). Inside Yahoo! Reinvention and the road ahead. New York: Wiley.

Ashby, M. D., & Miles, S. A. (2002). Leaders talk leadership: Top executives speak their minds. New York: Oxford University Press.

Crossland, R. (2007). Grow leaders to grow your business. Human Resource Planning, 30(4), 14–15.

Dingle, D. T., & Hughes, A. (2002, February). A time for bold leadership. Black Enterprise, 32(7), 76.

Form 10-Q. (2008, November 7). Yahoo! Finance. [Online]. Available: http://biz.yahoo.com/e/081107/yhoo10-q.html.

Forms 10-Q and 10-K (various dates). Yahoo! Finance. [Online]. Available: http://biz.yahoo.com/e/081107/yhoo.

Hargrove, R. (2001). E-leader: Reinventing leadership in a connected economy. Cambridge, MA: Perseus Books.

Lloyd, A. W. (2008). Increasing global demand for an uncensored Internet — How the U.S. can help defeat online censorship by facilitating private action. Vanderbilt Journal of Transnational Law, 41(1), 299–301.

Yahoo! Inc. company profile. (2009). Yahoo! Finance. [Online]. Available: