Yahoo Remodels the House Jerry and Terry Built

Her hard-line approach continued today, as Carol begins the process of remolding Yahoo into something different. In a Feb. 26 blog post titled "Getting our house in order," she writes about changes. Strangely, she didn't mention the imminent departure of Chief Financial Officer Blake Jorgensen, which was announced shortly before her blog was posted. Changing CFOs, in modeling analogies, is akin to knocking down a couple of walls. Say, Carol, while you're cleaning up the house, do remember not to throw out the baby with the bath water.

Six weeks ago, Jan. 14, I described Carol's appointment to the chief executive's office as "the end of Yahoo as we know it." My position then: Carol's credentials are all wrong for Yahoo, unless the company is planning a major makeover. Well, the makeover has started, and her credentials probably are all wrong. She seems ready to dismantle big portions of Yahoo, and in process risk its most valuable asset: the feel-good brand.

In November 2008, when returning to the topic of whether or not Microsoft should buy part or all of Yahoo, I offered the reason that made most sense: Yahoo brands are valuable. Carol risks those brands' value during remodeling, which would be good for Microsoft and Google, too.

It's no secret that Yahoo has got troubles, which the global economic earthquake will exacerbate. The ground is shaking, which is something Carol should really think about as she remodels Yahoo's house. The easy thing: Cut, cut, cut. Lay off employees, close down or sell some operations, and reduce spending on marketing and partnerships. Such tactics risk Yahoo brands, I say. The brands' value cannot be rightly calculated. Yahoo must retain brand affinity to survive its own problems and those caused by collapsing economies.

Now is the time to invest, not cut back. Carol does deserve a little kudos for one rightly made investment. She writes:

I'm creating a new Customer Advocacy group. After getting a lot of angry calls at my office from frustrated customers, I realized we could do a better job of listening to and supporting you. Our Customer Care team does an incredible job with the amazing number of people who come to them, but they need better resources. So we're investing in that. After all, you deserve the very best.

I like the sound of that remodeling, Carol. If you could apply such sense to every room maybe there is hope. Earlier today, over at Apple Watch, I identified four attributes of companies that are best positioned to survive the economic earthquake:

• lots of cash on hand;
• longer product release cycles;
• aggressive and consistent advertising; and
• great customer service.

I left out one: strong branding. All five attributes apply to Apple, but only four need apply to Yahoo. The release cycles attribute is for companies that produce physical products, for which there are manufacturing and distribution expenses. Yahoo should adopt shorter release cycles, since its investment is R&D and the products don't go stale on store shelves.

Carol is doing right by making customer service a bigger priority. What she doesn't have is the cash on hand, unlike Apple and Microsoft, which have nearly $30 billion and about $20 billion, respectively. Is Blake the fall guy for Yahoo's weak cash position and hobbled earnings? If so, he's not alone. Yahoo can't seem to hold on to executives, whether they're jumping from a sinking ship or being forced to walk the plank. Other major executives out this week: Marco Boerries (mobile) and Neeraj Khemlani (news and information). Jill Nash (communications) beat them to the exit door by a few weeks.

The departing executives didn't hang around for today's major reorganization. Carol writes:

I'm rolling out a new management structure that I believe will make Yahoo! a lot faster on its feet. For us working at Yahoo!, it means everything gets simpler. We'll be able to make speedier decisions, the notorious silos are gone, and we have a renewed focus on the customer.

She offered more details in an internal memo sent to Yahoo employees:

Tech and Product groups will be combined to create a single organization called Products ... This organization is responsible for the vision, strategy, and quality of every product we create—regardless of region, device format or category ... There are now two regions—North America and International. The regions are responsible for delivering Yahoo!'s products, programming and services to consumers, partners and advertisers in local markets ... Mobile will continue to be a key priority for Yahoo ... All of our product teams will be responsible for incorporating mobile innovations into their products. A Chief Marketing Officer (CMO) role has been created to oversee our global marketing strategy and provide direction for our marketing function.

I'm all for streamlining and for cutting bureaucracy, but Yahoo is losing too many experienced executives in process. Maybe Carol sees them as baggage, part of the languishing legacy left by former Yahoo CEOs Terry Semel and Jerry Yang. Those executives should be credited with building up Yahoo's brands. Be careful, Carol. If you knock down a supporting wall during remodeling, the house will collapse. Maybe those departing executives see in Carol more problems than solutions.

It's too early to say whether or not Carol can succeed. She's only had the job for six weeks. But I will watch and wonder whether her experience running Autodesk is appropriate for Yahoo. Customer service and sales and marketing are about the only major attributes the companies share in common. If the board's goal is remodeling, she'll do just nicely. But the house may be unrecognizable when Carol finishes the job. Autodesk and Yahoo are two very different kinds of businesses.

Why is this a topic for Microsoft Watch? Yahoo's future fate has huge implications for Microsoft, whether Carol's remodeling produces a mighty house or one that collapses into rubble.