Memo to Semel: Go back to the hills -- Beverly Hills

Posted Oct 19th 2006 10:00AM by Peter Cohan
Filed under: Earnings Reports, Management, Industry, Competitive Strategy, Yahoo! (YHOO)

Yahoo! Inc. (NASDAQ: YHOO) CEO Terry Semel is whining about how he'll do better. I give him credit for increasing the value of the stock from $9 when he took over in May 2001 to today's $23. But since peaking at $40 in November 2005, YHOO has tumbled 43%. For the sin of losing the leadership edge, Semel should leave the former Silicon Valley icon.

Yahoo's 39% decline in earnings for 2006's third quarter highlights a big problem with its strategy – it's losing Web advertising market share to more aggressive competitors.

Semel outlined four causes for the loss of market share:

Some major advertisers -- auto and financial -- have been pulling back from big campaigns;
There were declines in demand from other – unspecified – industries;
Competition increased for lower-priced advertising, like banner ads displayed while people check their e-mail messages; and
New advertising venues have emerged, such as social networking sites like MySpace that reach a broad audience cheaply.

What does he want to do to try to fix the situation?

Semel highlighted three strategic initiatives to save face:

Increase Yahoo's search advertising market share relative to Google Inc. (NASDAQ: GOOG);
Extend its display advertising market leadership; and
Expand in new areas like social networking, video and mobile data services.

It's not as though Yahoo! is doing nothing in social networking. For example, its Flickr photo-sharing service has 20 million monthly users and its Yahoo! Answers service -- where users respond to questions posed by other users -- has 60 million users.

Moreover, Yahoo! 's conservative financial management is slowing down its decision-making and has contributed to its missing out on more meaningful deals. For example, Semel passed on Google's deal to buy YouTube, the biggest site for user-uploaded video. But he expressed no regret about passing on the deal. According to Semel, "I came out with a grave concern about how severe the copyright violations could be. It could be a gnarly problem if lawsuits come. And I did not want to put my company in that type of risk."

Semel replaced CEO Tim Koogle because Semel was thought to be a mature manager who would stabilize the company. He succeeded at that for a while but now Yahoo! needs someone at the helm who can lead -- not follow.

Semel should fly his corporate jet back to Beverly Hills from whence he sprung and give someone else a turn at Yahoo!'s helm.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm, and a Professor of Management at Babson College. He has no financial interest in Google or Yahoo.

Tags: goog, google, myspace, terry semel, TerrySemel, yahoo!, yhoo, youtube