The "D" in Action: Yahoo Layoffs Coming Wednesday, International to Be Hit Hard

By Sarah Lacy , written on April 2, 2012

From The News Desk

As Kara Swisher reported last week, big staff cuts are coming to Yahoo this week. We've heard the hard decisions are already in process, with the hammer coming down Wednesday in the US and Thursday overseas. Thousands are expected to be let go, as new CEO Scott Thompson continues to dramatically leave his mark on the sluggish once-mighty Internet giant.

One area that we're hearing Thompson is targeting is Yahoo's sprawling international division, particularly those parts of Asia that aren't China and India. Yahoo was always more heavily staffed and in many cases had a bigger footprint in Southeast Asia than Google, and certainly more than AOL.

While I was at TechCrunch, AOL was jealous of this international reach and saw TechCrunch as a clear way to gain a foothold in Asia -- a big reason they indulged my two-year campaign to do Disrupt in Beijing. But it seems Thompson sees less value in it.

Typically when reporters blame a CEO for something, a team of managers has come up with the decision. But that's not the new Yahoo. We've heard that Thompson has spent most of his tenure thus far holed up in the executive suite with Boston Consulting Group. Until last week, even senior staffers knew almost nothing about what was happening. (Kara reported a bit about that meeting here, and her story hints at some of the disdain Thompson may have for his team.)

A person familiar with the whole playbook says that the moves we've seen so far -- the patent trolling, gutting Yahoo Research, and laying off thousands -- is only about 25% of what the consulting group and Thompson have planned. Thompson is determined that his regime be one characterized by bold moves, whether the management team and the outside world agree with them or not. Yahoo may not be recognizable in size or ethos in another year, but shareholders can't say he didn't do much.

To be fair to Thompson (and that may be the first and last time I will write those words), he didn't want to follow the path of Jerry Yang and Carol Bartz of talking about a lot of change but enacting very little. Yahoo is a jumble of silos, and getting its managers to all swim down is nearly impossible. So Thompson appears to be mostly just cutting them out of the equation. That has the nice side benefit of cutting down on leaks compared to past regimes. (Even for Kara, who seems to have half of Sunnyvale bugged. Again, comparatively.)

While we've vociferously disagreed with most everything Thompson has done since being at Yahoo, this is clearly a company that has been way too bloated for a long time. I called Michael Smith, who worked for Yahoo in Southeast Asia until recently, and brought a lot of relevance to the company in countries like Thailand and Indonesia. (I interviewed him for TechCrunch last time I was in Indonesia.)

He didn't have much to add on the layoffs since he's been heads down on a new project, but this weekend, he penned a blunt post on his personal blog about the need for cuts, human toll aside. It's a stark assessment of Yahoo's business from a former-insider who wasn't caught up in the Sunnyvale politics.

Some highlights are below. (I've added the emphasis. The whole thing is an insightful must-read, go here to check it out in its entirety.)

"... the only major thing Scott Thompson can do to show that he is serious about turning around Yahoo is to trim the fat. Any other move is pure fluff cause Yahoo is bloated, top heavy and needs to be shaken up.

...It may not be able to be turned around but at the very least the costs could come in line more with the declining revenue as a nice place to start showing the world that the company is seriously trying to right a sinking ship.

Yahoo suffers from a lack of forthright, confident decision making. Just imagine a small startup where no one makes a decision. Devlopers do what they want. Marketing people do what they want. Business development people do what they want. Corporate development people do what they want. And the list goes on and on. Well – in some sense that is the current state of Yahoo. So some folks I used to work for, people who got shit done, coined this phrase: Fuck you, I’m the ‘D’ on this. ‘D’ = Decision Maker.

Yahoo suffers from a glut of top down decision making. I remember going to meetings where we discussed how to make plans. In fact many product people where tied up for most of 2011 working on 2012 planning. Planning that was probably a colossal waste of time and money since the guy who spearheaded that level of planning is already out of the company.

So I will give Scott Thompson this – if what he is doing is finally making some hard decisions – if he is playing the big ‘D’ and part of his answer to what plagues Yahoo is that there are too many people – I would agree with him.

Problem is the rank and file have been leaving all along and most of the hires have been more management. I can’t begin to count how many new execs have been brought in from MSFT over the past 2 years – all of whom, great people aside, have been doing more planning than doing. We used to joke that although MSFT didn’t actually buy Yahoo – for the most part MSFT was running Yahoo.

