Marissa Mayer's Yahoo Still Searching for Revenue Growth a Year Later

By Michelle Maisto  |  Posted 2013-07-17

Marissa Mayer's Yahoo Still Searching for Revenue Growth a Year Later

Marissa Mayer announced June 17, 2012, her first day as CEO of Yahoo, that she was expecting a baby boy.

It was surprising news from the person hired to do what four previous CEOs, over five years, hadn't managed to accomplish. But those who flinched at the news weren't Silicon Valley insiders.

Mayer is, by all accounts, brilliant. She earned degrees with honors in symbolic systems and computer science from Stanford University and afterward became employee #20 at Google, where for a dozen years she oversaw "search."

She also treats work like a competitive sport.

"New people who join [Google] think Google just happened," Mayer told an interviewer in 2011 who asked how much luck has to do with success. "Google was blood, sweat and tears. It was 130-hour weeks. It's possible when you sleep under the desk and don't shower. It was a huge amount of work."

New York Magazine, in a profile timed to publish around the birth of Mayer's son, reported that Mayer worked 250 all-nighters in her first five years at Google and quoted a former colleague who insisted, "She will outwork you. She will outwork anybody."

Mayer is also young (38), attractive and blond, with a taste for couture, a handsome, venture-capitalist husband and a 38th-floor penthouse apartment in San Francisco's Four Seasons hotel (her second home) that's filled with original art by the sculptor Dale Chihuly.

During her time at Google, all of this worked to make her a Silicon Valley celebrity (Vogue gave a page to her 2009 wedding, which The Killers played at). But it was the paired details of her pregnancy and her CEO appointment that propelled her into the national spotlight. And, months later, it was her decision to end work-from-home arrangements at Yahoo—a very anti-family, non-mom-like decision to the minds of many—that turned Marissa Mayer into a household name.

The world is now interested in Mayer and, by extension—though to a lesser degree—Yahoo, which may be her first major accomplishment as CEO.

"Is the Marissa Mayer brand mixed with the Yahoo brand right now? Maybe, but it doesn't matter. The fact that it's working is the thing," said Roger Kay, principal analyst with Endpoint Technologies. "Very few companies have a face. It's really hard to do. Who's the face of Samsung? Who's the face of Lenovo?"

Mayer likes to describe herself as "an engineer " and "a geek"—and still she showed up to the New York Magazine photo shoot with the just-in-case option of her own Alexander McQueen gown.

Marissa Mayer's Yahoo Still Searching for Revenue Growth a Year Later

She's neither one-dimensional nor naive about her many assets. But what she seems to be most of all is a tack-sharp problem solver.

And right now the problem she's focused on is Yahoo.

Marissa Mayer's First Year

Arriving at Yahoo last July, Mayer had two main orders of business, says Charles King, principal analyst at research firm Pund-IT. 

"She needed to prove Yahoo was still a viable, innovative company, and she needed to prove that she was a viable CEO candidate. There were a lot of doubters on both of those counts, it's safe to say."

For the most part, he believes she's succeeding on both counts.

"She's made some bold moves, including the acquisitions, and I think many if not most Yahoo employees are probably happier to come to work today than they were a year and a half ago," said King.

"The stock is up a few dollars, and the shareholders are more comfortable than they were with previous CEOs. It doesn't mean that it's clear sailing ahead, but Yahoo's in a measurably clearer condition."

Neil Mawston, executive director of Strategy Analytics' Global Wireless Practice, puts four pressing items on Mayer's early to-do list: control costs, stabilize Yahoo's core businesses—search and online ads—develop new businesses and expand its mobile presence.

A year into her tenure as CEO, Yahoo's core businesses remain under pressure, and its mobile expansion is still a work in progress, says Mawston.

"There is little to worry Google or Apple in the near-term," he added, days ahead of Yahoo's 2013 second-quarter earnings and the conclusion of a full four quarters with Mayer at the controls.

When asked what Mayer needed to accomplish during her first year, Gartner Research Vice President Allen Weiner answered: money and a brand refresh.

"She needed to inject it more into the conversation of not only consumers but also advertisers and the cognoscenti," said Weiner.  

On July 17, 2012, Mayer's first day, Yahoo announced its second-quarter earnings results (Mayer didn't speak on the call). Revenue was $1.2 billion, nearly flat from a year earlier, and income was $228.5 million, down from $238.5 a year earlier. About $535 million in revenue came from display ads and $461 million came from search.

