Experts back Yahoo memo urging revamp

Industry observers are nodding in agreement at a scathing internal memo that calls for a major reorganization of Yahoo Inc. at a time when many say the Web portal has lost its edge and trails competitors large and small alike.

Yahoo must stop spreading a thin layer of “peanut butter” across myriad opportunities and instead focus on key areas, improve upper-management accountability and reorganize, including an up to 20 percent headcount reduction, wrote Brad Garlinghouse, Yahoo’s senior vice president of communications and communities.

“The basic idea is very much on the mark and I’d expect Yahoo would try to respond and become more focused,” says financial analyst Clayton Moran, a senior vice president at Stanford Group Company. However, he cautions that sharpening its focus will not be easy, given the portal’s current structure.

The confidential memo, which The Wall Street Journal obtained and posted on its Web site, says Yahoo lacks “a focused, cohesive vision” that has made it “reactive” and eager to be “everything to everyone.” By reactive, Garlinghouse may have been referring to how Yahoo has seen nimble startups like MySpace, later acquired by News Corp., and YouTube, recently snapped up by Google Inc., become leaders in areas like social networking and online video sharing. Meanwhile, Yahoo continues to trail Google in Internet search.

“We agree with the memo’s point that Yahoo needs to be more focused and differentiate itself and build a brand in certain categories, as opposed to being one portal for all categories,” Moran says, adding that Yahoo should identify the next hot Internet trend and build a leadership position in it.

For Gartner Inc. analyst Allen Weiner, Yahoo has become a victim of its own success. By nailing the all-in-one Web portal model in the 1990s, it became the dominant player in that market, but now it must adapt to the changing landscape. “Yahoo is by no means out of the game but the time is now to execute on a more tightly focused vision. That’s what’s missing. Garlinghouse is right in saying there are way too many people doing way too many things,” Weiner says.

The Wall Street Journal reported that Garlinghouse wrote the memo in October and circulated it among Yahoo’s top executive brass. In response, Chief Operating Officer Dan Rosensweig appointed Garlinghouse to head a committee to study the memo’s issues, the newspaper reported.

Yahoo remains the world’s most popular Web site, with 480.6 million unique visitors in October, according to comScore Networks Inc., but it has disappointed Wall Street with its financial performance in recent quarters.

It has been seen as proactive in acquiring social media startups like the photo sharing site Flickr and the social bookmarking pioneer, two companies Garlinghouse uses as examples of overlapping services that Yahoo should consider consolidating. In addition to Flickr, the company has a similar service called Yahoo Photos, while Yahoo’s MyWeb is identical in focus to

“We need to get the discussion going; change is needed and it is needed soon. We can be a stronger and faster company,” Garlinghouse wrote.

Asked for comment about the memo, a Yahoo spokeswoman provided a prepared statement via e-mail that says that during Yahoo’s most recent earnings conference call, Chief Executive Officer Terry Semel said that the company is narrowing its focus on boosting search and graphical ad sales and on prioritizing social media, video and mobile.

“We’re moving forward aggressively on these priorities,” she wrote. “The memo itself highlights that we have an open, collaborative culture and a senior management team that is intensely committed to helping Yahoo fulfill its potential as an Internet leader.”

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