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Open Letter to Carol Bartz, Yahoo

To: Carol Bartz, CEO, Yahoo
From: The team at Rubicon
Re: The challenges ahead

Dear Carol:
Congrats on your new role. For many of us in the tech industry, Yahoo is more than a company, it’s a Silicon Valley icon. By putting in the kind of strong management you represent, I hope the board is signaling the company’s intent to reinvent itself and thrive once again.
Since the days when you and I worked together at Autodesk, I have gone on to form a strategy consulting firm that is defined by the diversity and experience of its members. We’re all tech industry veterans, and we each have unique perspectives on what it will take for Yahoo to succeed. Your opportunities speak to opportunities for every tech firm, so we’re going to make this an Open Letter in the hope that everyone can learn from the experience you’re about to have.

Best of luck. We’re rooting for you.
Nilofer

Making the right cuts, Nilofer Merchant
During an economic downturn like the one we’re experiencing now, there’s not a consumer product company that isn’t cutting spending. Such cuts are rooted in fears that customers will stop buying, advertising will slow, and the conviction that it’s better to cut quickly and hunker down for the rough road ahead. It’s the business version of “fight or flight,” and it causes severe problems.

You want to get ahead of the market trend, but slashing without a strategy is not the way to do it. Cutting randomly can reduce profitability by cutting your strongest market segments. Or you may cut your weak market segments too little, and they’ll continue be a drag on revenue.
But how to make the right cuts?

Carol, I know the first thing you’re going to do is to figure out what Yahoo really is, and what it aspires to be. I’ve heard some of your predecessors describe it as a media or technology or software or communications company … sometimes it seemed like there was a new identity for every day of the week. You need to pick one. Take the first 30 days of your tenure to spend the brainpower of your board and exec team on this core question. Nothing else will matter. And do it with your team, not in spite of them because they need to know WHY one direction was chosen over the others.

Next, your c-suite needs to develop a perspective on how the future might play out, so you can place strategic bets. You need to make sure these bets are relevant across the company because you want everyone engaged in this discussion. And I wouldn’t have your team just talk to themselves; I suspect that’s why they are where they are. You need new data, which means fact-finding with analysts and other smart people in the industry. Then you need to debate that information within the confidential walls of the company to evaluate what you’re learning. Given where Yahoo is, I’d have you choose no more than three big disruptive opportunities against your 1 core strength, because any more and you won’t accomplish any of them.

Then and only then should you look at your current portfolio, in light of the new opportunities. What fits and what doesn’t? Not many people remember that when Steve Jobs came back to Apple in 1997, he cut huge parts of the company, including significant revenue streams. He did it knowing he needed to focus. The market will accept this if you have a story to tell. And I know you will.

It is simple but not easy. But you’ve never been one to back down from a tough and fair fight. You can do this in the next 90 days.

Building a consumer internet culture at Yahoo, Harry Max
The biggest risk to your assessment of Yahoo’s strengths and weaknesses is the kind of “diagnosis bias” that gets even the best doctors and their patients in dire trouble. It’s a mental blind spot that causes people to accept information that confirms a given diagnosis, while unconsciously disregarding seemingly contradictory facts and dissenting opinions.

Given your unparalleled experience in the software industry, the most likely area you could fall prey to diagnosis bias is in the one area that, at Yahoo, demands a subtle, intuitive sense: the consumer internet and what makes it tick.

To help Yahoo not just survive but thrive, there are two categories of consumer internet experience to manage for: market facing and company facing. The market facing consumer internet experience involves understanding the utility, entertainment value, and psychology that promotes on-line conversations, community, commitments, and transactions.

The company facing internet experience, on the other hand, involves fostering a Yahoo culture that will produce great consumer internet experiences. The culture needs to embrace people as leaders of ideas, customer-driven innovation, agile development methods, experimentation, and a reverence for passion and heart.

As you assess the people, assets, and resources throughout Yahoo, seek out and listen mindfully to the people who can speak openly and honestly with you without fear of retribution, because business is people. Carefully consider the facts and opinions you gather in terms of what they mean in the context of consumer internet experience.

My priority list of Yahoo opportunities:
1) Win our kids’ attention by offering an awesome social network / community like Facebook. Yahoo’s core competencies in on-line community, user-experience design, communication, new media, and brand strength align perfectly to give people a real alternative to what’s currently the only game in town.

2) Re-architect Yahoo shopping to give dissatisfied eBay users a new place to engage. Again, harness Yahoo’s core strengths and extraordinary user base to provide a more elegant ecosystem of buyers, sellers, services, and enabling technologies.

3) Repair Yahoo Answers and sharpen its focus to identify and serve the unmet needs of on-line consumers.

4) Finally, invest meaningfully in design research to ferret out the opportunities that Google, eBay, Amazon, Facebook, and others are simply leaving on the table.

