Tags: marissa mayer | yahoo | nicholas carlson

Excerpt: Marissa Mayer and the Fight to Save Yahoo! by Nicholas Carlson

By    |   Wednesday, 07 Jan 2015 02:16 PM

An excerpt from the book Marissa Mayer and the Fight to Save Yahoo! by Nicholas Carlson

By late 2000, tensions were boiling over inside Yahoo.

One day, Jerry Yang sat down for an interview with Doug Levy, a former journalist who had become well known for his tech industry coverage in USA Today. Levy was no longer a member of the media. He was working as an independent media consultant and he’d figured out a good gig. He would go into a company and interview its executives as though he were going to write an article. Then he’d prepare a critical piece and let them read it. The idea was to show them where the company’s holes were.

The meeting started pleasantly enough. Levy told Yang: Look, I’m doing a fake story but it’s going to be a real interview. So I’m going to have to ask some tough questions.

Yang seemed to get the idea. But then Levy started asking questions. It had been a difficult year for Yahoo, and Levy had lots of material.

He asked questions like: Was Yahoo’s advertising business as dependent on dot‐coms as Wall Street analysts alleged?

And: How would Yahoo deal with the reality that web surfers weren’t clicking on ads as much as they used to?

Yang answered the questions, but he was getting visibly irritated—red in the face, even. Levy went on:
Was Yahoo management still working well together?

Was it true that management discord had been the reason Yahoo had been unable to acquire eBay?
Yang started fidgeting with a pen on the table in front of him.
Speaking of eBay, what was Yahoo going to do about all these fast‐moving startups competing with Yahoo products?

Vote Now: Do You Approve or Disapprove of President Obama's Job Performance?

Finally, Yang had enough. He said, “I’m done with this.” He stood up. He was still holding the pen he’d been playing with. He flung it down and across the table. It skittered across the surface toward the consultant.

The interview, fake or not, was over. Yang stormed out.

The main problem with Yahoo in 2000 was that, in a way, its advertising business had become too successful over the prior five years.

As Yahoo’s popularity surged in 1996, 1997, and 1998, other Internet startups—dot‐coms, everyone called them—discovered an incredible reality: Just by announcing a partnership with Yahoo or its rival, America Online, the dot‐com’s stock price would shoot through the roof. For example, a company called Individual Investor Online announced it would supply content for Yahoo Finance in August 1998.

Its stock spiked 36 percent that same day.

Yahoo executives, particularly its chief dealmaker, Ellen Siminoff, quickly realized the company could profit from the phenomenon. Yahoo developed a lucrative business based on squeezing startups for all they were worth.

Siminoff or one of her lieutenants would field a call from a well‐funded startup asking to become Yahoo’s premier bookseller, online travel agency, or music seller. Siminoff would say, Sure, but it’s going to cost you. The startup would say, How much? Siminoff would say, How much do you have?

The answer was “A lot.”

In 1998, venture capitalists invested $22.7 billion in startups, many of them dotcoms. In 1999, that number more than doubled to $56.9 billion. Often enough, that money flowed straight from the venture capitalists to the startups in their portfolio to the coffers of Yahoo and its portal rivals.

BUY NOW: Click Here To Get 'Marissa Mayer and the Fight to Save Yahoo!'

For a time, the arrangement benefited everyone. By 1999, well‐funded dot‐coms were paying Yahoo millions of dollars just to be able to mention the deal in their regulatory filing prior to going public. Then, on the day of the IPO, investors—often amateurs wanting in on the action—would bid the dot‐coms up to crazy prices.

In July 1999, a company called Drugstore.com was preparing to go public. In terms of revenues and profits, it was a small business. In fact, it was losing a lot of money. In the first quarter of 1999, it had sales of $652,000 and losses of $10.2 million. The next quarter, sales reached $3.5 million, but losses steepened to $18.8 million. The company said it had only 168,000 paying customers. And yet, Drugstore .com went ahead with its plans to go public. Investment bankers at Morgan Stanley Dean Witter advised the company to price its shares between $9 and $11. Then, the day before Drugstore.com’s IPO, the bankers changed their minds. They told Drugstore.com to offer its shares at a higher price—$15 to $17 per share. It turns out even that was too low. The next day, Drugstore.com went public and shares traded all the way up to $69 per share before settling at $54.25. The company planned to go public with a market cap of $680 million. It finished the day with a market value of $2.1 billion.

