Yahoo serves up layoffs but no strategy

Web giant announces layoffs but fails to articulate a strategy to address problems at the company and get it back on track.

Seven months after a management shakeup, Yahoo is still looking for a map.

The Internet giant announced plans on Tuesday to cut 1,000 jobs (or about 7 percent of its workforce) next month but failed to outline a concrete strategy for regaining lost ground in search and catching up in online advertising to Google, as well as fending off competition from upstarts like Facebook.

More troubling, the company failed to provide any details about which business units would get hit. Cuts will not be across the board, but rather targeted as investments will be, executives said. While it's likely those details will be explained to Yahoo employees over the next few weeks, the lack of insight to the layoff plans will do little to appease Wall Street.

So what does cutting 1,000 jobs get at Yahoo? Notable cost savings, of course. But if they're not done strategically--targeting low performers and underperforming business units--not much else. Cutting costs alone won't drive innovation or light a fire under a company that seems strangely unable to keep pace with ideas coming out of Google or, gasp, even Microsoft.

That's why investors sent the stock tumbling more than 10 percent in after-hours trade after the company gave conservative guidance for 2008. They were expecting more, and they didn't get it.

"It feels as if they are moving in slow motion or at least slower motion than the Street would hope to see," said Derek Brown, an analyst at Cantor Fitzgerald. "The impact in their business was certainly being seen or felt long ago, before the management changes, and yet here we are in a new calendar year with no tangible changes."

Despite co-founder Jerry Yang taking over for ex-Chief Executive Terry Semel, the management is much the same as before and the vision, muddled though it may be, appears to be the same, Brown said. They still want to be the most popular destination on the Internet and to carve a bigger slice of the online advertising pie.

"I don't think more of the same is what the Street was really hoping for," Brown said.

Yahoo's fourth-quarter revenue rose 12 percent from a year ago, but its net profit dropped by about 23 percent, on lower-than-expected ad sales in the areas of real estate, finance, travel, and somewhat in retail. The company will continue to "face headwinds this year," Yang said in a statement.

Yahoo will continue to invest in its core search and display ad businesses and will focus on the company's popular front door, Yahoo Mail, and mobile, Yang said. "We have a real sense of urgency about addressing the opportunities we face," he said.

President Sue Decker did say the company will make more of its services "social," enabling more consumer interactivity, but again no details were provided.

More importantly, what is Yang going to do about his company's eroding culture? Once the Stanford-dorm incubated new kid on the block, Yahoo has become a sluggish bureaucracy that watches Google and other companies come up with the new ideas. But changing the culture isn't a quick or easy fix, as industry experts have noted.

Yahoo has talked about the need to act fast to get the ship back on course since Yang took over last June. So far, we've seen only "tweaks" to the business, as Brown called them.

What's really needed is a good map that Wall Street and Yahoo's own employees can believe in.

 

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