Why Reviving Yahoo Is Such a Difficult Task

Yahoo!

Perhaps it's time the company retired that name. It always conveyed a fake folksiness, and the exclamation mark was a silly typographical indulgence. Like the company it signifies, Yahoo (YHOO) is an awkward relic of the naivete of the Internet's earliest days.

I'm starting to wonder if the name isn't something else as well -- the mocking cry of a corporate beast that chews up CEOs for breakfast. Some chief executives pride themselves on their ability to revive flagging or troubled companies. And then there are their institutional equivalents -- companies that, like wild horses, throw off anyone who tries to subordinate them by force. Yahoo is one of those horses.

A Revolving Door for CEOs

First, there was Tim Koogle, a former Motorola (MOT) executive who shepherded Yahoo to its place at the center of the Internet, only to be spit out into oblivion (Koogle hasn't yet merited a Wikipedia entry). In 2001, Terry Semel stepped in, and despite leading Yahoo from a market cap of $9 billion to $36 billion, was pushed out in favor of co-founder Jerry Yang. Yang lasted less than two years, after resisting a buyout bid from Microsoft that seemed idealistic at the time but now looks foolish. Even the bloodless Carl Icahn, who tried to turn Yahoo around in his role as gadfly investor, had to scale back his hopes for a turnaround.

In January 2009, Carol Bartz stepped in. Bartz had a reputation as a tough but effective CEO at Autodesk (ADSK). She battled a rebellious culture of programmers and steered Autodesk away from irrelevance in the era of the Internet, all while battling cancer. Autodesk's value rose nearly fivefold. Bartz had also served on boards of Cisco (CSCO) and Intel (INTC) during periods of growth at those companies. She seemed just what Yahoo needed - a smart, tough-love adult with a record of results who could steer Yahoo back to the front ranks of Web companies.

The Blunders of Bartz

It hasn't even been two years, and Yahoo may be done with Bartz. It's hard to believe she's the same CEO who joined Yahoo last year. By some accounts, the very pluck that drove her success at Autodesk now comes across as crankiness and denial.

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The strategic missteps Yahoo has made under Bartz's guidance are harder to shake off. Yahoo has conceded defeat in search while losing ground to Google in display ads and to Facebook in social media. Top executives continue to bolt even this week. Perhaps most embarrassing, an analyst reckoned that minus its portfolio of Asian companies like Alibaba, Yahoo's value equals zero.

Under Bartz, Yahoo has often been criticized as having no clear vision. That's true as far as it goes, but it overlooks a contradiction that has long been at the heart of the company. Yahoo can't thrive because it doesn't take programming or innovation seriously enough to remain on the cutting edge. Yet it won't fail either, because advertisers keep paying for its banner ads. So Yahoo seems destined for mediocrity: Even though it is losing the fight f search and social-network ads, it still has a strong business in display advertising.

Muddling Through with Mediocrity

Investors, however, are never satisfied with mediocrity. They demand growth, so one CEO is jettisoned for another CEO, and none can get the company growing again. Bartz's moves aren't aimed at restoring Yahoo as a standard-setter. The marketing partnership with Microsoft (MSFT) ensured Yahoo will never be a leader in search. A similar deal with Pricegrabber spelled the end of Yahoo Shopping, and yet another deal with IAC outsourced Yahoo Personals.

Piece by piece, Bartz has turned the Yahoo brand into a patchwork quilt of marketing partnerships. It's management by hospice care, generating revenue today by cutting off innovation that could spur growth in the future. The result is speculation that Bartz will be fired. That will make room for another turnaround artist to spend a couple of years trying to revive the company before investors grow impatient again.

Perhaps the next CEO will begin by placating investors by paying a dividend from Yahoo's $1.8 billion in cash. That would send a clear signal what Yahoo has become: Not a growth company, but a leader in the increasingly ancillary -- but still profitable -- market for banner ads.

Once that's done, it might be good time to rename the company with something suitably less exuberant.