Marissa Mayer's Yahoo Still Searching for Revenue Growth a Year Later

From there, Mayer began making changes, many of them inspired by Google's best practices.

She hired a new CMO, COO and CMO and put in place transparent quarterly goals for them, as well as 93 percent of Yahoo's employees. She also rearranged some of the physical workspaces at Yahoo, to encourage collaboration; upgraded everyone's smartphones, so that they could all test out Yahoo products on the latest devices; extended the maternity leave time (though she only took two weeks); made food in the cafeteria free; established an online Q&A system, enabling employees to ask questions and vote on the topics they wanted publically addressed; and began the tradition of an all-hands-on-deck Friday afternoon meeting, to keep everyone on the same page (and in the office).

Since Mayer's hiring, more than 560 new "employee-focused initiatives" have been put in place.

During Yahoo's 2012 third quarter, revenue came in at $1.09 billion, beating analyst estimates, while income was $177 million, not including a $2.8 billion payday from sales of Alibaba shares. Display ad revenue was $506 million and search revenue was $473 million.  

During the Oct. 22 earnings call, Mayer said the vision for Yahoo is to make the "world's habits inspiring and entertaining." That means making search, email and the other things most people do most often—check stocks, check the weather, check sports scores, watch videos, share photos, play games and read news—incredibly pleasant to engage with.

Yahoo also needs to be more mobile, she said, as the world's smartphone population is expected to double in the next three years and "Yahoo hasn't capitalized on the mobile opportunity."

She also wants Yahoo to be more streamlined. The company had 76 applications across iOS and Android as of October, which Mayer declared to be too many.

"Our top priority is a focused, coherent mobile strategy," she said.

Finally, she added that Yahoo also needs to be in a position to acquire companies that align well with its business and can provide "terrific growth." She contends that companies that can be had for less than $100 million tend to comfortably adjust to a new corporate culture and yield great results.

As her one-year anniversary at Yahoo approaches, Mayer has acquired 17 companies.

Among the properties Yahoo purchased, mostly for undisclosed sums, are video-sharing app Qwiki; productivity app Astrid; survey platform GoPollGo; travel site Milewise; gaming company LokiStudios; photo app maker Ghostbird Software; social recommendation platforms Alike, Jibe and Stamped; news-summarizing service Summly; the Pinterest-esque; conferencing and broadcasting apps Rondee and OnTheAir; and, for the cool price of $1.1 billion, the blogging platform Tumblr.

Marissa Mayer's Yahoo Still Searching for Revenue Growth a Year Later

"You go through a phase where you set a plan, and then you have to start putting the pieces together," said Gartner analyst Weiner. "At this point I have no idea what Yahoo is. A portal? A social network? A media company? A search engine?"

If Mayer has moved the needle for Yahoo, Weiner said in early July, she's done it "very slightly."

"To me, the thing that she's achieved the most is the increase of her own celebrity. ... All these other bits and pieces have yet to coalesce into any formal strategy. I don't think, a year later, that we're any more clear as to where Yahoo is at or where it's going to be."

He points out that Yahoo is a "huge source" of original video content and that it does this very well. But there's no way to watch this content through any of the popular television platforms. In a time when so many people watch TV with a second screen in their hands, he says, this is a type of failure.

Flickr is one of Yahoo's better-known properties, and under Mayer it received a design overhaul and began offering users 1TB of free data. Weiner would like to see Flickr have the "influence and power" of an Instagram.

"Turning Flickr into something cool and relevant is the kind of achievement I'm looking for," he said, "and I've yet to see it."

Jack Gold, principal analyst with J. Gold Associates, agrees that Yahoo's greatest challenge right now is deciding what kind of company it is. What does Yahoo do well enough, asks Gold, that consumers without a Yahoo email account will want to visit it instead of others?

Gold answers his own question by observing that Yahoo's greatest failing is that it still doesn't do anything markedly better than its competitors.

"Marisa Mayer has been working to identify Yahoo's strengths, weaknesses and sustainable advantages, so far with mixed results," Gold told eWEEK. "I believe she has done well at paring down the number of markets Yahoo is trying to address. But she still hasn't produced a winning market position in any particular venue. Though she has stemmed the bleeding."

He continued, "In this day and age, that means you'll struggle for user mind share—and revenues. So, Mayer has much work yet to do in establishing Yahoo as a brand in some area that no one can approach."

