Chief Executive Terry Semel’s departure from Yahoo this week illustrates not only the daunting challenge of competing with search superstar Google, but also the difficulty faced by outsiders asked to run young technology companies.
The CEO title at Yahoo now goes to Jerry Yang, who co-founded the company with David Filo in 1994 when they were students at Stanford.
Yahoo, Microsoft, Apple and others are examples of companies that achieved phenomenal success thanks to the vision, brains and luck of their founders, typically 20-somethings who slept under their desks, munched gorp and one day realized they were zillionaires with big responsibilities that had nothing to do with their joy — writing software code.
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So, inevitably, the company founders turned to professional managers who had to earn respect from the code warriors. When he came to Yahoo in 2001 at age 58, Semel largely fit this pattern — a shrewd executive who had led a company through 18 years of record profits. He was the guy charged with saving Yahoo after the dotcom collapse. However, his background as a Hollywood studio executive at Warner Brothers raised eyebrows. But then, as now, there was growing talk of a convergence between software, information, entertainment and the Web.
“Terry is a strong leader with a distinguished track record and embodies all the characteristics that make him uniquely suited to be Yahoo’s next chairman and CEO,” Yang said in 2001. “We have spent considerable amount of time with Terry, and he clearly understands the tremendous opportunities ahead for Yahoo,” Yang also said, as if to quell skeptics.
For several years, Semel did well. But no matter what he had learned in Hollywood about fast career turns, at Yahoo he went from god to goat in Internet Time.
As recently as January 2006, Semel was celebrated for the shrewdness of his leadership. He had shrunk the number of Yahoo business units from 44 to 4, focused the company on advertising revenue built around search and negotiated some lucrative partnerships. The bottom line changed dramatically. Yahoo went from a loss of $98 million on revenue of $717 million in his first year to earning $1.2 billion on sales of $5.3 billion.
Ironically, Semel’s downfall in part came because of matters Yang and other engineers supposedly knew best — vision and software development. Yahoo was slow to understand the Google threat and to develop advertising software, called Panama, to outflank its rival. A slumping share price, slowing revenue growth and departures in talent put a public spotlight on these issues.
Maybe it wasn’t fair. Semel was not a vision guy — others were supposed to do that. His job, at its root, was “discipline” — the same term used at other technology companies when they bring in professional management. Put plainly, it’s the need for someone to bring order to chaos, make deadlines and shipping dates meaningful and say “no” once in a while.
That was the idea at Apple when co-founder Steve Jobs recognized his management shortcomings and recruited John Sculley from Pepsi. Jobs lured Sculley with the famous question, “Do you want to sell sugar water for the rest of your life, or do you want to change the world?” But conflicts between the two led to Jobs’ ouster. Sculley left Apple in 1994 and Jobs returned in 1997.
Microsoft, Apple’s onetime nemesis, also struggled with outsiders. Dubbed “the suit,” David Towne lasted less than nine months as president after his hiring from Tektronix in 1982. Jon Shirley of Tandy had a very successful run as president of Microsoft, but a successor, Michael Hallman from Boeing, lasted two years and left with one of the best lines in business shakeup history: “This eliminates one layer of management ... that happened to be me.”
Microsoft finally resolved the CEO question by picking Steve Ballmer as chief executive, Bill Gates’ friend and a longtime colleague at the company. Like Semel, Ballmer must find a way to respond to the Google threat or face erosion on many competitive fronts. In one recent move, Microsoft announced it was buying Seattle-based online advertising agency aQuantive for $6 billion, a response to Google’s purchase of DoubleClick for $3.1 billion.
Microsoft can fund a long war with Google because it has so many other profitable lines of business, especially Windows and Office. Ballmer can take risks and endure setbacks because of his relationship with Gates and his unquestioned membership in Microsoft’s culture.
Semel couldn’t claim that status. He was always an outsider, a non-software guy who commuted three or four days a week to Yahoo’s headquarters in Sunnyvale, Calif., from his home in Los Angeles.
Semel traveled in his personal jet, a Gulfstream IV, so we can’t shed too many tears. And he gets a total of nearly $452 million in salary, bonus and stock options. He gets the big money, and leaves a problem that no one has solved — how to slow the Google juggernaut.