What is Yahoo? Bartz spells it out in four-letter words

The chief executive of Yahoo has launched a four-letter tirade against an interviewer after being challenged over whether she had a clear vision for the company. Carol Bartz, who took over the internet giant at the start of last year, lashed out by saying: “I don’t want to hear any crap about something magical that the fine people of Yahoo are supposed to do in a short period of time.”

Ms Bartz was having what was billed as a “fireside chat” with Silicon Valley blogger Michael Arrington, at the TechCrunch Disrupt conference in New York, but it was the chief executive herself who burst into flames after repeatedly being asked about the increasing competition the company faces from Apple.

She had been in the post 16 months, she said, “and I’m supposed to have an iPad and an iPod and an iEurghh? Come on”. It was three years after Steve Jobs returned to Apple before the company launched the iPod, she said, and seven years until he was able to boast share price gains. “So fuck off. And that one I meant.”

The explosive confrontation, in front of an audience of technology entrepreneurs and writers and streamed live on the internet, came on the day Yahoo announced it was giving up two more of its traditional activities: online maps and internet matchmaking. Tomorrow, Ms Bartz is scheduled to present Yahoo’s latest vision for the future to Wall Street analysts and investors.

Since taking the helm last January, she has shed jobs and outsourced online services that Yahoo used to put at the centre of its business, but there are growing concerns about whether the 15-year-old company can find ways to claw back market share from new generations of online rivals.

Ms Bartz, an experienced technology executive known for her no-nonsense style, was feted as a decisive and iconoclastic appointment when she joined Yahoo from the software company Autodesk last year. Yahoo had previously fought off a takeover attempt from Microsoft, only to see its share price plunge as the advertising recession worsened and investors worried about its strategic future.

“The hiring of Carol Bartz was a surprise move going with more veteran leadership,” Brian Bolan, analyst at Olympia, told clients recently. “Early on her energy and shake-up were welcome changes, but a brain drain of talent leaving for start-ups and competitors has made us question the decision. A few months ago, Ms Bartz was on a media blitz after completing a year as chief executive, but still had troubles in describing what Yahoo does and what the plan for the future was. Our concerns with top management are that Yahoo may be trying to be too much to too many instead of focusing on core competencies.”

Where once the company’s main websites were a gateway to the internet for millions of internet users, the digital landscape has shifted under Yahoo’s feet. Its news sites, email and instant messaging services are still wildly popular, but it has lost market share in the era of social networking to newcomers such as Facebook. The online audience is fragmenting among burgeoning numbers of specialist sites. And, most damagingly, Google has usurped its status as the dominant search engine and pushed Yahoo into a poor second place when it comes to making money from search-related adverts.

One of Ms Bartz’s first decisions was to outsource the bulk of its search business to Microsoft last year. Instead, she is focusing on making money from display advertising – the banner ads and videos that pop up on its websites and those throughout a network of affiliates – and on improving the content on Yahoo’s internet and mobile internet sites that it does decide to produce in-house. The company says its vision is to be “the centre of people’s online lives” and to focus on “providing the best experiences for our users and advertisers”.

No question, it remains big. It says hundreds of millions of internet users come to Yahoo properties every month. It had revenues of $1.6bn (£1.1bn) in the first three months of 2010. There are twice as many Yahoo email users as there are people in Mexico, it boasts.

But the question of how Yahoo might maintain – let alone grow – that audience is of pivotal concern to Wall Street as it gathers for the investor day tomorrow. Developments yesterday showed Ms Bartz once again shedding activities that were not working out. The company said it would outsource its Yahoo Personals dating service to Match.com, which has more users. And it announced a partnership deal with Nokia, the phone handset maker, which would replace Yahoo Maps with the Navteq mapping service that Nokia acquired in 2007. Navteq maps will appear across all Yahoo’s online sites and mobile applications. In return, Nokia’s internet-enabled phones will use Yahoo chat and email as their default applications.

“We were definitely behind in maps, as I stated last year,” Ms Bartz said at a press conference with Nokia’s chief executive, Olli-Pekka Kallasvuo. Google Maps is the world’s most famous mapping service, and Yahoo’s disadvantage in this area threatened to hobble attempts to build a new generation of location-based services for mobile handsets, on which tech companies are hoping to sell lucrative local adverts. “We have not put enough engineering resources behind it, probably starting three years ago, but by buying Navteq, Nokia has put its money where its mouth is,” she said.

At the press conference, in another sign of irritation, Ms Bartz said that Yahoo services are used by 41 million people over their mobile phones. “It is easy to think that everybody uses Google this and Google that, when in fact half of them use our services.”

As Larry Witt, an analyst at Morningstar, puts it: “Yahoo remains one of the most heavily trafficked sites in the world. In the early days of the internet, its strategy was simple – attract as many users as possible and sell display ads. This strategy was largely successful, as the firm developed a number of highly trafficked sites, including Yahoo Finance, Yahoo News, and Yahoo Sports, while revenue growth (including acquisitions) averaged 55 per cent annually from 2001 to 2006.

“However, the company faces long-term challenges. We think audience fragmentation will continue, and Yahoo will struggle to increase its user base. Also, Yahoo has lost key personnel over the past several quarters, which we believe will lead to inferior products and sales operations. For these reasons, we project revenue growth to average just 5 per cent through 2014, despite an industry with secular tailwinds.”

Sceptical investors will want more tomorrow than boasts about current size, they will want concrete plans for how Yahoo will grow in the future. This was the thrust of Mr Arrington’s provocative questioning at TechCrunch Disrupt; similar questions will be asked from the analyst community. How will Ms Bartz answer? And will she be civil?

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