Coop's Corner

Eight days into the job and she hasn't yet fixed Yahoo! What is this world coming to? OK, I'm obviously mugging for the cameras, but Carol Bartz's first earnings conference call as the new boss was an unqualified hit.

Like a lot of people watching Yahoo through the years, I've long wondered whether a straight shooter would ever emerge to run this company. With all due respect to Bartz's predecessors, but Messrs. Koogle, Semel, and Yang usually weighed down their responses to tough questions with enough multisyllabic business cliches to sink the Titanic.

That wasn't the modus operandi today. At times Bartz did get a little too cute with the "gee whiz" stuff, but let's cut her a little slack. More importantly, she demonstrated a leader's ballsy temperament with a symphony conductor's ear for striking the right note. That alone is worth a buck climb in Yahoo's stock.

Here's the checklist I was keeping during the conference call:

Clarity: B
Bartz spoke in clear and concise sentences. I'm sure that the MBAs listening in on the other end of the conference call were thankful she did not drone on endlessly. This is a crowd that's not big on nuance. So it was that Bartz took the Howard Cosell route: Tell it like it is--or at least as much as she can say after little more than a week as the boss. As she uncovers the skeletons in coming weeks, Bartz will have more detail when she hosts Yahoo's next quarterly conference call.

Direction: A
She used the occasion wisely to send out a group hug to the folks in the cubicles. "Really smart people," Bartz called them. She said what they need is a structure to foster better lines of communication. Perhaps that's overly kind. Still, it was a much needed public compliment for a workforce demoralized after a year-long soap opera buffa. At the same time, Bartz offered up a strong and simple summation of what she envisions as the Yahoo brand: "I think the Yahoo brand needs to stand for the best information site on the Internet, the front page you walk through when you decide how you're going to start your day and manage your day...." Everything else flows from that.

Her best line of the day: "This is not a company that needs to be pulled apart and left for the chickens." Reminds me a lot of what Lou Gerstner said after replacing John Akers. The Akers plan was to break IBM up into several "Little Blues." It was a dopey idea that Gerstner shelved after taking over. "This is a fantastic Internet property," Bartz said. "It doesn't make sense to pull it apart."

Bartz also demonstrated the common touch with her promise to have brewskies with her sales force "because that's the best way" to get to know who's working for you. I can see this boss knocking down shots with the hired help and enjoying herself.

Sense of authority: A
The Microsoft rumors just won't go away. Understandable, but that's a needless distraction as she maps out a near and longer-term strategy. So early on in her remarks, Bartz put the kibosh on the rumor that she was brought in to sell company. At the same time, she was quick to add that if a deal for Yahoo's search business came along, she was keeping an open mind. Above all, Bartz wanted to leave the impression that somebody was in charge. Finally.

Financial command: Incomplete grade
Too soon to say. Bartz handed off most of the financial questions to Blake Jorgensen, the company CFO. At this point, that was probably the smart decision. Most CEOs follow the same practice during earnings calls.

Sense of Humor: A
It's nice to know that real blood flows through the new leader's veins. Jerry Yang's associates say he is a nice guy, but he was awfully hard to read. In public, he too often came across as a stiff. From the moment she took the microphone Tuesday, Bartz was ready to goof. At one point, she teased Piper Jaffray's Gene Munster, who recently ran an open letter to Bartz urging her to buy a major print company, mentioning The New York Times. When Munster asked his question, Bartz immediately responded, "Well Gene, I thought I'd buy The New York Times tomorrow....."

A sense of humor will help. Even with an ace CEO, Yahoo's revival isn't a lock. And in a lousy economy, the job becomes that much tougher.

Corporate fixes are notoriously hard. Parachuting into the equivalent of a war zone, with potential landmines at every turn, requires a special gene. And no small amount of brass.

So it is that after a year of corporate upheaval and a slumping stock price, Yahoo announced a brilliant appointment. I don't know if Carol Bartz will turn out to be the messiah-like figure the Yahoo crowd has been praying for. This company is up against the wall. But the new CEO is an old-school technology executive who has thrived in crises that would have overwhelmed most of the good old boys she's competed against since the 1970s.

