Outside the Lines

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On this week's EIC Squared podcast, ZDNet's Larry Dignan and I discuss Yahoo's new CEO vacancy and the newly launched BlackBerry Storm. We also talk about the grim economic outlook for the holiday shopping season, which will be great for bargain hunters online and offline.

Prior to a Churchill Club event, I chatted with Kara Swisher about who she believes will succeed the deposed Jerry Yang as Yahoo CEO. From her BoomTown perch at All Things Digital Kara has been all over the story. She thinks that News Corp. Chief Operating Officer Peter Chernin could be the man. Chernin has spent the last 12 years by the side of Rupert Murdoch and may be leaving his embrace. Kara also evaluates a number of other possible candidates in the video below and in this blog post.

Whoever takes the job will have to be capable of spiritually healing a wounded company. Too many talented people have left the tent, and he or she will need to attract and bring in first class replacements. Om Malik phrases what Yahoo needs in a CEO simply: "Look outside for someone with spark." Add to that criteria the ability to be decisive in short order and keep the Yahoo board from further compromising the future of company. Jerry Yang may be a co-founder and now former-CEO, but the board, which has been recently reconstituted with some fresh blood, has been pulling his strings.

The reviews of Jerry Yang's performance at the Web 2.0 Summit have not been glowing. The Yahoo CEO's interview with Web 2.0 Summit co-host John Battelle this week has been described as a train wreck, self-delusional, and as making a mockery of the vaunted company he helped create.

Jerry Yang and John Battelle at the Web 2.0 Summit

(Credit: Dan Farber/CNET Networks)

During the interview, Yang defined Yahoo's vision as a "consumer brand that allows people to get what they want on the Internet." Yahoo is a destination site with starting points, such as Yahoo Finance and the Yahoo home page, and is rewiring its platform to be more open and extensible. It serves billions of dollars in ads and is the No. 2 search engine. It's a sound strategy. Yahoo is not Google or Microsoft and has to double-down on its core assets and 500 million to 600 million users.

Yang's job is to sell that vision inside and especially outside of Yahoo. The problem is Yang can't sell.

He lacks the out-sized personality and charisma that is needed to inspire confidence in battles for the soul of a company. He said he would "go through walls" for Yahoo, but having personal passion and a vision isn't enough to get others to walk through the walls.

He has to convince employees, shareholders, customers, and partners that no matter how difficult the situation, he can lead Yahoo to the promised land. Think reality-distortion field Steve Jobs, no-software Marc Benioff, dancing bear Steve Ballmer, the disarming Howard Stringer, the professorial Eric Schmidt, or the preacher John Chambers. Bill Gates doesn't have the most charismatic or endearing personality, but he manages to control interviews, delivering the messages he wants.

TechCrunch's Mike Arrington wrote that Yahoo needs its Barack Obama, "someone to make everyone believe that a true leader is at the helm, ready to fight. Someone with a believable plan. Someone who can inspire Yahoo--and Yahoo users--to believe that Yahoo can once again become a force on the Internet."

Yang is ready and willing to fight, but the Chief Yahoo needs a new general to lead his troops.

Watch the full video, courtesy of TechWeb:

In January at the Consumer Electronics Show in Las Vegas, Yahoo CEO and co-founder Jerry Yang offered a sneak peek at Yahoo's next-generation, socially networked user experience. In a Flash-based demo, Yang showed how Yahoo was opening up its platform to third-party developers and building hooks to socialize the experience for the more than 500 million users of its various services.

Third-party applications can be accessed via the Yahoo Mail interface, as well as services recommended by friends. My Conversations is a way for Yahoo Mail to digest conversation threads and initiate actions, such as planning a dinner with a group of contacts. You can drag an e-mail thread into a map and profiles of those on the e-mail are surfaced, noting preferences (food in this instance), and suggesting and locating restaurants in the area.

(Credit: Yahoo)

In this screen from the January 2008 CES demo, Yahoo Mail shows messages from a user's most important connections as well as their status updates.

(Credit: Yahoo)

But that demo of socially enriched Yahoo services is still incubating, and the company has not been successful in becoming a social-networking hub. Yahoo 360, introduced in 2005 , never took off. A more hip version, Mash, was recently shuttered after less than a year. In the meantime, Facebook, which Yahoo tried to acquire for a rumored $1 billion in 2006, has accumulated more than 100 million users in four years.

But Yahoo executives claim they are not focused on challenging Facebook or MySpace. They are seeking to add a social dimension to the Yahoo platform by intuiting a social graph and profile page for each user and opening up APIs that allow developers to access the profile data.

Ash Patel, executive vice president of Yahoo's Audience Product Division

(Credit: Dan Farber/CNET News)

"We are really not interested in creating a social destination site," said Ash Patel, executive vice president of Yahoo's Audience Product Division. "That ship has sailed, between MySpace and Facebook and Hi5 and Bebo and other reasons. Even with that, there are 1.2 billion people on the Internet, and only 150 million are using social networks. That's a lot of greenfield."