In discussing Yahoo's ability to leverage partnerships, Mayer has called Yahoo a "very friendly" company. It currently has multi-year "significant partnerships" with Microsoft, Facebook and Google.

"The way we think about this is, how can our services and our content be brought to the many different platforms and places where our users use our products?" Mayer asked during Yahoo's first-quarter 2013 earnings call, April 16, in regard to partnerships.

"I think it's a great opportunity for us, and it's one that we continue to explore and think about as we release new products and as we think about where we might be able to add the most user value in the future."

Marissa Mayer's Yahoo Still Searching for Revenue Growth a Year Later

During the first quarter, Yahoo redesigned its homepage across all form factors; it found that updates to Mail and Flickr had increased use of its apps by 50 percent; and it saw mobile monthly users grow from 200 million during the previous quarter to more than 300 million. As in the 2013 second quarter, display ad income was down, causing revenue, at $1.07 billion, to come in shy of analyst estimates, though income was up 26 percent from a year earlier, at $420 million.

In addition to insisting that Yahoo is working to improve user experiences, Mayer said it also is working to make personalization a "key differentiator," not only in content but ads.

"We fundamentally believe that ads can and should be a great part of the user experience," said Mayer. "So for every improvement that we make to personalize our content, we're also looking at how we can innovate in the ad experience as well."

What Mayer Needs to Accomplish In Year Two

In discussing business overhauls, companies commonly reach for the analogy of a marathon. Mayer, however, speaks in terms of sprints.

A "series of sprints" will define Yahoo's long-term success, she said during the April earnings call.

Yahoo has just completed the first sprint, which was "all about getting people to believe in Yahoo, making Yahoo a really terrific place to work and contribute, and getting the organization fit.

"Now, our focus will shift to the next sprint," she said, "which is all about building beautiful products and executing well against our business strategy. This will lead to greater user engagement, increased revenue and, ultimately, growth."

Yahoo's first major success on this front may be its new Weather app, which pulls images from Flickr. It has proved for Yahoo—as another California company knows well—that having a seriously beautiful, highly functioning product can be the most effective way to stand out in a very crowded market.

In June, the Yahoo Weather app won an Apple Design Award.  The day it launched,  Twitter was filled with high praise. People tweeted to say they found it "spectacular," "freakin' gorgeous," "awesome," "the most beautiful app I have ever seen" and possibly "the best functionality on an app to date."

What will it take for users to feel about the rest of Yahoo the way they feel about its weather app? What finish lines does its high-achieving CEO need to reach for the industry to agree: Marissa Mayer did it?

"Revenues remain volatile at the moment (stronger in Q4, softer in Q1) and the core slowdown of online ads and search is not being fully offset by growth in new areas like mobile media," said Strategy Analytics' Mawston. "A sustained uptick in overall revenue growth during three or four quarters would be a clear sign that Yahoo is back on track."

On July 16, Yahoo announced second quarter results that it said marked a milestone, beyond Mayer's 364th day on the job.

During a live broadcast—a Yahoo first that Mayer said was in "the spirit of innovation" and part of "this period of making every day count"—Mayer explained that page-view traffic suffered a "clear downward trend" in 2012 and picking it up was a major focus.

"We achieved crossover in early June and are now experiencing year-over-year growth, effectively erasing the declines of the last year," she said. "Renewed traffic growth in the face of multiple years of decline is, to my knowledge, unprecedented among industry players that operate with billions of page views, and we've achieved just that."

Mayer also called the quarter "the most productive in the history of Yahoo," with a new product launching every week.

Income was up 46 percent, compared to a year ago, but display and search advertising had still sharply declined.

The profit report was slightly higher than analysts’ consensus expectations, while revenue was a shade under estimates. Net income for the quarter totaled $331 million, which was generated mainly from the company’s investments. Revenue fell 7 percent to $1.14 billion.

Mayer, while detailing the quarter's successes, acknowledged, "There is still a long way to go, and a lot to maintain, in a chain reaction leading to revenue growth."

Gartner's Weiner agrees. Ahead of the call he summed up Mayer's finish line in two words: record earnings.

"At the end of the day, money talks," said Weiner. "Whether she gets there by making an acquisition that they spin into gold or she can create a cohesive philosophy that resonates with advertisers and consumers, it's time to get there."

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