Over the years, I've had a few occasions to interview Bartz. She's smart and tough and every bit the straight shooter that she claims to be. Bartz weathered a personal struggle with cancer and crushed a rebellion of prima donnas at Autodesk. When the Internet revolution happened, Bartz famously tweaked stock analysts pestering her with the quip: "You'd be happier if we were selling plastic-wrapped fruit baskets over the Internet?" When she finally resigned as CEO in 2006, Bartz had reinvented Autodesk as one of the more successful companies in the software world.

She may not be a "media person" that some thought Yahoo needed, but let's get real. Over the years, the gobbledygook served up by sundry Yahoo execs who grew up in the media world led this company from one disaster to the next. Finally, Yahoo's board woke up and selected someone with coveted business and technology credentials, hoping she is a quick study.

They won't have to wait long to find out. Chairman Roy Bostock stumbled over his prepared remarks and referred to Yahoo's new hire as "Carl" before correcting himself. Not a problem for Bartz. Bostock will soon discover that she'll easily become one of the boys -- only a lot smarter than most of them.

Unfortunately for Yahoo, Barack Obama's otherwise engaged.

As headhunters from Heidrick & Struggles scroll through the available A-listers for Yahoo's next CEO, they might be excused for secretly wishing John McCain had won the election.

That's because after all this company has gone through, it is going to take some sort of superstar to rally the troops now that Jerry Yang is returning to his former role of "chief Yahoo."

Truth be told, you should be happy for Yang. He no longer has to suffer the indignity of playing the role of human pinata. I never thought Yang was the right guy for the job, but give him credit for taking on a tough job. After Terry Semel's ouster, Yang did his best to revive a company he helped found and obviously still loves. Can't fault him for giving it a shot. Unfortunately, Yahoo's brain-dead board of directors took way too long to realize that it was a bad match almost from the get-go. But that's another story.

After the on-again, off-again Microsoft novella, the final straw was Google's decision to bow out of a pending ad pact. That agreement was supposed to bring in hundreds of millions of dollars in revenue. Before barreling ahead, however, the board might have considered whether the Justice Department would try and block that combination.

Yang's subsequent uninspiring public performance at the Web 2.0 conference only reinforced the impression that he was in over his head. Rightly or not, Yang was then variously described as "a train wreck, self-delusional, and as making a mockery of the vaunted company he helped create."

That's now all in the past. Yahoo's pressing challenge now is to find somebody who can rally employees to make one last, best effort to get it right. Talk all you want about Yahoo being a basket case, but that ignores the reality on the ground. Yahoo remains a company with some 500 million users and that's quite a coveted franchise. And if the economy would give everyone a break, several of Yahoo's announced initiatives might actually bear fruit. (And who knows? Public bluster notwithstanding, Steve Ballmer may yet take another run at Yahoo.)

Sure, a real superstar would make a big difference, but Yahoo does not need a miracle worker. It does need someone with passion, vision and managerial chops. Lots of names have been bruited about as possible successors-thankfully, Mark Cuban is otherwise engaged-and I can't say who has the inside track.

This much I do know. After a lost decade in which Yang, Semel and Tim Koogle marched the company around in circles, CEO competence has to be more than a throw-away line on a potential resume.

The board doesn't have the luxury of blowing it again.

No pressure. (Right.)

See also:
• Yahoo CEO Yang to step down
• Yahoo's ultimate search: A new CEO
• Yang's travails: A Yahoo timeline
• Jerry Yang memo to staff about stepping down
• Microhoo revisited: Would it be a search-only deal?

Brutal.

That's the only way to describe the reviews of Jerry Yang's time on stage for his interview with John Battelle at the Web 2.0 conference in San Francisco.

Everyone, it seems, had a piece of advice for Yang.

Forbes' Elizabeth Corcoran suggested he develop an "iron fist" approach to enforce corporate discipline.

GigaOm's Om Malik suggested that Yang suffered from "a sense of tragic self-delusion."

TechCrunch's Michael Arrington was in an off-with-his-head mood and concluded: "It's long past time for change. Yang must go."