"Look at the hundreds of millions of people using Yahoo," Patel continued. "Many of them don't care to go to a social-networking site to build their profile. For them, we want to add the right amount of social to give them social relevance but not to duplicate Facebook or MySpace. They don't want all features."

"Yahoo has done well with taking a lot of user experiences that have taken off and doing them well so they appeal to the masses. For example, we did that with RSS. People don't know what it is but we put it into MyYahoo and got wide adoption. We can put the right bits of social that matter and put them into products in the right way," Patel added.

At the recent Yahoo Open Hack Day about 300 developers got access to new "social" APIs, which open up user address book contacts, profile data, notifications, and the "vitality stream" (like Facebook's news feed) to external applications, which can be added to services such as Yahoo Mail and the Yahoo front page.

"We are taking existing products and services, making them richer, and enabling social elements for the audience, and potentially leading the way for new applications," Chief Yahoo and co-founder David Filo explained during an interview last week.

Yahoo is focused on Mail--which has 275 million monthly users, according to Patel--as the core application to wire up with the social APIs. "People have their top 10 to 20 friends they care about. We have to take the latent social stuff, such as the address book with tens of billions of connections, and instant messaging, and buddy lists, and find the top 10 to 20 people who matter to a person," Patel said. Yahoo is developing a new profile page; Yahoo 360 profiles will be migrated to the new profile pages, and those users will have the option of moving their Yahoo 360 blogs to other blog platforms, such as WordPress and TypePad.

During a meeting with the press last week, Patel showed how Netflix, Flickr, and Evite could be integrated into Yahoo Mail. For example, an e-mail from a Netflix user about returning a movie could be turned into an interactive experience. Using the Yahoo Mail developer platform, Netflix can be added as an application in Yahoo Mail. A new tab appears and the application shows a list of movies that friends from within the Yahoo address book, who are also Netflix customers, have watched. Yahoo Instant Messaging is also integrated with the Mail and Netflix experience.

Applications such as Netflix could be integrated into Yahoo Mail.

(Credit: Yahoo)

Patel also showed Netflix integrated into the Yahoo front page and integrated into Yahoo search. "In Yahoo Search, you can see the general Web critics view of the movie and the Netflix ratings, and you can add it to your Netflix queue. Instead of a bunch of searches, you can actually get something done there," he said.

Patel didn't give a precise timetable for introducing the new profile page or the social graph of the top 10 to 20 contacts based on address book and buddy list contacts and their "vitality" stream.

"The profile page is a cornerstone. It's a necessity but not a destination as on Facebook or MySpace. Yahoo 360 was a way to create a new profile with social networking. We didn't get it right. We need the basic profile for users just to manage their identity so when they participate in other parts of Yahoo they have options to see," Patel said. "We will go out in steps, with the first rollout of profiles in beta later this year."

Yahoo executives wouldn't say when the user experience demoed at CES would be available, but made it clear that scaling the new functionality for more than 500 million users was a major technical and user interface challenge. Venkat Panchapakesan, head of Yahoo's Audience Technology Group, noted the three top challenges for getting Yahoo's social to scale: the complexity of mobile and making applications work fast for Yahoo Mail; data privacy, such as dealing with notions of user control at the same time data is broadcast; and converting all profiles to a single name space and lighting up the social graph.

Yahoo is heading in the right direction with its newly found openness and social rewiring, although it should have started this undertaking a few years ago. Now it's a matter of executing on the plan, which hasn't been made easier by the exodus of talent from the company in recent months, and getting developers and hundreds of millions of users to buy into the plan.

On Tuesday's edition of Daily Debrief, our Microsoft-Yahoo watcher Dawn Kawamoto talks with me about what has happened since Yahoo's well-documented August 1 shareholder meeting. Yahoo's stock price is nearing a 52-week low this week, but the herd of press and analysts covering the company are either on summer vacation or allowing Jerry Yang and his somewhat new board of directors a respite from their attention. Like other public companies, Yahoo lives by the financial quarter, so the watchers will be hovering as the quarter ends in September, speculating on how Yang and company perform now that the boardroom melodrama has abated.

On this week's EIC Squared podcast, ZDNet Editor in Chief Larry Dignan and I discuss the news of the week. It was a big week for Microsoft, with several announcements and teases from its meeting in Seattle with financial analysts. Steve Ballmer is still bullish on the online space, but not on Yahoo. We also talk about Kevin Johnson's departure from Microsoft. (See coverage on the Microsoft financial analyst meeting from Ina Fried and Mary Jo Foley.)

We spend a few minutes debating the impact of Carl Icahn joining the Yahoo board and what it means for Jerry Yang's future. Larry thinks that Yang bought himself more time to turn things around. If so, he will need to speed up delivery on the Yahoo Open Strategy and build a social layer into Yahoo's collection of services.

Finally, we discuss the impact of Facebook Connect, which will let users access and feed their Facebook profiles and friends on any Web site. It's Facebook's way of extending its platform to embrace other services and get more data and pages flowing through its social portal.

On June 27, Microsoft Chairman Bill Gates said he didn't think that his company and Yahoo would make a deal, adding that Microsoft CEO Steve Ballmer will find "plenty of other opportunities.