The best ideas can come from anywhere.

Beat Google by going around it, Michael Mace
Carol, one of the first questions people will expect you to answer is, “what will you do about Google?” It’s the easiest thing in the world to reply, “search advertising is Google’s financial engine, we have to go after it.” That’s what a traditional computer company would probably do, and it’s certainly how Microsoft thinks.

My advice: Get over it. Most people in the US and Europe are now trained to search first on Google, and it’s almost impossible to change that sort of muscle memory. But that doesn’t mean you should give up. Apple still hasn’t beaten Windows, but it has built a very nice business by thinking different(ly). That’s what you need to do…

How to use your nimbleness. One of the greatest assets of any Internet software company is nimbleness. You’re used to companies that have 18-month development cycles, and as a result do very thorough advance planning. In contrast, an Internet company may revise its products weekly or even daily. If something goes wrong, you just revert to the previous version. This improvisational development process will look incredibly sloppy to you, but don’t be too quick to “fix” it. Maneuvering like a hummingbird can be a huge strength — if you know where you’re going.

Google has used its nimbleness to produce a paradise for engineers. It’s a giant research lab where Ph.D’s can try any clever computing idea that occurs to them, toss them into the market, and see what succeeds. The problem for Google is that most of those engineering fantasies don’t succeed, at least in terms of making money. Other than search advertising, Google has been very bad at producing big new lines of business. You can do better…

Implement grown-up product management. Although you shouldn’t burden Yahoo with traditional software engineering cycles, traditional product management is something that could help. The companies you’ve worked with are very good at understanding what a customer really needs and how to solve those problems (Autodesk is a case study in how to build deeper and deeper relationships with designers). Yahoo generally lacks this skill. It launches things energetically, and if one of them takes off it does a fine job of matching ads to content. But it rarely goes beyond that initial hit to deepen the user relationship systematically with new services and topical extensions.

My colleague Harry cites Flickr as a great example. It’s a wonderful photo sharing site, but that’s all it is. What if someone at Yahoo had the vision to grow Flickr into the best destination in the world for photography enthusiasts? You might have added a lot of other photography-related services to the site. You might have also bought DPReview.com, the leading camera review site, instead of letting Amazon snatch it up.
To play counterpoint to Google, you should make Yahoo a paradise for product managers, the people who identify real user needs and translate them into product visions.

So, when Steve Ballmer visits with his suitcase full of cash, it’s OK to sell him the right to place ads in your search results. Let him go bash his forehead against the adamantine walls of Google’s search advertising empire. But it’s not OK to sell him the Yahoo search page, brand, or control over the user relationship, because…

The audience is your greatest asset. Another question you’ll get frequently is, “are you a technology company or a media company?” The answer is: none of the above. Yahoo is an Internet company, which lives or dies on the volume of its traffic and its ability to monetize that traffic. In that spirit, the most important strategic fact about Yahoo is not that it’s the #2 web destination after Google (link http://rubiconconsulting.com/insight/winmarkets/michael_mace/2008/10/online-communities-and-their-i-2.html ) — it’s that it is the #1 web destination whose users are willing to be marketed to. Unlike Google, your users expect to see prominent advertising for other Yahoo services and products.

That’s the most exciting thing about Yahoo — once you get the services right, you have the world’s biggest channel to sell them through. That concept is just as valuable in the new computing world as it was in the old school.

Family synergies, Bruce La Fetra
Yahoo is not like other technology companies in Silicon Valley. It is a family of web properties under an umbrella of a common infrastructure and brand. Yahoo is all about content, segmentation, and leveraging multiple revenue streams. A successful Yahoo must be able to generate efficiencies without managing every property in the same way — lots of common infrastructure has to support a variety of different properties. Yahoo is sick today because it has forgotten what it takes to make the whole greater than the sum of the parts. A hundred different properties backed by the powerful Yahoo brand should play like a fine orchestra, each part supporting the others, but currently Yahoo is managed more like 100 tubas playing without a conductor or score.

A good brand and good content attracts the users that form the core of your business. An informative segmentation model will identify user needs, interests, desires, and wants. Multiple revenue streams let you capture value in many different ways, allowing you to reach even more users in a virtuous cycle. If these work in harmony, the result is a company envied by others. Identifying appealing content is always a moving target, but this is both a current and historical strength of Yahoo’s, and is reinforced by Yahoo’s exceptional brand. Build on this. Yahoo’s properties must be leveraged to develop the types of segmentation that advertisers, sponsors and users all crave. Google gets money from search, and not much else. Yahoo is a different kind of company, and must tap a variety of revenue streams: subscriptions, advertising, sponsorships, and data. So while display ads on the web provide a start, stopping there–or trying to make Yahoo into something it is not–will only lead you right back to where Yahoo is today.

(Note: This post is clearly a co-creative act with my team, from my days at Rubicon.)

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