An open letter to Carol Bartz on rebuilding Yahoo

To: Carol Bartz
From: One member of the punditocracy
Subject: Rebuilding Yahoo

Welcome to your new job as Yahoo's CEO.

As you probably guessed by how rapidly Jerry Yang slipped to footnote status in yesterday's stories, we're all glad to see you and eager to move on to the next phase of the news cycle. And judging by the fact that Yahoo's stock rose more than 2 percent to $12.41 today when most everybody else's went down, the shareholders are extending you some goodwill, too.

I know you requested some "breathing room" from us nattering nabobs while you chart a new course. But it's just not in our nature to totally clam up. So forthwith, here's some advice on what you can do with an Internet company that's powerful if not meeting its potential.

1. Light a fire.

It sounds like you've done good work motivating employees without resorting to flogging, and it's time to bring a dose of that to Yahoo. The company has plenty of talent, but it's excruciating watching how slowly improvements arrive on the site. Not everything at Google should be reflexively copied, but there's a lot of merit to their philosophy of release early and iterate often.

It's tough to make a big company nimble, so try to get the groups within the company to be nimble. At this stage, it's better for a project to strike off in a new direction and then change course as necessary than it is to plan the right direction for months without ever going anywhere.

Take Flickr, for example. The revamped new home page is finally worth visiting, but the photo pages themselves are relics that assume nobody has a monitor larger than 1024x768 pixels, and it took an outside service, Photophlow, to truly unlock Flickr's social potential. If Yahoo doesn't move faster, then the growth in Internet usage will happen at Facebook and Twitter instead of Yahoo.

2. Put Yahoo Open Strategy on steroids.

YOS is an answer to Google that's not a clone of Google. By offering existing Yahoo users more to do with Yahoo, by building social interactions into the major properties, by offering programmers access to a colossal audience, the strategy could help increase traffic and improve customer loyalty. It plays to Yahoo's strengths: a big audience that wants a lot of things from Yahoo.

Luckily for you, the last administration did a lot of the heavy lifting to prepare for YOS, so Yahoo's infrastructure for the new strategy is already in place, but it's been painfully slow in arriving. So promote what you have heavily. Devote some of those precious pixels to showing off the new features, explain why we should all be registering profiles and subscribing to others' update streams, point us to the application galleries to encourage the programmers, and let people sign up for the beta versions of the revamped sites.

Of course, Yahoo has a lot of users, and many of them gripe when anything changes. But guess what? Stasis isn't going to fix Yahoo. Growth will come through new designs, new features, and new users.

Not everyone likes Gmail, but Google is smart to try to solve the problems that afflict power users who live online and suffer information overload, because they're a good predictor of what everybody else will be dealing with shortly. YOS is aimed at the right target, but get that trigger pulled.

3. Media company? Technology company? Both!

Sure, you need to set priorities, but it's a false dichotomy to argue Yahoo can only be one or the other. You sell ads, you build sophisticated Web sites.

You don't need to become geek heaven like Google, but you need to get those pages loading as fast as possible, to expose APIs, to match ads with search terms. That takes technical chops.

On the other hand, you don't have let robots rule the roost. Algorithms and efficiency can help with productivity and profit margins, but the display-ad market still needs the human touch when it comes to inking deals.

A perfect case in point is APT, your shiny new display-ad platform that can be used to by all manner of organizations in the online advertising realm. To make it work, and to foster its adoption by all the different constituents who can use it, you need both technical chops and people. Oh, and you need to get APT working broadly now, not at the end of 2009, and if you buy the argument that there's synergy between display ads and search ads, you'd better have something to show for it pronto. Did I say something earlier about lighting a fire?

4. Sift the wheat from the chaff.

Yahoo has accumulated a lot of baggage over the years, both in employees and in Web properties. You don't necessarily have to lay off another 1,520 people, but decision-makers who aren't making decisions need to move on to new opportunities. You have the benefit of a clean slate, so use it to cut the bureaucracy.

Likewise, pare back the Web properties. Upper management deserves some of the blame for not getting Yahoo properties to perform up to snuff, but at this point, if a Yahoo property isn't performing well, it's time either to bid it adieu or to put it in maintenance mode awaiting some future when Yahoo has more resources to beef it up. Now is the time to figure the best properties and use them as the core of the new growth.

Yahoo has done some of this work--dramatically altering the music site and scrapping Content Match advertising service in Europe are good examples--but don't stop there. How many video sites does Yahoo need? Is consumer e-mail and business e-mail so different that you really need two separate online foundations, Yahoo Mail and Zimbra? The home page is getting applications, customization, and personalization--does My Yahoo really need to exist?

5. Pass on acquiring AOL.

Sure, you'd get a pile of cash from Time Warner, but Yahoo has more problems with execution than cash flow, and being saddled with AOL would make execution vastly worse. Focus on the core you have.

And AOL, while possessing respectable traffic, also has a lot of overlap with Yahoo--instant messaging, mail, an ad platform. You'd get some synergy, no doubt, but you'd also get an ocean of headaches trying to consolidate users on to a single system or maintaining both.

With some exceptions, AOL is a step into the past, and building your audience organically through YOS is a better answer to achieving growth.

6. Keep an open mind on Microsoft.

If you had a $33 per share offer for the company on the plate right now, like during the good old days, this decision would be easier to make, but at this stage, it looks like the best option would be to sell the search business. So what to do?

First, call up Steve Ballmer and tell him you're open to discussions. You don't have to describe yourself as a "motivated seller," but make it clear you're not freighted with the baggage that interfered with a clear-headed assessment of Microsoft's offers in 2008.

Second, give yourself until the end of the first quarter to decide whether it's better to give the shareholders a quick fix by selling the search assets to Microsoft or to invest for the long run in search and search ads. Search ads were a bright spot last quarter, but you're not going to catch up to Google, so this choice could go either way.

So that's how it looks from here. Nobody interviewed me for your job or showed me the real traffic statistics, though, so I won't be wounded if you arrive at different conclusions. Just don't take too long figuring it out.