How can Yahoo revive its fortunes?

Yahoo will present its earnings report to investors on Tuesday afternoon, but most of the speculation ahead of the call is not about what the company earned in the last quarter. All eyes are on the Web giant’s new chief executive, Scott Thompson, and how he will frame his strategy since the company announced earlier this month that it would cut 2,000 jobs, or 14 percent of its workforce.

Analysts expect Thompson to provide more details on the restructuring during the earnings call.

The former PayPal president’s next move is critically important for Yahoo, Rita Gunther McGrath, an associate professor at Columbia Business School, said in an interview with The Washington Post.

“My advice to Thompson is that you’ve got everyone’s attention, but now you have to tell them what’s next,” she said. “The difficulty is step two. It has to be the articulation of a pretty clear go-to for employees, who’ll say: ‘You’ve built the case for change. We know we need to change. But, boss, where are we going?’”

McGrath recommended that Thompson take a cue from Nokia chief executive Steven Elop, who emerged with solid short-, middle- and long-term plans after writing a now infamous memo last November telling the mobile company that its platform was “burning.”

“Within fairly short order, Elop came out with his strategy. It was controversial but clear,” McGrath said, referring to the partnership between Nokia and Microsoft on the Windows mobile phone operating system and Nokia’s decision to set aside its own platforms.

Yahoo’s problem, she said, is that it doesn’t know what it wants to be.

“Yahoo’s had this incredible identity crisis,” she said. “They’ve got a lot going for them and have got very loyal users. It’s part of the daily life of lots and lots of people.”

But the company has yet to find its focus, she said. For some people, Yahoo is a media company. For others, it’s an advertising company. And for an increasingly small part of the Internet community, it’s still a primary search engine.

“They’ve been unable to declare in a simple way how they add value to people’s lives,” McGrath said. “If I were them, I would seriously think about who is the classic Yahoo customer and then say: Where does Google let them down? how aren’t they getting what they need from Facebook?”

Thompson’s time at the helm of PayPal could help the company define itself more clearly, she said, because PayPal really managed to look at the online payment system, figure out what was broken and carve out its own niche to be useful to both buyers and sellers.

Yahoo could aim to remake search or market itself as a niche search engine, she said. Or it could do more with its content but in a very focused, strategic way.

“You’ve got this fabulous content, but because you’re trying to be all things for all people nothing’s grabbed me by the lapels and said, ‘This is the place to go.’ You haven’t reached out to me specifically and said that this is why we’re the go-to party for you.”

For role models, she said, Yahoo should look to companies like IBM or Xerox, which found niches when their legacy businesses became less lucrative.

“IBM was on its knees in the early ’90s,” McGrath said. “Then [Louis] Gerstner came in, and his big insight was that a smaller IBM is not what companies need. They needed an IBM that can help them, put a layer between your legacy stuff and the Internet market. They were able to use the Internet to help clients.”

As for Xerox’s success, “They said, ‘Our business model is broken,’ and asked themselves why people need copiers,” McGrath explained. “They realized it was to move information from place to place. Under [then-chief executive Anne] Mulcahy, they helped business with their information flow.”

The upside for Yahoo, McGrath said, is that the company has plenty of assets, a strong user base and fingers in plenty of pies. What’ important now, she said, is that Thompson articulate a clear vision.

“What Yahoo has yet to grasp is what makes them indispensable, not optional. Thompson’s got time, but he has to follow up the drama with a path forward,” she said. “And then the hard work starts.”

Related stories:

Yahoo product division hardest hit, report says

Yahoo announces ‘do not track’ tool

Yahoo names new directors; no compromise with major shareholder Third Point

Hayley Tsukayama covers consumer technology for The Washington Post.

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