Some or all of the above may be true. But is the digerati missing what's happening on the ground at Yahoo? It's easy to pick on Yang as the face of feckless incompetence in the face of the mother of all financial storms. But the focus on personality misses the bigger story of what's getting done on the ground. The question is time.

Does Yang--or whoever inherits his seat--have that luxury? While Yahoo gets rewired and redone in anticipation of a grand morphing into its next incarnation, the upheaval in the economy has narrowed management's room to maneuver. With the stock bouncing around near all-time low levels, the pressure from shareholders to do something drastic mounts.

Such is the problem of any publicly traded company during a time of crisis: what's the right balance to strike between long-term planning and short-term attention to the needs of the ultimate owners, the shareholders?

The answer to that question will decide the fate of the company, whether it makes it or gets put out of its misery. Jerry Yang at the helm or no Jerry Yang.

OK, Jerry, so now what?

Don't you know that Jerry Yang would grab Microsoft's original $31 a share buyout bid if he could turn back the clock. Of course, that ain't about to happen, so mark November 5, 2008 as the start of the Great Countdown until the company's fate gets decided by Microsoft, or some still unknown third party. From this point on, its CEO has run out of options.

Google announced Wednesday that it was backing out of its proposed search ad partnership because it didn't have the stomach for a fight with Uncle Sam's antitrust lawyers. From a Google perspective, that's a perfectly understandable tactical retreat. In the near-term, the deal would have helped Yahoo more than Google anyway. (Yahoo expected the deal would have raised its revenue by $800 million in its first year, adding an additional $250 million to $450 million in incremental operating cash flow.)

It's hard to believe Microsoft won't go after Yahoo again. At a sharply discounted price to its original offer, why wouldn't it? Yahoo still possesses a coveted franchise, but this economy is a world removed from what it was in late winter when Microsoft was hot to do an acquisition. Back then, Yang could plausibly argue to his board and shareholders the logic of holding out for a higher price or negotiating a partnership with Google.

He gambled and lost.

Yang may still object to a Microsoft sale, but with the stock stuck near its all-time lows, Yahoo's shareholders won't care what he thinks. They've been badly hosed by being too patient.

Another quarter and another round of anxiousness, this time exacerbated by the uncertainty in the credit markets. So let me cut to the chase since we're talking about two of Silicon Valley's bellwether companies. The news isn't as bad as it seemed at first blush for Apple. I'm not quite sure I can say the same about Yahoo.

First, Apple.

Given the economic headwinds, this was a blowaway quarter. Apple sold 6.9 million iPhones, ringing up about $4.6 billion in sales. Measured by revenues, Apple thus became the third biggest mobile phone supplier in the world just 15 months after entering the business.

At the same time, Apple sold 2.6 million Macintoshes, a tad below the consensus estimates of 2.7 million units. Some of that had to do with people waiting for a refresh in the product line. You also have to factor into the equation the obvious fears of approaching Armageddon.

Steve Jobs, making one of his rare appearances during the conference call, allowed that the economy might force some customers to delay purchases, but added that they wouldn't defect to a rival. It's obviously hard to predict behavior when peoples' 401ks are dropping in worth by tens of thousands of dollars, but Jobs probably is right. Despite the rah-rah spin about his customers being the best in the world, he can count upon amazing loyalty.

And they're loyal because Apple keeps knocking out innovative products. Until now, the argument has been Apple would continue to fetch a premium price because it builds more innovative technology. If the economy keeps heading south, that assumption comes undone. But unless you're the Amazing Kreskin, nobody can guess the length and the severity of the downturn. Assuming that the market can return to a semblance of normalcy, Apple's going to be in an enviable position.

So what about Yahoo?

Turning to the other big tech bellwether reporting Tuesday, I have a lot of empathy for Jerry Yang. At this point in the company's history, he's in the worst possible bind. I'm not even sure a Jack Welch could do much to turn Yahoo around. It's not that Yang is an incompetent; it's just that circumstance has dealt him the most lousy hand possible.

