The Next Net

In Defense of Jerry Yang

  Yahoo! Founders Jerry Yang and David Filo Sumo Wrestling 
  Originally uploaded by Jeremy Johnstone

Ever since Yahoo co-founder Jerry Yang was named the company's new CEO, the growing consensus is that he is nothing more than a transitionary CEO until newly-promoted president Susan Decker can take over.  I said so myself yesterday on CNBC's Power Lunch.  Some people inside Yahoo take issue with this characterization. 

So to be fair. and since no one has really laid them out yet, here is the counter-argument for why Jerry Yang may actually be a good choice to lead Yahoo (YHOO) right now.   

—The troops inside Yahoo respect him, and that is going to be the key to getting anything done in the increasingly demoralized company.

—Yahoo has all the pieces in place it needs to succeed (Project Panama, social media, widgets, mobile).  They just need to all click into place.  So Yahoo doesn't need a change in strategy (MySpace rumors aside) so much as it needs better execution of its current, albeit, complicated one.

—Yang understands Yahoo better than just about anybody else.  In the words of one Yahoo executive: "I can't imagine a better CEO for a quick turn around. Anyone else would have had to spend quarters and quarters just to get their head around our crazy business."

—His ascendancy means that the engineers are back in charge, which is the only way to fight Google.

—Yang might not be Steve Jobs, but that is not what Yahoo needs right now.  What Yahoo needs is a man of the people who can bring its warring divisions closer together.

What do readers think?  Is Yang the right man for the job?  How long will he be CEO?  Comments are open.

Terry Semel Gets the Can

  Be a Better Fun Worshipper 
  Originally uploaded by Jeremy Johnstone

After angering shareholders with lackluster returns, Yahoo (YHOO) CEO Terry Semel is stepping down.  After bringing Yahoo back from the brink of extinction, Semel was unable to find a coherent new strategy for the Web's most popular destination.  Yahoo's problems have been apparent for quite some time.  Outgunned by Google in search and increasingly by MySpace in online media, Semel could never quite find his footing.  Over the past couple years, his Hollywood experiment to turn Yahoo into a Web studio went nowhere, he flubbed the chance to buy both Facebook and YouTube, and he oversaw an exodus of talent to startups and competitors alike.   

In Semel's place, co-founder Jerry Yang will take the CEO reins.  But expect that to be a temporary measure. 

Also announced was the promotion of Susan Decker to president.  Decker, Yahoo's former CFO who was put in charge of the new advertiser and publisher group just last December, is widely seen as the favorite for the top spot—if she can prove her chops in an operating role.  As head of the advertiser group, she was in charge of Yahoo's new Panama advertising system, which is supposed to help it compete more effectively against Google.  Now, she will be responsible for all of Yahoo's operations.  If she can reignite growth, and the stock, that CEO title could become hers as well.

If she can't, then expect the board to find a new CEO from outside Yahoo.  Or else to combine forces with Microsoft.

The Trials of Terry Semel

  Be a Better Fun Worshipper 
  Originally uploaded by Jeremy Johnstone

Yahoo (YHOO) shareholders are losing patience with CEO Terry Semel, whose total pay package last year (including 6.8 million stock options)  by one measure totaled $107.8 million.  That brings his total compensation since he took the helm in 2001, including all gains on stock options not yet exercised,  to a whopping $451 million.  Meanwhile, the stock is barely treading water, despite a big shake-up and reorganization last December. 

It's not just shareholders who are fed.  So too are top executives, who continue to flee the company.  Reports the NYT:

Since Mr. Semel reorganized the company into three units in December, it has experienced a steady stream of executive departures, .  . . Now two of . . .  three operating units lack a permanent leader. The head of Yahoo’s technology group, Farzad Nazem, left late last month after 11 years with the company. And Yahoo has yet to name an executive to run the audience group, which was created in December and oversees many of the Yahoo’s most important Web offerings.

In addition, 17 executives at the vice president level or higher are known to have left Yahoo since the December shake-up.

Cisco's Volpi Takes The Helm at Joost

Mike Volpi, the former superstar executive at Cisco who many believed was next in line for John Chamber's job before Volpi resigned earlier this year, has taken the CEO spot at Joost.  This is a major coup for the Internet TV startup.