Not so fast. As Yahoo's quarterly earnings come up on July 22 (see Kara Swisher's take on the upcoming financial results) and the shareholder meeting on August 1, Carl Icahn and Steve Ballmer are teaming up to remake Yahoo's board of directors and shelve Yahoo CEO Jerry Yang. In a letter to Yahoo shareholders, Icahn said:

Steve (Ballmer) made it clear to me that if a new board were elected, he would be interested in discussing a major transaction with Yahoo, such as either a transaction to purchase the 'Search' function, with large financial guarantees or, in the alternative, purchasing the whole company."

Microsoft issued a letter today confirming Icahn's remarks about Microsoft's renewed interest in a transaction with Yahoo:

While, of course, there can be no assurance of a future transaction, we will be prepared to enter into discussions immediately after Yahoo's shareholder meeting, if a new board is elected.

Now the fate of Yahoo is clearly in the hands of shareholders. They can give Icahn a few seats on the board but not enough control to force massive changes or they can hand over the company to him and Microsoft, knowing that a transaction for $33 to $35 per share for the search business or the entire company will be consummated over the next six months.

As I have said before, Microhoo has always been about the money, and less about a shared strategy and cultural fit. Yahoo's board thought that Yahoo was worth $37 per share, and Microsoft wasn't going to negotiate against itself, with no other buyers in sight.

During an interview at the D6 conference, Yang said:

I understand the situation people are feeling, but at the same time we did not walk away from that proposal, Microsoft did. We are willing to do a deal under the right terms. It wasn't clear to me they wanted to finish the deal. I can't go revisit and take or not take it. I understand our obligation to stockholders from conversations with a number of them. The focus for us is how do we recognize more value for the company soon and position Yahoo to be much more successful in the long term. If there is a way to do it, we'll talk about other alternatives, but we aren't going to do something short term.

Yang has some regrets that Microsoft walked away from negotiations in May. He may prefer an independent Yahoo, but reality is setting in, and now he is probably wishing he and his board had played less difficult to get.

Update: Yahoo issued a testy statement regarding the Icahn-Ballmer "apparent effort to force Yahoo! into selling to Microsoft its Search business at a price to be determined in a future 'negotiation' between Mr. Icahn's directors and Microsoft's management."

In the statement, Yahoo invited Microsoft to make a proposal immediately and for Icahn to reveal his plan for Yahoo beyond teeing up Microsoft to make a deal. I doubt Jerry Yang and company are going to receive any kind of proposal until the shuffle at the upcoming shareholder meeting takes place.

On this week's EIC Squared podcast, ZDNet's Larry Dignan and I discuss the executive exodus at Yahoo, the launch of Firefox 3 and Bill Gates' last days as a full-time Microsoftie. We also talk about the impact of millennials, the younger generation brought up digitally, on the corporate workplace. Will they turn off their Facebook, MySpace, iPod, and Twitter while they crunch numbers for a sales report or resolve configuration problems in a data center?

Executive turnover is a fact of corporate life, but Yahoo is treading on dangerous ground with the number of key executives who are abandoning ship (see Techmeme).

Yahoo isn't a sinking ship, but it is beginning to list prominently, further calling into question the captain's piloting and leadership skills. The executive exodus is a tacit rejection of the current leadership and the board.

The executives who resigned are carrying a lot of expertise and institutional knowledge out the door. Some have grown tired of the ongoing battle and uncertainty over Yahoo's future and some are not enamored of the impending major reorganization.

Since Microsoft walked away from the negotiating table in May, Yahoo has been in a tailspin, with shareholder suits (mutiny), a skeptical Wall Street, a hounding press and now the very public resignations of key people.

So far Yahoo has not publicly addressed the executive exodus or outlined the reorganization of the company. It's getting more clear that CEO Jerry Yang and President Sue Decker are treading water. Even if they have the vision, smarts, and passion to right the ship, in this situation someone is usually given up to appease the gods of the business underworld. As I wrote previously, Yang bleeds Yahoo purple, his purple blood is in the water, and the sharks are circling.

The question is who would be ideal to take over the ship, rally the troops and deliver competitive products if Yang stepped down as CEO. Decker may be too tainted from the last several months of upheaval. But what outsider would want to take over the company when Carl Icahn and Yahoo's board are fighting for control of the company. And, if Icahn's group manages to get control of the board, would a new CEO just be present to break up the company so the anxious shareholders can take their money and run?

Unfortunately, this latest chapter in Yahoo's brief but impressive history has been just about the money. It would be far more interesting and potentially beneficial to its 500 million users if Yahoo's team were able to focus on building products.

Yahoo issued a statement this afternoon addressing the series of departures:

"We have a deep and talented management team across all areas of the company. Our successful implementation of our core strategies and the timely rollout of key products this year testifies to the effectiveness of our team, and we continue to recruit outstanding talent. Yahoo continues to be a leader in our industry and remains a unique, exciting, and important place to work even as we experience the attrition that's to be expected in the Internet industry."

The reality is that the deep bench of talent is getting thinner by the day, and it's becoming more difficult to recruit outstanding talent under the current circumstances.