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Patrick Houston
Patrick Houston
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3 Lessons From Yahoo's Meltdown, From An Insider

A former Yahoo exec who was laid off offers insights from the company's five-year drive to self-destruction.

Big company meltdowns always happen in slow motion. And if you've done business with the company, invested in it, or, heaven forbid, worked for it, it's especially like watching a 10-car pileup at a frame per second. No matter how gruesome it gets, you can't turn your head.

The most recent wreck I've been observing has been Yahoo, the dawn-of-the-Internet-Age icon that suffered yet another setback this week when Scott Thompson, the latest of its four CEOs in five years, was accused of fudging his resume. Since integrity is the issue at the heart of Yahoo's travail du jour I'll give full disclosure: I worked as a VP and general manager at Yahoo for three years until 2008, when I found myself headed for the door in the first of a series of layoffs.

As anyone who's been fired will tell you, it leaves you "raw," the very word ousted Yahoo CEO Carol Bartz used in a recent San Francisco Chronicle story. So take my own emotional state into account as I tell you what I learned--and what you can too--from Yahoo's five-year drive to self-destruction, as seen by someone who sat in a passenger seat.

Lesson One: Don't deny your strengths--even when others do. This is a variation on what's become a business school basic. Focus on your core competencies. Stick to your knitting. Yahoo didn't. From a very early age, Yahoo--it's only 17 by the way--was shaped as a media company. While at first Yahoo may have been a search directory, Yahoo Finance, Yahoo News, Yahoo Sports, and the Yahoo Home Page came to define the brand and, most of all, its being.

When I joined the company in 2005, it was being led by a cadre of execs who came from the media world, including CEO Terry Semel, who spent 24 years at Warner Brothers, and COO Dan Rosensweig, who rose through the ranks at Ziff-Davis. (I worked for him there, too.) Yahoo, at the time, was asserting its consummate strengths--its platforms in search, community, and shopping to name a few--against conventional media companies, which were late to the technology-driven new media game, or were clueless about it.

But instead of taking on its most vulnerable rivals at their weak point--technology--Yahoo decided to challenge its strongest rival, Google, and at its strength in search marketing. Rather than pressing its advantage by continuing to invest in its media properties, Yahoo sunk billions to build its own search marketing platform. Meanwhile, it showed a whole cadre of its top media execs the door, and I'm not referring to yours truly.

Just before I departed, I attended an executive meeting where we were addressed by a guest of honor--none other than Steve Jobs. I vividly recall what he told us: "What is all this content bulls--t. You're not a content company. You're a technology company." Steve Jobs was brilliant but not infallible. On this, he was wrong.

Lesson Two: Beware belonging to a club. Steve Jobs words to us that day validated an oft-cited truism: Silicon Valley isn't a place; it's a state of mind. Yahoo could never see itself clearly because it lived, literally, within spitting distance of Apple, Intel, Google, Oracle, and Cisco, and the thousands of others tech companies that together make for their own singular culture.

These members of the Silicon Valley old boys network are tech through and through. But Yahoo isn't--not down to the bone. It's some 700 million monthly users turn to Yahoo first for content--news, sports, entertainment--enabled by technology second. Its fellow Silicon Valley club members: Their customers turn to them for technology first.

Yahoo co-founder Jerry Yang, who maneuvered himself into the CEO's role in 2007, quickly found himself discredited after turning down a rich $29 per share buyout bid by Microsoft. By 2009, he gave up the reins to Bartz. Both happened to serve on the same Cisco board of directors. Cozy, eh, especially in light of the fact that Bartz had no experience whatsoever in media. None, zero, zilch.

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I found it deliciously ironic when Bartz began pursuing a media-first strategy, replete with an emphasis on, gasp, original content. (Content is a dirty word to Silicon Valley types because "it doesn't scale.") Because Yahoo continued to lose the search wars to Google, she had little choice. But even she couldn't admit it publicly.

During a 2009 interview with AllThingsD doyen Kara Swisher, Bartz, tellingly, answered a straightforward question--what is Yahoo?--with a long, loopy paragraph about being "the place where millions and millions of people come every day to check in with the people and things they're interested in."

Well, that resonates of concrete business model, doesn't it? Two years later, Yahoo's board unceremoniously fired Bartz: Then board chairman Roy Bostock gave a clearly-blindsided Bartz the news over the phone. (Lotta good club membership did her at that point.) It's no wonder hedge fund head Daniel Loeb is making daily headlines these days with an increasingly acrimonious proxy fight against Yahoo.

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