During the go-go 1990s, Volpi was head of M&A at Cisco, buying up more than 70 startups and keeping Cisco's growth chugging along.  He knows how to evaluate the growth potential for startups. He also used to be on the board of Skype, so he knows the Joost founders well.

(Read more about Joost in my Web TV story from March)

Sony's Kutaragi Steps Down Under the Weight of PS3's Ambitions

  Oh my God, it's huge! 
  Originally uploaded by DracoRed.

Ken Kutaragi, the father of the PlayStation, and one-time contender for Sony's CEO spot, resigned as PlayStation3 sales lag.  The WSJ reports:

In March, U.S. retailers sold 259,000 Nintendo Wii consoles, 199,000 Microsoft Xbox 360s and 130,000 PlayStation 3s, according to NPD Group Inc.

Instead of being the hoped-for cornerstone of a recovery for Sony, videogame-related losses for Sony's year ended in March are expected to amount to $2 billion, or double original forecasts. That is expected to drag down the company's overall performance despite improvements in other businesses, such as televisions.

Looks like Kutaragi over-reached with the PS3, which combines the super-advanced Cell processor with a Blu-Ray DVD drive, pushing the cost up to $500.  The latest Xbox, meanwhile, starts at $300.

It's Hard to Question the Boss When He is Steve Jobs

   
  Originally uploaded by ИΞUSKOOĿ.

One last thought on the Apple options mess: This might have been avoided if it were not for the cult of Steve Jobs.

After settling with the SEC, former Apple CFO Fred Anderson is trying to save his reputation by publicizing the fact that he had warned Steve Jobs there might be problems with the accounting for the backdated options at the center of the controversy.  In effect, he is shifting blame to his former boss.  But as an SEC lawyer points out in this morning's NYT:

“From our standpoint, the key fact in assessing Mr. Anderson’s liability is that regardless of what he may or may not have believed, he had before him e-mails that stated the price was picked with hindsight and that the board’s authorization was dated on a date when no event occurred,” said Marc J. Fagel, associate regional director for the commission. “Based on that, he should have done more to ensure the financial statements were accurate.”

In other words, it's the CFO's job to tell the CEO what he can and cannot do when it comes to the company's money and financial statements.  But when your boss is Steve Jobs and he tells you the board has cleared something, who is going to question him?  Jobs' cult of personality helped him save Apple and it is why we are all so fascinated by him, but everything has its downside.

If Apple keeps announcing record earnings and Jobs keeps out of the SEC's crosshairs, investors won't care.  It's like the Fake Steve Jobs says:

I wish I could describe for you how it feels to be inside Apple right now. It's just this feeling of unconscious greatness, like those basketball dudes when they're playing out of their minds and every shot they throw up just goes whoosh, through the hoop. Unfortunately you'll probably never experience this, so you'll just have to take my word for it. Trust me, it's mind-blowing. It's like the best acid you've ever done, only it's really happening.

Oops, gotta go. My management team just showed up with a cake. They're going to carry me down to the lobby on their shoulders ... .

Then we're going to bust open a keg and totally get hammered. Then we're going to burn Nancy and Fred in effigy

The Options Mess at Apple

  Steve Jobs 
  Originally uploaded by Roberto_Garcia.

The SEC will not bring charges against Apple (AAPL) over its options backdating imbroglio, and it looks like Steve Jobs may slip through unscathed.  (He's so wily, that Steve Jobs).  The SEC, though, did charge two former Apple executives.  One, former CFO Fred Anderson, settled for a $150,000 fine and a $3.5 million disgorgement of illicit gains from the backdating of his own options.  The other, former general counsel Nancy Heinen, is fighting the charges.

In a statement, Anderson explicitly points the blame at Jobs, asserting that he warned Jobs of problems with the backdating, but went ahead and approved them anyway when Jobs assured him the board had signed off on the action.  But it wasn't so simple.  If anyone needs more evidence why backdating is a bad idea, read this account of the SEC lawsuit by the NYT:

While Apple finalized the terms of the 4.8 million option grant in February 2001, when its shares were trading at nearly $21, the complaint says, Ms. Heinen caused Apple to backdate the grant to Jan. 17, when Apple’s share price was $16.81.

