Why Carol Bartz was fired

Occasionally I write articles titled “Why CEO X was fired.” You can read one here, and here and here.

These are allegorical stories. I don’t base the opinion on evidence but on perception of what’s wrong with a particular company’s strategy and then try to trace the point of strategic failure which should have triggered management change. Of course, the reasons are often something else, probably mundane or “political” in nature.

The objective therefore is to analyze strategy and more precisely strategy failure.

So, Yahoo! What went wrong?

Before we answer that, we should know what went right. Yahoo, like Google, depends on advertiser revenues. For that, it sells the behavior of its users. It processes over 25 billion events every day and builds a database (estimated to be in 10s of petabytes) to mine for information that is, hopefully, worth something to advertisers.

But in order to get user behavior it needs to provide compelling reasons for user participation. For that, Yahoo licenses content and offers communication services (among other things.)

This sounds like a reasonable business model. So what could go wrong? As always, we begin by measuring performance along a prevailing basis or axis of competition. Has Yahoo’s product been improving in ways meaningful to its customers? Is that improvement beyond what buyers value or can absorb? To answer, we need to be careful in recognizing that the customer is the advertiser, not the user. Like in all advertising business models, the user is the product.

So when seen in this context, the problem becomes clearer. We have to determine whether the product (user behavior) is good enough or too good. We have to compare it to alternatives which might offer better price/performance for a given customer need.

There is little data we can draw upon, but my initial hypothesis is that the behavioral product that Yahoo has been delivering is over-serving while search and social data is what customers are increasingly looking for.

Part of the reason is that Yahoo’s raw material is licensed content. The value of that material has decreased as users turn to either social media or seek out filtered, niche information sources which are outside the generic feeds Yahoo provides. Therefore, as Yahoo’s traditional raw material has commoditized, so has its user behavior data. The patterns that are emerging from the data are “unactionable” by advertisers. There is little insight that can be gained from data on patterns of reading generic news. People are differentiated through their reading of niche sites and that data does not reside with Yahoo!

Thus customers (advertisers) have felt that the product (user behavior from reading licensed content) is commoditized. There is much more value in looking at patterns in Facebook or search. But those rich fields of data are under the control of competitors.

This is the core problem with Yahoo’s business and it’s been a problem for a long time. The question for a CEO should be how to fix this. The remedy is not better administration but either a change in the core business or innovation in terms of content sourcing (away from big media and toward blogs and niche media.)

Sadly, the steps required to get there should have been taken years ago. And perhaps the required changes imply so much displacement and disruption in the operating and financial structure of the company that it would just not survive the operation.

Which is why Bartz was fired. There is no evidence that she tried to engage in surgery or that there was any therapy process under way during her tenure. The patient, I’m afraid, is still dying.