One reason for the spike: In March, Drugstore.com had announced a major advertising partnership with Yahoo and a few other portals. Drugstore.com would be Yahoo’s premier online pharmacy partner. For the privilege, Drugstore.com paid Yahoo and the other portals $25 million. No one much cared that Drugstore.com had only $38 million in the bank and was blowing it all on just a couple marketing deals—it had a deal with Yahoo.

The problem with squeezing startups was that, over time, distribution on Yahoo.com proved to be less valuable than dot‐coms or their public investors thought. When Yahoo first started showing banner ads—rectangular graphical advertisements on the margins of its sites—about 5 percent of users who saw them would click on them. By the end of 2000, click‐throughs were down to 0.5 percent and falling.

During its short life as an independent company, Petstore.com spent $150,000 per month on Yahoo ads, paying about $200 per new customer. Drugstore.com’s $25 million spend on portal marketing didn’t have a very good return on investment, either. Three years after its IPO, its share price was below $1.

For a time, Jeff Mallett didn’t believe the source of funding for his sprawling machine was unsustainable. When Yahoo bought a web publishing startup called GeoCities in 1999, GeoCities CEO Thomas Evans—a veteran of the magazine industry—warned Yahoo executives about aggressive tactics: “Ad sales are a cyclical business. People hate you. You’re arrogant and condescending. When there’s a downturn in the market, they’ll cut you first.”

Mallett shouted him down. “You don’t get it!” he said. “You’re old media!”

But then, in April 2000, Yahoo held a conference for its sales‐ people in Arizona. Yahoo’s top sales executive, Anil Singh, walked onstage in front of hundreds of people. Singh joined the company as its first sales employee in 1995 and had hired everyone in the room.

Singh was famous for rah‐rah speeches full of “Anilisms” like “Get with it!” and “We’re rockin’!” and the crowd expected more of that. Instead, Singh went onstage and put on‐screen behind him a huge picture of a dark, foreboding cloud. Like a frightened prophet, he warned the room: “A storm is coming!” He said Yahoo would have to start selling ads to more traditional companies, that the days of selling ads to dot‐coms at exorbitant prices would not last forever. He spent the rest of the conference hammering home the theme.

The rich kids who made up Yahoo’s sales force thought it was a real bummer. Many didn’t believe Singh. Their paychecks were still heavy with commission fees. Like Mallett, they’d been at Yahoo for a few years now and everything had only gone up and to the right.

Urgent: What Do You Think of President Obama's Job Performance? Vote Now

Then, in the late spring of 2000, previously bullish Wall Street analysts Holly Becker, from Lehman Brothers, and Henry Blodget, from Merrill Lynch, began openly wondering how much of Yahoo’s revenues was coming from unstable dot‐com businesses. On July 7, a Friday, Deutsche Banc Alex. Brown analyst Andrea Williams downgraded Yahoo stock from a “strong buy” to a mere “buy.” The stock dropped $5.88 to $116.50. Mallett was furious. When the Wall Street Journal’s Mylene Mangalindan wrote up Williams’s report in a Monday news story, Mallett’s PR team declared war on her and forbade any executives from ever talking to her again.

But dot‐coms kept failing despite big partnerships with Yahoo, and Wall Street analysts noticed. On August 28, 2000, Becker dropped the hammer. She said that of Yahoo’s top 200 advertisers, 61 percent were dot‐coms. She downgraded Yahoo. The stock dropped 9 percent in a day.

By October 2000, Mallett got the picture. His glorious machine, his sprawling system of four hundred pods and hundreds more virtual sevens, was in peril. At a retreat in Yosemite National Park, Mallett told the senior management team that Yahoo needed to change the way it did business. It had to find a more sustain‐ able business than squeezing startups. It had to treat advertisers better.

It was the right thing to say. It was too late.

From the book MARISSA MAYER AND THE FIGHT TO SAVE YAHOO!. Copyright (c) 2015 by Nicholas Carlson. Reprinted by permission of Twelve/Hachette Book Group, New York, NY. All rights reserved.

© 2017 Newsmax. All rights reserved.

 
1Like our page
2Share
TheWire
By late 2000, tensions were boiling over inside Yahoo.
marissa mayer, yahoo, nicholas carlson
1532
2015-16-07
Wednesday, 07 Jan 2015 02:16 PM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
America's News Page
© Newsmax Media, Inc.
All Rights Reserved