When Yahoo CEO Marissa Mayer took Adam Cahan aside almost two years ago and asked him to start a new mobile division, he wasn't sure it was the right idea.
It's not that he disagreed with Mayer's plan to transform the desktop-centric Yahoo into a mobile company. But Cahan, who joined Yahoo just a year before its new CEO, says he wasn't convinced that having a mobile-specific group was the right way to go about that transformation.
"If mobile is going to be big, everybody should be focused on mobile," he said during an hour-long interview at Yahoo headquarters in Sunnyvale, Calif., in late May. "Why would we have an independent organization?"
Almost 40 acquisitions later, Cahan, a 42-year-old with salt-and-pepper hair, says he's now a believer in the mobile division. Since forming the unit in October 2012, Yahoo has refreshed most of the company's existing properties, including Weather, Finance and the photo-storing service Flickr, so they work well on smartphones and tablets. Yahoo also added a new mobile product called News Digest, which takes the day's top news stories and boils them down to short summaries.
The goal is to lure users away from the rival services of formidable competitors like Google and Facebook, who have increasingly seen advertising dollars moving from desktop computers to smartphones and tablets. Yahoo doesn't break down mobile revenue, but Mayer told analysts on an earnings call in January that Yahoo's mobile advertising revenue was "not material." Just slightly more than half of its monthly traffic -- 430 million out of 800 million -- comes from mobile devices.
By contrast, Facebook, another company that initially struggled to move its desktop business to mobile devices, now gets 59 percent of its advertising sales on smartphones and tablets.
Cahan, who credits Facebook for pioneering the way in mobile advertising, said Yahoo is now "rounding the corner" in monetization, though the company declined to give any numbers. What Cahan will say is that the mobile moves, which include buying companies to get new talent, are about getting up to speed as fast as they can.
"We came to that realization that, wow, we are late to the game," Cahan said. " We are 12 months -- maybe 18 months -- late to the game. We need to play really rapid-scale catch-up."
To anchor Yahoo's efforts, he pointed to the launch of a product called Gemini in February. It's a marketplace for advertisers that specializes in mobile and native advertising, and serves up ads tailored to specific properties that look and feel more like editorial content, instead of being blatantly cordoned off like banner ads. In fact, Cahan said the marketplace is named Gemini because the zodiac twins were a metaphor for native advertising. "It's supposed to feel like it's part of the experience."
Gemini is still in its early days -- the company declined to share specific numbers or information on ad partners -- but analysts are intrigued. "Is it the linchpin of getting the mobile business off the ground?" asked Ben Schachter, an analyst with Macquarie Capital, who covers Yahoo.
The need for talent
Cahan came to Yahoo when the company bought his startup IntoNow in May 2011 for approximately $20 million. The app was a "second screen" service that let people post status updates on Facebook and Twitter about TV shows while they were watching them. Yahoo shuttered the service earlier this year.
Under the Mayer-Cahan duo, Yahoo has acquired companies at a lightning pace. The company has bought almost 40 companies in less than two years-- mostly small startups like the natural-language startup SkyPhrase and the mobile-video startup Ptch. The exception: a $1 billion whale, the blogging platform Tumblr, which is Mayer's biggest catch to date.
While there's been lots of talk about why Mayer's been on such a buying binge, Cahan framed the fast expansion in simple terms: Yahoo acquired all of those companies because it had to. "We used talent acquisition as one of those ways of getting us to scale," he said. "The vast majority have been, by the numbers, talent deals."
The strategy is working. The number of mobile-focused engineers at the company has grown from about 37 in 2012 to more than 500 today.
Cahan's team has made other big mobile bets. In January, Yahoo acquired Aviate. The next-gen search service works like Google Now: It automatically feeds a user search results on a smartphone running Google's Android operating system, with the results based on contextual cues like what time of day it is or location. The service could serve as a way to tie together several mobile properties, like Sports and Finance, as well as be fertile ground for native ads.
Yahoo is reportedly working on other mobile search products, though Cahan declined to comment on those rumors.
Crunch time coming?
Whatever Yahoo has in the pipeline, some observers think the company's task has gotten even more urgent. Since Mayer took over, Yahoo's stock doubled to $41 when it spiked in January, but many analysts attribute Wall Street's approval not to gains made in Yahoo's core products and advertising business, but to the company's 22.6 percent stake in Alibaba. The Chinese e-commerce giant is poised to go public later this year in what could be the biggest IPO in history.
Alibaba striking out on its own means Yahoo won't have the security blanket of the Chinese company's stellar numbers to lean on during earnings reports. What's more, due to prior agreements, Yahoo will be forced to sell at least 40 percent of its stake in Alibaba's IPO -- netting Yahoo between $10 billion and $12 billion, according to analyst estimates. That's enough cash for Mayer to make a number of compelling moves, from another splashy acquisition, to more small buyouts, to returning funds to investors in the form of stock buybacks.
It also sets the stage for Yahoo's biggest test: proving it can gain traction without the crutch of an e-commerce phenomenon propping it up.
Cahan isn't fazed by the scrutiny. "I don't think it's any different than we've been feeling all along," he said. He points to small gains in the most recent quarter. Yahoo's revenue in display advertising, a key financial metric since display advertising accounts for 40 percent of total sales, rose 2 percent. The growth is meager, but nevertheless a sign of life for the core business.
Cahan said his mission is focusing on that trend. "We will know we've been successful when we return the company to growth," he said. "Generally speaking, that's the mandate."
As for the mobile division, Cahan says that while it's working today, Yahoo is prepared to rethink its strategy. Before they started the unit, Mayer made him a promise: At the end of each year, the two would take a look at the progress of the "mobile and emerging products" team and debate if having a dedicated mobile team is still the best way to organize.
Having a possible reorganization on the table every year seems like a novel concept for a company that's historically been mired in bureaucracy. Mayer, a former Google executive who celebrates her second anniversary as CEO in July, is trying to turn around a byzantine company that had become just as synonymous with red tape as it is with purple punctuation marks. Case in point: Chad Dickerson, CEO of the online marketplace Etsy, recalled last year that when he needed to buy two servers as a Yahoo employee, he had to first get approval from a group called the "hardware review committee."
Having an ongoing discussion about the mobile team is at least an attempt at nimbleness. Said Cahan: "We will revisit it and constantly ask."