Web portal Yahoo! is stripping itself of the last vestiges of its “early days.”
Yahoo!’s first iteration was as a hobby project of two Stanford graduate students, Jerry Yang and David Filo. Yang and Filo say they picked the site’s name because of its definition — rude, unsophisticated, and uncouth.
Since then, however, the Sunnyvale, Calif.-based company has grown into an entity that couldn’t be further from that original denotation. It’s an S&P 500-ranked firm with global offices and hundreds of millions in revenue.
The departure of president and chief operating officer Jeff Mallett comes as the final proof of Yahoo!’s transformation.
Joining Yahoo! in 1995 as employee number twelve, Mallett — who formerly served in consumer software divisions in Novell and WordPerfect after turning down a career as a pro soccer player in Canada — became the go-to guy for business matters. Working with then-president and chief executive Tim Koogle, Mallett helped hammer out a strategy that centered around providing free content. That content was to be subsidized entirely by online advertising, which Yahoo! first began serving that year.
Following a successful IPO the following year, Mallett and Koogle oversaw the launch of Yahoo! internationally; the development of numerous special-interest sites and services, such as Yahoo! Travel, Sports and Clubs; and the acquisition of complementary Web plays like GeoCities and eGroups.
But the bursting of the dot-com bubble in 2000 rapidly called into question the wisdom of basing Yahoo!’s fortunes on advertising. With the stock market in turmoil and Internet firms unable to raise money, the cash that had flowed into Yahoo! in the form of advertising revenue began showing signs of weakness.
Almost immediately, the site’s top brass — many of whom were its earliest employees — began to depart. Throughout 2000 and 2001, the Web portal parted ways with executives that included heads at several international units, its chief financial officer, chief sales and marketing officer, vice president of worldwide marketing, and senior vice president for media, finance and leisure.
In March of 2001, Yahoo! announced that Koogle, who had since taken on the post of chairman and CEO, would step down in favor of more experienced leadership. To many, Mallett seemed the heir apparent, due to his long and close familiarity with Yahoo!’s inner business workings.
But Yahoo!’s board of directors went instead with former Warner Bros. head Terry Semel, who is credited with transforming the troubled movie studio into a multi-media conglomerate and boosting revenues more than ten times over.
Semel’s past success in diversifying Warner Bros.’ single revenue stream into a host of new areas no doubt proved attractive to Yahoo!’s board, as the once-heady flow of income from advertising slowed dramatically. (Koogle had announced his departure on the same day that Yahoo! gave its first-ever earnings warning.)
The appointment ushered in a new age for Yahoo!. With Semel’s installment came a set of new executives, such as former Sears marketing head John Costello — executives with turnaround experience in the non-dot-com world.
Similarly, the new guard championed Yahoo!’s revised raison d’etre: to roll out a combination of paid services to better monetize its consumer traffic, and to beef up its enterprises services to leverage its technology for businesses. These new businesses were designed to supplement advertising sales.
Mallett was the lone holdover. Now that he, too, has committed to leaving, Yahoo! must eke out its fortunes under leadership that has little experience in Internet media.
So far, their results look don’t look half bad.
For fourth quarter, Yahoo! posted revenues of $188.9 million and year-long revenues of $717.4 million. While both figures are down sharply from 2000, Yahoo! beat Wall Street estimates by a wide margin and raised its guidance for 2002. Prominent in those raised guidelines were expectations for new paid products to help carry the weight.