On the surface, the picture is, at best, grim. Yahoo reports a 64 percent drop in quarterly profit, and announces plans to cut at least 10 percent of its workforce. That's the second big round of layoffs this year. (Here's the textof his memo.) You can't dun Yang for failing to predict the recent volatility but what if he had been bolder and cut deeper the first time? Maybe that wouldn't have made much difference but now circumstance is forcing his hand and he looks the weaker for it.

The stock was up after hours, but that was more of a dead cat bounce than a reflection of investor confidence in the company's direction. On his blog, Henry Blodget of Silicon Alley Insider called Yahoo's results "crappy but not awful." I think Blodget actually underplays the depth of the challenge facing Yang and his executive team.

The economy ground to a halt in September after the financial markets melted down. I've seen this movie before: during times of financial distress, companies chop discretionary spending like mad. Remember how Internet media companies fared after the dot com bubble burst? Even if the stock market stabilizes, a economy in recession--and I don't need Ben Bernanke to tell me that we're in recession--portends a rough patch for companies like Yahoo, whose bread and butter is display advertising,

Yang keeps saying that he's got a plan and is working things out. But does he have enough time to make good on his ideas? Yang still says that he remains "optimistic." I can't do any better than to quote Kara Swisher's apercu that "actually, Yahoo's news was just a bit more promising than the polls are going for the Republican presidential candidate."

Ouch! But at 12 dollars and change, Yahoo's stock at its lowest point in the last five years. Remember how (now fellow board member) Carl Icahn was screaming to agree to Microsoft's buyout offer? If Yang could turn back the clock...well, you can finish the rest of that sentence.

The buzz around Washington is that the Justice Department will rule on whether to approve the Google-Yahoo advertising pact by late next week.

Of course, the government being the government, maybe it'll do something supremely annoying and keep us in the dark beyond next Friday. But the calendar suggests that a decision is nigh. In June, when Google and Yahoo announced their accord, the companies voluntarily delayed implementing its terms for up to three and a half months to let the Justice Department review the deal.

If the antitrust division decides not to oppose the agreement, the big question is whether it will attach conditions. One source involved with the opponents of the partnership said there's not much chance the trustbusters will allow the deal to be implemented without modification. Of course, nobody outside of the Justice Department really knows the answer yet--and they ain't talking. True to form, a spokeswoman for the Justice Department declined to comment.

Since the deal's announcement, Microsoft and the advertising community have been making the case against the Yahoo-Google agreement. The Association of National Advertisers, which represents over 400 companies, last month issued a public letter maintaining the arrangement would raise prices and limit choice. Google and Yahoo obviously see things differently. Yahoo president Sue Decker then responded with a blog refutation of the argument put forth by the ANA and other critics:

This agreement gives advertisers a new opportunity to bid for placement on an additional network that includes Yahoo inventory. They will bid for what they think this opportunity is worth at prices that produce positive ROI. That's how pricing works today in this industry and this agreement won't change that.

So for now, we're stuck in a he-said, she-said limbo, where the spinmeisters on both sides are slinging as much hash as possible. Despite their conflicting predictions of reality, the truth is that nobody will know whether this deal is pro- or anti-competitive until long after it goes into effect--assuming that Uncle Sam's minions give it the green light.

To be continued.

After watching the demise of U.S. capitalism in the last couple of weeks, nothing shocks me any more. So I'm the last person to dismiss the veracity of M&A rumors one might ordinarily classify in the "No way, Jose" category.

So it is that the latest buzz centers on a post from Matt Marshall at VentureBeat, who reports renewed rumblings of a Microsoft-Yahoo marriage--but this time with a twist: the deal would follow Yahoo's acquisition of AOL.

But here's why it makes sense. Increasingly, word is that Google is going to have trouble upholding its advertising deal with Yahoo, because antitrust regulators are concerned about the market dominance the deal gives to Google and there's a very strong chance they'll reject it...That would make Yahoo even more desperate to do a deal with another company.

As a dear college professor of mine used to say, yes, but. Yes, Yahoo conceivably would want to do another advertising deal. But would it be that keen on going all the way with Microsoft? I'm not sure there's much ardor on the Yahoo side. After four months of foreplay and no consummation, both sides were left hot and very bothered.

