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Scott Thompson: Whither Yahoo!?

by Olaf de Senerpont Domis | Published January 24, 2012 at 4:31 PM

What kind of company, exactly, is Yahoo! Inc.? Is it a search engine? A Web portal? A media company? A nexus for content?

It's a question that has vexed the parade of CEOs who have helmed the once-industry-leading Internet company over the past decade. Now it will be posed to Yahoo!'s latest leader, Scott Thompson, the former president of eBay Inc.'s PayPal unit.

The choice of Thompson, whose appointment was announced Jan. 4 and took effect Jan. 9, came as a surprise to Wall Street and other Yahoo! watchers. His name wasn't even on the list of top candidates for the job, partly because most figured Yahoo!, suffering from attacks from all sides on its strength in online display advertising, would be hunting for a turnaround expert.

The 54-year-old Boston native, who came across as exuberant and affable during his first conference call with analysts, is credited with growing PayPal from $1.8 billion in revenue when he took the president role there in early 2008 to $4 billion last year. Before taking PayPal's reins, Thompson was the unit's chief technology officer, and, before that, he led a technology unit of Visa Inc.

Many were disappointed in the choice, but some, including Susquehanna Financial Group LLLP analyst Herman Leung, views Thompson's operational successes as encouraging and "exactly what Yahoo needs as its first step in its transition to rediscover its identity."

It won't be an easy task, judging from the failures of Thompson's predecessors. Tough-talking Carol Bartz, who was dismissed in September by Yahoo!'s board after 2-1/2 years of service, did little to clarify the company's muddled focus, despite shedding a handful of noncore assets. She was put on the defensive after she joined in 2009 by striking a deal to let Microsoft technology power all Yahoo! search, a move that some viewed as giving up on a pivotal and strategic asset.

The company began to lose focus under the reign of Terry Semel, the former Warner Bros. Entertainment Inc. chief who was appointed CEO in 2001. His media background, along with several Web 2.0 acquisitions, helped dilute Yahoo!'s position as a top Internet property. He resigned in 2007 amid shareholder dissatisfaction, and the reins went to co-founder Jerry Yang. Yang's tenure as CEO will forever be marked by his refusal to sell Yahoo! to Microsoft Corp. in 2008 for $33 per share, a level not seen by the company's stock since then. He stepped down in November 2008, and, in a development many viewed as easing Thompson's ability to make meaningful changes at Yahoo!, Yang resigned from the company's board last week.
There's no doubt Thompson is a capable executive. But whether he has what it takes to change Yahoo!'s course is unclear. So far, his affability provides a contrast to his predecessor Bartz, who was known for her hard-edged, style.

A more interesting difference between Thompson and Bartz, as noted by Eric Jackson, founder and managing member at activist hedge fund Ironfire Capital LLC, which holds a small stake in Yahoo!, in a tweet Jan. 5: "I don't know Thompson as a [manager], but I know he had the most to lose leaving his PayPal perch to go to Yahoo. What did Bartz have to lose when she took the job, 3 years ago? Nothing , she was retired."

Certainly, one thing Thompson does gain is the rare opportunity to hold a high-profile CEO post, something that he was looking to add to his résumé, according to his former employee.

"He had the best non-CEO job in the world, but he wanted to be a CEO," eBay chief John Donahoe told All Things D the day Thompson's Yahoo! appointment was announced.

And, while Thompson still must learn the ropes at Yahoo!, perhaps he sees some potential that his predecessors didn't. He praised the company's strong brand and core business assets, arguing they are stronger than most people realize, and pledged to rekindle innovation.

For a company that has treaded water for so long, as Yahoo! chairman Roy Bostock acknowledged when introducing Thompson, innovation is key. Leung agrees. He's one of a minority who views the new chief as a strong choice. The analyst gives Thompson six to nine months to dig into the organization, make some changes and show some initial results.

"Most people don't think Thompson is the right guy," Leung says. "Expectations aren't high, so it won't be too hard to surprise them."
Just being able to figure out exactly what today's Yahoo! aspires to be would be a surprise indeed.

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Scott Thompson: Whither Yahoo!?

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Olaf de Senerpont Domis

Bureau chief, West Coast; Editor, venture capital

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