Business Blog: Hoover’s Business Insight Zone

Given the market pressure that led to Terry Semel’s exit last month as Yahoo!’s CEO, you’d think that the online titan was hemorrhaging. Hardly. But Yahoo! lives in a strange business habitat, one it shares with a younger, larger, and purportedly much smarter company. Steve Tobak of News.com captured this well in his recent commentary on what ails Yahoo! and how to fix it:

Imagine this: a company has a $35 billion market cap, a P/E of 50, annual revenues of $5 billion, annual profits of $500 million, 60% gross margins, and about $3 billion in the bank.

Nice fundamentals, right? Now imagine the same company being characterized as “embattled.” What could possibly be so wrong with this picture that an outcry from investors got the CEO booted?

The company in question, of course, is Yahoo. And what’s wrong is that archrival Google has figured out how to mint money with search ads and now boasts a market cap of $170 billion and $3 billion in annual profits. The bad news for Yahoo is that advertising, for the most part, is a zero-sum game. Google’s good fortunes spell boohoo for Yahoo.

Now Jerry Yang — company co-founder, erstwhile Chief Yahoo, and now CEO — has given himself “100 days or so” to revamp the company’s strategy. What should he look to do during that time? Several Wharton professors have stepped up to offer suggestions:

Some Free Advice for Yahoo CEO Jerry Yang

There’s a lot of good sense in everything they say, but I’m particularly drawn to their advice to “Put Wall Street on the Back Burner.” All public-company CEOs must decide how they will manage Wall Street’s expectations, but sometimes massaging the investment community goes so far that it gets in the way of doing what’s right for the company. Jack Welch once said that the real challenge of management — the very thing that makes it hard — is that you have to manage for the short-term and the long-term at the same time, always. That’s true for Jerry Yang as much as anybody, but right now Yahoo! is doing okay in the short term, and it especially needs to focus on where it’s headed for the long term. If that means smiling, nodding, and saying the right things to Wall Street for a couple of quarters while mostly ignoring its signals, so be it — so long as you get the company pointed in the right direction.

Yang should be well positioned to do this: Terry Semel came in as an outsider, had to maintain his reputation as a pro’s pro of a top manager, and bore very high expectations. While in the long run expectations will be just as high for Yang, Yahoo! insiders and the investment community alike are much more apt to cut him some slack, at least during the first months of his CEO tenure. After all, he co-founded the company, and as one of its largest shareholders he has lots of skin in the game. It matters a lot to him personally what happens to Yahoo! now and in the future.

So, Jerry, listen to the good profs from Wharton: spend your time figuring out what Yahoo! can do best, lay out a strategy for doing that for years to come, and don’t worry too much about what Wall Street says about you or Yahoo! this year. Do this, and you’re much likelier to win in the long run, which is what counts most.