That's not to say they don't still have a yen for each other. A lot's going to depend on how far south the Internet advertising business falls. Earlier today, an analyst with Collins Stewart put out a note arguing that Yahoo's "fundamentals are deteriorating." Yahoo earlier in the week gave the world its first public viewing of the company's new APT ad platform. Jerry Yang and Sue Decker still want to prove the naysayers wrong.

The wild card is the wild man on Yahoo's board. Now that Carl Icahn's on the inside, thanks to his campaign to win board representation, what's to stop him if the Justice Department puts the kibosh on the proposed Yahoo-Google ad arrangement? If the DOJ kills the Google deal, Icahn can go to the mattresses again--this time as a oh so respectable insider.

Go big or go small.

That's the question facing lawyers from the U.S. Department of Justice investigating Google. Sources who have provided testimony to the government say a departmental debate revolves around whether antitrust regulators should challenge Google's proposed revenue-sharing deal with Yahoo, or go for the whole enchilada--and haul Google into court on broader charges related to its dominance in search advertising.

The latter tack would be the more ambitious--and fraught--choice. Ten years ago, the government prosecuted Microsoft for alleged antitrust violations, but ultimately settled the case in return for the company's agreement to make minor behavioral modifications.

"My sense is that they're considering something larger," said one source who met with DOJ lawyers. "They're finding that with the specifics of the Yahoo deal, it's difficult to create a set of proofs (around the case), such would satisfy a judge."

The source, who asked to remain unidentified, said investigators feel they have evidence to proceed, based upon received complaints from advertising executives regarding Google's influence.

"It's also control, from both an advertising and societal view," the source added. "There is growing concern about what happens if Google becomes the predominant gateway to information, if information passes through a single enterprise, characterized by a series of commercial algorithms that do what they do--and those algorithms are not subjected to outside review."

That would come as a surprise to Google. Until now, the company says its conversations with government lawyers have focused strictly on the Yahoo ad deal. Yahoo expects that its 10-year Google ad search pact, signed in June, will raise revenue by $800 million in its first year and provide an extra $250 million to $450 million in incremental operating cash flow. The companies voluntarily agreed to postpone closing the deal until October to let the government complete its regulatory review.

So far, the sources say the government has not decided how--or whether--to proceed. A spokeswoman for the Justice Department declined to comment.

A Google spokesman declined to comment on the DOJ's possible next moves, but repeated the company's position that the Yahoo deal did not violate antitrust law.

Another source debriefed by antitrust lawyers said that a key question for the government is whether search should be considered a market unto itself, or a subset of the larger digital advertising space.

"They are definitely having a struggle around that issue," said the source, who similarly asked to remain unidentified. "If it is a subset of a market, then even if the search market would become unattractive, you could substitute another form of advertising. But if it is distinct, then you have a completely different issue.

"I've been clear in what I've said to them. My view is that anything that can be defined as a query is different from the rest of the advertising market--it's different from TV or direct mail, etc. There's something specific about someone typing a query in the search bar. The key issue is whether this partnership would allow Google to exercise undue influence over the search market. Would this further tip the balance toward creating monopolistic control over the search market?"

For its part, Congress is letting the DOJ carry the ball by itself. A staff member from the House Judiciary Committee said with just a few weeks left in this session, it's unlikely the committee will hold any further hearings on the matter.

Meanwhile, Sen. Arlen Specter (R-Pa.), minority leader on the Senate Judiciary Committee, similarly adopted a wait-and-see approach to the investigation.

"There is no doubt about the significant impact on the economy by an agreement between Google and Yahoo, the dominant companies in Internet advertising," he said. "This issue is being reviewed by both the Department of Justice and the Senate Judiciary Committee and it may be that the courts will have to decide whether there is a violation of antitrust laws."

Senator Orrin Hatch (R-Utah), the ranking member of the Senate's antitrust committee, said the question of whether the DOJ should intervene was a "moot point because Yahoo and Google submitted their proposal to the Department of Justice. I look forward, along with my colleagues on the Senate Antitrust Committee, to hearing the Justice Department's conclusions."

Stephanie Condon contributed to this story.