At Yahoo, the turnaround plan is moving to phase two

Pedestrians pass the Yahoo Inc. pavilion on day two of the Mobile World Congress in Barcelona, Spain, on Feb. 25, 2014. (Angel Navarette/Bloomberg)

Over at Yahoo, it's time to move to stage two.

When chief executive Marissa Mayer took the reins at the ailing technology firm nearly two years ago, she laid out a clear roadmap to revival: Hire good people, make great mobile products, gain lots of users and then make money.

Anyone watching Yahoo over the past two years  knows how phase one has played out. The firm has spent a pretty penny picking up nearly 40 startups during Mayer's tenure — most notably the $1.1 billion it put down for Tumblr — while also building up its content stable with big names like Katie Couric and former New York Times tech columnist David Pogue. But while Mayer's expensive strategy has resulted in some modest revenue growth at Yahoo, the company has still struggled to keep up with search rivals Google and Microsoft.

Now it's time to for the company to show that those investments are bearing fruit. At the moment, that means Yahoo is focused on showing how the infusion of new talent can put it in the right position for the all-important battle over mobile screens. And the way that Yahoo's chosen to bring its startups into the fold is by not messing very much with how they're run at all.

Mark Daiss, co-founder of mobile software firm Aviate, said in an interview with The Washington Post last week that moving to Yahoo didn't change much about the way his company is run. Yahoo acquired Aviate in January, paying a reported $80 million for the software, which reorganizes Android home screens based on users' location and the time of day.

"Especially within mobile, there are a lot of founders in startup mode," he said. "A lot of us were nervous at first about what kind of support we would get." But in general, he said, Yahoo was there when he needed it — to bankroll a hire, or get more devices for testing — and generally left the team to its business when he didn't.

The process isn't always the same for every acquisition, Daiss said. Yahoo has shuttered many of the services it acquires, though some reemerge later as Yahoo-branded products.  But, Daiss said, there is definitely a feeling that Yahoo will give acquired teams as much autonomy as they need.

"A lot of companies say they're the world's biggest startup," said Merline Saintil, senior director of engineering operations, whose job it is to scale all of those startups to Yahoo levels. "I think we really are."

It's clear Yahoo is excited. What's a little less clear is how Yahoo will turn that enthusiasm into enough cash to prove its promised turnaround is on the way. Returns to grace take time, but patience is running out after a run of tepid results from Yahoo, which is still seeing the rates for its search revenue slide as plays catch-up with Facebook — the only company that appears to have cracked the code on mobile advertising revenue.

Yahoo is set to report earnings on July 15. It slightly beat earnings last quarter, picking up growth in both the amount of money it makes from search and from desktop advertising. Mobile downloads have also grown quickly, and the company now boasts 400 monthly million active users of its mobile products — up from 300 million the previous year. But it wasn't good news about Yahoo's core  business that sent its stock up over 10 percent after its April earning report. Instead, most the excitement was due to the performance of  its 22.6 percent stake in Chinese e-commerce giant Alibaba.

When Alibaba goes public this year, Yahoo will sell 40 percent of its holdings in the company, giving the Sunnydale, Calif., firm an infusion of cash — at least $10 billion, according to Alibaba's filing with the Securities and Exchange Commission.

How it spends that cash will be crucial, said BGC analyst Colin Gillis in a note to investors last week.

"The high profile moves made by this management team have yet to pay dividends in our view," he said. Yahoo's Tumblr acquisition as well as the hefty severance package it paid to ousted chief operating officer Henrique de Castro as "an example of how Yahoo may destroy the capital infusion it receives from the Alibaba IPO."

Then there's the simple question of how Yahoo, which has seen its share of searches slip to just 10 percent against Google and Microsoft's Bing, can stay competitive and take on the thousands of companies making apps,

On the app front, at least, Yahoo is looking to marry its content and its technological know-how to stand out, said Robby Stein, director of product management for mobile products. Stein, who also joined the company as the result of an acquisition, said that Yahoo's strategy is to focus on making the best products for the main things you use your phone for — checking the news, watching video, etc. — and making those the new default apps.

"It's a question of how we get the experience to a point where your home screen is all purple," said Stein.

Hayley Tsukayama covers consumer technology for The Washington Post.



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