Key Executives Depart In Advance of Proxy Vote
By Peter Whoriskey
Washington Post Staff Writer
Saturday, June 21, 2008
Yahoo may have fended off a takeover bid by Microsoft, but the prolonged and continuing fight for control of the Internet giant appears to have left it a weaker company.
Facing a proxy vote forced by billionaire investor Carl C. Icahn on Aug. 1, Yahoo is experiencing an executive exodus that some compared to a "death spiral" and which analysts said will make its recovery more difficult.
Yahoo said at the beginning of the week that Jeff Weiner, recently executive vice president of the network division, had left to work at two Silicon Valley venture capital firms.
Then Caterina Fake and Stewart Butterfield, the husband-and-wife team who founded Flickr and sold it to Yahoo in 2005, announced their departures.
And on Thursday, three more executives were reportedly on their way out: Vish Makhijani, general manager of Yahoo Search; Qi Lu, executive vice president for search and advertising technology; and Brad Garlinghouse, senior vice president for communications and communities.
Those key departures were among dozens of others that the industry Web site TechCrunch put up on a spreadsheet.
"At one time, when Yahoo was perceived to be hip and cutting edge, a lot of the [Silicon] Valley talent wanted to be there," said technology industry analyst Roger Kay of Endpoint Technologies Associates in Wayland, Mass. "Now the company is perceived as a deer in the headlights, and people want to leave."
On the news of the departures, the stock price has plunged from the $30 price when the Microsoft offer was in play to $21.99 at the close of trading yesterday.
"With human capital historically having been one of Yahoo's greatest assets, we see these developments as a material negative," Standard & Poor's information technology analyst Scott Kessler wrote in a research note. "We think a restructuring is (in) the offing and that morale is likely relatively low."
In response to the departures, the company issued a statement saying that it was experiencing "the attrition that's to be expected in the Internet industry."
"We have a deep and talented management team across all areas of the company," the statement said.
Yahoo, which began as a student project of two Stanford electrical engineers in 1994, soon rose to become one of the Web's most popular destinations and remains so today.
But as the Internet has evolved, Yahoo's growth appears to have stalled, and many analysts said the portal has been left behind and seems directionless.
Kay compared the company's slide to that of AOL, the once-dominant Internet company that has similarly been marginalized by changes in Internet use.
"Their strength is now their weakness," he said of Yahoo. "They've got a real good franchise, and it will maintain for a while. But they're not well-positioned for the future, and that's the whole problem here."
As far back as two years ago, many believed that the company was adrift. In a famously leaked memo, Garlinghouse, one of the departing executives who oversaw e-mail, instant messaging and other services, said Yahoo was spreading itself too thinly over various offerings, like peanut butter on bread.
"The result: a thin layer of investment spread across everything we do and thus we focus on nothing in particular," he wrote. "I hate peanut butter. We all should."
As Wall Street became disenchanted and the stock price sank to $19, Microsoft saw an opportunity. It offered in January to purchase the company for $31 a share.
Yahoo chief executive Jerry Yang and his board called the offer too low and rejected it. Eventually, after offering $33 a share, Microsoft walked away from the deal.
The failure to close a deal with Microsoft left some shareholders furious, and last month, Icahn announced that he had acquired a stake in Yahoo and would put up his own slate of company directors at the Aug. 1 annual meeting.
Jeremy D. Zawodny, a prominent Yahoo developer and longtime blogger for the company, said there were a lot of different reasons for the departures, among them a pending reorganization.
Zawodny, who joined the company in 1999, is leaving too for what he said was a "compelling opportunity" at Craigslist.
"People may just be frustrated with what they're doing or they've fallen into the trap that they're starting to believe all the negative press -- that can be pretty dangerous," he said.
So what does he see next for Yahoo?
"The next moment of clarity for the company may be the shareholders meeting," he said.
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