In the complaint, the S.E.C. asserts that on Jan. 30, Ms. Heinen provided Mr. Jobs with a list of daily closing share prices earlier in the month, when Apple’s share price was lower. The particular dates were selected, an e-mail message sent by Ms. Heinen said, to “avoid any perception the board was acting inappropriately for insiders prior to Macworld,” a trade show in early January at which the announcement of the iPod caused the stock to rise.

Even as Apple execs were trying to avoid one impropriety (backdating the options before Macworld, when the stock was even lower), they got themselves into another one by not handling the paperwork properly.  Then there was this cover up associated with a separate set of options for Steve Jobs himself:

On Dec. 18, 2001, a day the stock closed at $21.01, Mr. Jobs and the compensation committee came to an agreement: the date of the 7.5 million-option grant would be Oct. 19, 2001, with an exercise price of $18.30.

To cover up the backdated grant, the complaint asserts, Ms. Heinen directed her staff in January 2002 to document “a phony special meeting” of Apple’s board at which all directors except Mr. Jobs had met to discuss his pay on Oct. 19, 2001. In fact, no meeting had occurred.

This whole mess comes down to accounting and disclosure.  Apple was negotiating compensation with its top executives, and tying their options to dates that had already passed.  The lesson here is if you are going to grant stock options, don't make them retroactive because you are just going to wind up creating a tortuous situation that will be difficult to explain.  Apple would have done better to take a lesson from its product design team: keep it simple.

Ms. Heinen denies any wrongdoing.  And Jobs, of course, later swapped those options for restricted stock, the accounting of which is not in question.

(Read more from Apple 2.0 on Anderson's parting shot and expectations about Apple's earnings announcement later today).

Update:  Here's B2 Beta's liveblog of the conference call.

The Unexpurgated Stewart Butterfield

One of the people I interviewed for our December cover story (see previous post) is Flickr co-founder Stewart Butterfield.  What ended up in the package was just a small portion of what he talked about.  Since Yahoo is in the news, below are his unexpurgated comments (the interview was conducted weeks ago, but they give a good glimpse of life inside Yahoo).  I started off by asking how to remain an entrepreneur in a large, bureaucratic company.  His response:

Do have a wellspring of spiritual energy to call on to surmount any obstacle.

I had never worked at big company before, other than some consulting.  I did not understand large company dynamics.  I did not understand how much connections were important to get things done, like knowing the engineer responsible for X. Even in a company of this size—this is not Wal-Mart or Exxon Mobile, but even in a 10,000-person company—often what you need is available somewhere.  You just don’t know where.  It is really figuring out who knows what.

Like finding the specific search technology we needed for Flickr.  When we were a standalone startup, if we wanted search technology ourselves we would have used Lucene, an open source search platform, and customized it for our needs.  But Yahoo has something much better than Lucene. Finding that out was the challenge.  You still need the same degree of resourcefulness being inside a large company.  You still need the same pitching skills, convincing people something is a good idea.  Before it was to VCs or a board.  Now it is the SVP of a business unit or the COO.  They are about the same.  They are looking for the same kinds of things.  People can complain about big company execs or VCs, but in general they are both classes of very smart people and very busy people.  So they want you to get to the point.  Their questions are the same: How much money can we make?  How much money will it cost?  If I don’t pay attention for 3 months are these guys going to do something stupid, or can I worry about other things?  One difference here is that I have the opportunity to screw up lots of parts of Yahoo by doing something dumb.  The impact of screw-ups at Flickr was different for our VCs.  I couldn’t screw up other portfolio companies.

Success Advice From Those Who Should Know

B2.0's December cover story is our annual How to Succeed guide, where we ask 50 CEOs, VCs, Nobel Prize winners, and other assorted business luminaries what advice they would give the rest of us for next year (25 were printed in the magazine, the rest are online).  Here is a sampling (* denotes ones based on my interviews):

