Koogle to let new chief overhaul Yahoo's engine

Analysts say it will be tough to replace Koogle, whose unflappable character and steady gaze have been in sharp contrast with other execs in the Silicon Valley.

Paul Festa Staff Writer, CNET News.com
Paul Festa
covers browser development and Web standards.
Paul Festa
5 min read
CEO TK is no more.

Yahoo announced Wednesday that Chief Executive Tim Koogle--known affectionately inside Santa Clara, Calif.-based Yahoo as "TK"--will step aside.

The leading Web portal also announced that revenue for the first quarter, which will be announced April 11, will be between $170 million and $180 million--as much as 27 percent below previous revenue estimates of $232 million.

The company has hired Spencer Stuart & Associates to conduct an external search for a replacement for Koogle, a race car and guitar aficionado who will remain chairman of the leading Web destination.

Analysts say it will be tough to replace the 49-year-old executive. His unflappable character and steady gaze--not to mention his self-declared "gift of serendipity"--have always been in sharp contrast with other executives in the Silicon Valley, a place known for its caffeinated rush and chest-thumping braggadocio.

"At the end of the day, he brought the company from relative obscurity and a tiny revenue base to a global prominence, and last year generated over a billion dollars in revenue," said Derek Brown, equity analyst at San Francisco-based investment bank WR Hambrecht.

"From a macro perspective, he did a tremendous job," Brown said. "He's always had a very visionary-like aura and sense to him in how he views the world, the direction he was attempting to move the company. He was always trying to push the envelope in terms of looking at the future and where Yahoo was headed."

The Alexandria, Va., native, whose father was a mechanic with the U.S. Navy, was fascinated with engines as a young boy and aspired to be an engineer.

Always known for his industriousness, Koogle pounded on neighbors' doors and sold his gardening services before he was 10 years old. As a teenager, Koogle inspected and fixed burger equipment for McDonald's.

A breed apart
He graduated first in his class at the University of Virginia with a mechanical engineering degree in 1973. He left to get more engineering degrees at Stanford. While working toward his master's degree in 1975 and doctorate in 1977, Koogle paid for his tuition by fixing engines of other students' cars.

He joined Chicago-based Motorola in 1983, and in 1992 became president of InterMec, the Seattle data-services company that invented the bar code.

When he joined Yahoo in August 1995, he was a breed apart from the stereotypical Silicon Valley executive. Hardly a 20-something dude sporting a baseball cap and scant management skills, Koogle was perceived as a poised, seasoned professional--the perfect complement to Yahoo founders Jerry Yang and David Filo, who built the site the previous year while attending graduate school at Stanford University.

Koogle's goal was to put Yahoo on a pedestal above the crowded fray of Internet portals. The site would remain free, while revenue would come from advertisers.

Although that business model quickly became the norm for content providers, Koogle's idea was novel at the time--and rather controversial even inside the company: The relatively radical founders, Yang and Filo, wanted to keep their site "unblemished by capitalism" and initially resisted the ad-revenue model, according to a profile in the Financial Times.

Wall Street embraced the model, and Yahoo became one of the most widely recognized brands in the world--and the poster child for Internet companies not attached to a brick-and-mortar presence.

When Yahoo had an initial public offering in April 1996, it sold for about a split-adjusted $3.50. In January 2000, the company's shares peaked around $250. BusinessWeek named Koogle one of "The Top 25 Executives of the Year" for 1999.

The walls come down
But Koogle's unflappability and serene aura were tested in recent months, as the company's stock plunged and cash-strapped e-commerce companies slashed their advertising budgets.

The stock is roughly one-tenth of its price a year ago and its market capitalization has plunged to $10 billion from more than $100 billion.

In late January during an international economic conference in Davos, Switzerland, Koogle lamented that Internet companies had erred by giving away too much content to consumers in the dash to gain market share and notoriety. Consumers have been loathe to pay for any Internet content, from news bulletins to stock tips to downloadable music and software.

During a conference call with analysts in early January, Koogle said 2001 would be a "transition year"--a time for the company to shift its advertising base away from volatile dot-coms to more stable groups. The proportion of non-Internet advertising on Yahoo had increased from 53 percent in June to 67 percent in December and should reach 85 percent by the end of this year.

But that didn't placate Koogle's growing number of detractors.

In addition to dealing with stubborn consumers and a deteriorating advertising market, Koogle has been hounded by increasingly negative reports in the media. When the company announced in mid-January that it had slashed revenue estimates, the New York Post quipped, "Boo-hoo for the Yahoo CEO."

Koogle isn't the only Yahoo executive to shed business titles. In the past month, a number of high-profile executives have defected.

The head of Yahoo's Canadian operations, Mark Rubinstein, resigned last Friday after spending just over one year at the company. Fabiola Arredondo, head of Yahoo's European operations, and Savio Chow, head of Asian operations, also resigned in the past month. Jin Youm, chief executive of Yahoo South Korea, resigned as well, but he told co-workers he was leaving because of a family illness.

Some analysts have speculated that Arredondo resigned because she was frustrated by differences of opinion between Yang, President Jeff Mallett and Koogle. According to speculation in European newspapers, the four executives feuded over potential acquisitions.

The resignations cast doubt on the credibility of the company's international strategy. Yahoo generates 40 percent of its page views outside the United States but receives just 16 percent of revenue from abroad.

But analysts say that Koogle, to some extent, doesn't deserve to shoulder all the blame. In fact, his willingness to step down from the CEO position is a shrewd move, they say.

"My belief is that Yahoo's kind of like Humpty Dumpy--needs to put the pieces back together, reinvigorate their employee base, cap new sales channels, expand their product line, needs to transition their client base from largely dot-com oriented to more traditional mainstream advertising client and continue to expand internationally," WR Hambrecht's Brown said.

"You wrap all those things together and that becomes a Herculean task. From that perspective I can understand wanting to expand the management team. I can also imagine that having already done something similar to this over the past five years, the company could benefit from new blood."