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Carol Bartz And The Yahoo Turnaround Story: Is This Like Lou Gerstner And IBM? July 15, 2010

Posted by Bernard Lunn in Strategy Workshop.

Yahoo does not get a lot of respect these days in the tech blogosphere, at least if you assume that the blogosphere is represented by Mike Arrington.  It is possible that conventional wisdom is wrong. It is possible that we are seeing the early, messy signs of a turnaround. If so, it is a lot like the epic turnaround of IBM in the early 1990s by Lou Gerstner as told in his bestseller – Who Says Elephants Can’t Dance?

IBM had even less respect in 1993 when Gerstner took over – totally blew the PC opportunity, slow-moving bureaucrats etc. So Gerstner got a lot of flak when he dissed the idea that IBM needed a vision saying something like “vision is the last thing IBM needs”. In his own words “fixing IBM was all about execution”. Specifically that meant fixing the culture to a) get more urgency and b) get totally focused on client needs.

Yahoo clearly needed a lot of old-fashioned management discipline. It is hard to tell from the outside, but based on Carol Bartz’s track record and a few news reports, it looks like that is happening.  Two years ago it was obvious that this was needed and that Jerry Yang would have to go (as I wrote here on RWW).

Gerstner was not saying that a vision or defining mission was unnecessary, just that it was not top priority. The same is true for Yahoo. They need a defining strategy. I am going to copy what I wrote on RWW two years ago, as I think that is still correct:

“The second part (disrupting current leaders with a new proposition for developers) should not be unveiled until there is something substantive. Yahoo has an opportunity to take a leaf out of Amazon’s AWS book, but go a lot further. Yahoo can open up all their search, content, communication and community services to developers via well-defined interfaces. If they do this really radically, Yahoo could lead the next wave of the “programmable web” or the “web operating system”. This has to be radical. More “too little, too late” won’t work. Radical means:

1 Simple pricing. This is where Amazon did well. A start-up can understand how to build their costs into a plan.
2 Cost plus pricing. This is again where Amazon did it right. They look at it like a retail “I buy infrastructure at $x and sell it at $x plus y%”. Nothing wrong with that model at scale.
3 Loosely coupled. You can use just the services you want. But you end up using lots of services as it is simply easier to integrate than something else and the price is right.

Yahoo has lots more to offer than Amazon. Nor do Yahoo need to worry about cannibalizing their core e-commerce business (which does constrain what Amazon is willing to offer).

This developer offering has some risks. Theoretically, any start-up can compete with Yahoo’s existing cash cows, using Yahoo’s own assets. In practice a) start-ups will tend to focus on new markets and b) start-ups can compete with Yahoo anyway, with or without their help.

Yahoo can score four ways with a really open suite of services for developers:

1. They make money immediately from fees for the services.

2. They empower start-ups to compete with Google and Facebook.

3. They become exciting again, getting talent back on board.

4. They get a steady flow of acquisitions with zero integration cost.

Yahoo has occasionally done things that excite developers, such as Delicious, Pipes and SearchMonkey. They need to take that to a much higher level and offer everything they have via interfaces and promote that like crazy. That is how Microsoft won the PC era. With the right leader, Yahoo could still do this in the Web era.”



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