Sergey Brin on Simplicity
Richard Branson on Saying No
Chad Hurley* on How to Launch a Killer Startup
Kevin Rose* on Letting the Users Run the Show
Stephen Covey on Moral Authority
Edgar Bronfman Jr. on Learning From Worker Gripes
Muhammad Yunus on Seeking Big Rewards in Small Ideas
Reed Hastings* on Turning Weakness into a Strength
Vinod Khosla on Going Green
Craig Newmark* on Trusting Your Customers
Philip Rosedale* on Virtual Economies
Fred Wilson on Blogging
Stewart Butterfield* on Working for More than Just Money
Brad Garlinghouse* on Minding the Mainstream
Joe Kraus* on How to Get Bought by Google
Tim O'Reilly on Putting Yourself at the Center of the Action
Marc Benioff* on Being Disruptive

Then there's my favorite one: Michael Scott, the lead character from the TV show The Office whose mug graces the cover, on How to Avoid a Staff Mutiny (written by the show's producers).  Excerpt:

Every day someone stops me on the street or in a coffee shop or a magic shop, and they want to know how to motivate their staff! Fantastic, I tell them!  The three keys to motivating your staff are love (positive reinforcement), fear (negative enforcement), and chocolate (chocolate reinforcement).

Nowadays I find chocolate and/or chocolate-based snacks to be great motivators. Everyone loves chocolate. If someone has a lot of work to do, put a piece of fudge in a glass container (so they can see it) and let them know that if they accomplish their tasks, they can eat the fudge. You'll definitely get a reaction!

There's a saying, "As goes paper, so goes the paper business." You've heard of supply and demand. Well, paper demands that I do my job or I am fired. That's been said to me. And that's a good thing: It's called a warning, and we should heed the warning signs of a downturn. Or an upturn. The point is, motivation is business, and that's fantastic. Business is the backbone of the economy, and those who say otherwise are incorrect or lying to your face. If it weren't for business, this country would probably have another depression, only this one wouldn't be so great.

Yahoo in Disarray

  Break an Egg (near focus) 
  Originally uploaded by *tdl*.

Faced with a stock price that is going nowhere, Terry Semel announced a major reorganization of Yahoo yesterday.  Known internally as Project Soufflé, Semel broke some eggs in order to simplify Yahoo (YHOO) into three main groups: Audience, Advertisers and Publishers, and Technology.  Chief operating officer Dan Rosensweig is out, and so too is media chief Lloyd Braun.  Chief financial officer Sue Decker is now in charge of the advertising and publishing group (which includes sales), and chief technology officer Farzad Nazem will head up the technology group.  But, inexplicably, no leader has yet been picked to head up the audience group, which is the most visible and important one.

Following on the heels of the leaked Peanut Butter memo—which called for less bureaucracy, more focus on Yahoo's priorities, and clearer lines of ownership and authority—the move to simplify the company's organizational structure comes as no surprise.  Even some Yahoo employees couldn't tell you what the former organizational structure was.  Killing Lloyd Braun's media fiefdom in Hollywood and subsuming it under Semel's longtime deputy, search chief Jeff Weiner, who now also heads up social media and communications, should help bring more clarity to Yahoo's various media efforts.  Don't expect Yahoo to continue Braun's experiments with original Web programming.  Channeling media created by consumers and big media companies will more likely be the norm.

And what of Brad Garlinghouse, the Peanut Butter memo author who is in charge of Yahoo Mail, Messenger, the home page, MyYahoo, and (at least until yesterday) the communications products?  Will he now be reporting to Weiner?  My guess is that both he and Weiner will report directly to whoever heads up the audience group.  (Update: Garlinghouse just confirmed to me that Weiner is in fact his new boss). That may end up being Weiner, but more likely Semel will reach outside for a more seasoned executive.

All of this begs the question: Is Yahoo just reshuffling the deck chairs, or is it really trying to redefine itself?  Ask some Yahoo employees what the company's mission is and they draw a blank, even now. 

For a long time, the debate was whether Yahoo was trying to be a media company or a technology company.  But that distinction is meaningless now.  All media companies, by definition, need to be technology companies or risk being left by the wayside.  Yahoo, more than any other company, can become the place where you use technology to organize all of your media. Sure, it faces threats from Google on the technology front  and MySpace on the audience front, but trying to out-Google Google or out-MySpace MySpace will only lead to disaster.  Yahoo needs to find what it does best and stick to it.  Otherwise, it won't continue to be the most popular place on Web for long.

Update: See Semel's take here and and here.