The core issue with Yahoo is that it only really makes money from ads. It used to make money from search and ads but now it is mostly ads. Yahoo gave search to MSFT. What baffles though is that not enough costs were rung from that deal and the Yahoo search experience is worse that it used to be. Around the globe Yahoo had a fairly healthy business in search ads but ever since the MSFT deal that whole division is monetizing much worse than before and losing touch with the customer...

The reality is, if  Yahoo outsourced search it should really do it. Get rid of all search related employees. Put a search box up and when a user clicks the button the rest is done by MSFT. Then you might see some savings from the deal but let’s face it – the revenue will never be the same as it used to be.

On the Facebook lawsuit I think few people see the between the lines jockeying. Yahoo and Facebook did a deal some time back for the fb login, frictionless sharing and data sharing. In hindsight the deal might have been the right thing to do but somehow the deal never bore fruit for Yahoo in the same manner it did for FB...

...FB got the spoils, Yahoo lost social and made FB even stronger in the process. My guess is Yahoo wants the deal looked at again while threatening with patents – sure this is a shitty strategy but such is life once you start losing.

However this is the norm with most of the BD and Corp dev deals at Yahoo...

...Very few of these deals made Yahoo a better, more able company but when you have corp dev people doing their own thing regardless of how it fits the product or business needs – then it makes sense to see a list like this. I once heard a corp dev guy say his job would be measured by how many deals he did – not how many he deals he did that actually grew the bottom line. I won’t even get into how the corp dev deal team handled integrations. It’s too painful to write about.

On to display ads. Yahoo used to be amazing at it but now the biggest innovations are signed out pages or full page takeovers. Have you seen the ads in the IMAP email? I am wondering why I should be seeing them since I actually pay for my mail account. The ad division in Yahoo, some 900 strong, has not created a new ad innovation in years. Adsense is easier and cheaper, FB is going to kill it with social ads, and the mobile world is changing the game for how ads will be served, measured and monetized...

This points to the other huge problem at Yahoo. Mobile is killing the goose that laid the golden egg. The better Yahoo does at mobile with email, comms products, media products and so on – the more the revenue will decline. There is no space to put display ads, there is no room for takeovers and as users demand products that work well for mobile – they are less forgiving than they are on the desktop...

Yahoo has assets. It has a brand. All of them are dwindling faster than anything new is emerging from within Yahoo to make them better.

On a closing note – I get kind of sick of hearing about how Asia will save Yahoo. There are only 4 things worth bucks at Yahoo in Asia. The Yahoo 7 business which is a JV that adds revenue to Yahoo’s bottom line. Yahoo could sell the portion they don’t own. Or they could float the JV. This is the one JV that still is on friendly terms and is a good business but Sunnyvale hardly pays attention to it.

Yahoo Taiwan is a great, but a dwindling business with high head count that could be carved out...

...Yahoo Japan is a huge business but probably won’t grow much more and the business is no longer symbiotic – the Japan teams offers little to Sunnyvale and Sunnyvale sees them as a burden for the most part. Time to sell.

Alibaba – one could write a novel about this...The deal is worth billions and Yahoo only put about 700 mil cash in. So on paper this is an amazing deal but Jack has to want to sell or they have to kiss, make up and try to build a better business together. I see neither of these happening in the short time. This is the only value in Asia. Southeast Asia is a tiny – barely break even business for Yahoo. Yahoo India is losing ground to google,facebook and the local players on a daily basis.

...Asia is huge but lightyears away from making the kind of  money it woud take to turn around Yahoo.

My guess is that Yahoo could easily cut 20 to 25% of its staff without actually cutting much of its capabilities. Many of us used to joke that Yahoo could put google adsense on a lot of its content properties and probably make more money – especially once you get rid of the ad tech people, sales people and client support people. Sounds crazy but it’s probably true.

Yahoo is an amazing company. For those still there I hope this time around is the trick. For those that get laid off – there is plenty of work out there but I know getting laid off sucks. To all of us still watching, caring from the outside – let’s hope whoever is making the big ‘D’ – makes the right decisions." The question is whether the "D" is Thompson or Boston Consulting Group. I'm not sure which is worse. On one hand, the little-known Thompson certainly hasn't impressed thus far. But like most consultants, BCG is one of those non-operators who think they know better and will take over the whole company, if Thompson lets them.

In lieu of being in the loop, Yahooligans who aren't pink slipped this week may want to catch up on recent episodes of Showtime's drama about consultants, "House of Lies" to see what may be in store.