With Bartz out, Yahoo must refocus or die

With rivals like Google and Facebook, Yahoo needs to regain footing fast

With Yahoo languishing in the face of competition from the likes of Google and Facebook, the ouster of CEO Carol Bartz gives the company a chance to refocus and reinvigorate itself.

Yahoo announced late on Tuesday that Bartz, who had been with the company for just under three years, had been fired. Tim Morse, Yahoo's chief financial officer, has stepped into the top seat until a permanent CEO can be found.

Under Bartz's stewardship Yahoo has continued to falter. Once an Internet pioneer and online giant, the company has struggled financially. And at a share holder meeting in June, one investor blasted Bartz for the company's limp stock price and her market strategy, and even called for her departure.

During that conference call, Yahoo Chairman Roy Bostock defended Bartz, saying she had made "demonstrable progress" and adding that she had the confidence of the board of directors.

"Sadly, this was not a surprise, as Yahoo! has been languishing for some time, unable to find a sense of focus and direction opposite more energized advertising-based rivals Google and Facebook," said Bradley Shimmin, an analyst with CurrentAnalysis. "In many ways, public companies are like sports teams. When faced with longstanding disappointment, ownership, or the board, takes the most expedient and most affordable action available -- fire the manager/coach, or CEO. In most cases, this single stroke serves as a minor kickstart for the team."

Analysts are split on whether or not Bartz, who was known for her public expletive-filled outbursts, made any major business mistakes.

Shimmin weighs in more on Bartz's side.

"I think Bartz faced a daunting challenge when she took over the reins two and a half years ago, during a time when many advertising companies were just beginning to see positive movement," he noted. "I don't believe she made any major missteps. If anything, I think her conservative approach coupled with Microsoft's failed purchase attempt and subsequent partnership, stalled any potential rebound."

However, Dan Olds, an analyst with The Gabriel Consulting Group, said Bartz may have been leading a troubled company but also added to Yahoo's woes.

"Yahoo's board of directors just ran out of patience with Bartz," said Olds. "It was the lack of discernible progress that probably did her in. And it's fair to say she missed the boat on a number of trends - most importantly, social networking. They could have embraced the trend earlier or formed a strategic partnership with Facebook, for instance, but that train has left the station."

Ray Valdes, an analyst with Gartner, said Yahoo is headed in the wrong direction in terms of market share, financials, technology and staff morale. "Yahoo's revenue and other financial indicators have been slipping [although] its search engine market share has been mostly stable," he said.

Even so, Yahoo is a company adrift, said Rob Enderle, an analyst with the Enderle Group. That's been true since Yahoo dropped the social networking ball.

"Yahoo actually did social networking first, they should have been Facebook but lost that opportunity by trying to be Google instead," said Enderle. "Yahoo is treading water at the moment, hoping for a leadership team that can teach it how to swim again so it avoids drowning."

He also said Yahoo's board might be smart to pick more than one person to lead such a large company.

"It needs a vision desperately, which provides a direction folks can work towards," said Enderle. "[That requires] probably more of a team, because the skill set will be easier [to find] if spread across several people. It needs both an expert in running an Internet company...and it needs a turn-around manager with emphasis on the company building, not cutting, side of that process. Yahoo has already bled deeply and I doubt it can survive much more cutting."

Valdes agreed that a team could be what Yahoo needs.

"Ideally, the company needs a leader with vision, leadership, technology savvy, and hard-nosed operational skills. Such a rare individual is unlikely to be found," said added. "In many successful technology companies success is achieved by combining the talents of two distinct individuals: Bill Gates and Steve Ballmer, Mark Zuckerberg and Cheryl Sandberg..."

Whether Yahoo's board chooses a team or an individual, Olds said it needs to choose swiftly and well.

"If they continue to stagnate, they'll only fall further and further behind industry leaders like Google and Facebook," said Olds. "They could find themselves out of runway pretty quickly, so the time to do something to turn things around is now, while they still have significant revenue and are profitable."

Sharon Gaudin covers the Internet and Web 2.0, emerging technologies, and desktop and laptop chips for Computerworld. Follow Sharon on Twitter at @sgaudin, on Google+ or subscribe to Sharon's RSS feed. Her e-mail address is sgaudin@computerworld.com.

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Sharon Gaudin

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