Yahoo: Crouching Strategy, Hidden Costs Cuts?

Published on August 11, 2008
by Kara Swisher

Buried deep in a recent New York Times profile of Yahoo Co-Founder and CEO Jerry Yang were largely unexplained references to the names of two new initiatives now taking place within the ranks of Yahoo management.

Curiously called Aikido and Judo, after the two best-known forms of Japanese martial arts, they are, in fact, yet another round of navel-gazing strategy overview efforts, aimed at assessing how Yahoo operates its consumer and advertising businesses.

Aikido focuses on Yahoo’s consumer products, while Judo relates to how Yahoo interacts with advertising clients.

And, according to several sources within the company, besides more efforts to streamline Yahoo (YHOO) in both arenas, Aikido and Judo are more specifically looking at what cuts the company can make to meet aggressive financial goals it promised when trying to rebuff a now-defunct takeover bid by Microsoft (MSFT).

Of course, this does bring into question what happened to that last top-to-bottom assessment of Yahoo’s business, which was used to show investors why it was worth so much more than Microsoft had offered.

In its presentation (see one slide from it below; click on it to make it larger), which was made public in March, Yahoo said it aimed to aggressively grow its operating cash flow from $1.9 billion to $3.7 billion in the next three years and grow its revenue to $8.8 billion by 2010.

Both were substantially higher than Wall Street estimates.

Nonetheless, stressing its much-touted “starting point” and “must buy” strategies, Yahoo said in its presentation: “We believe our growth and profitability prospects are not fully appreciated by the public market.”

That still has not happened, as Yahoo shares have stubbornly stayed at about $20 a share for a while now, with no Microsoft offer on the landscape and ongoing worries about Yahoo’s ability to execute on these lofty financial goals.

Now, after the annual meeting is over and its management entrenched, despite continued shareholder ire, Yahoo’s Yang and President Sue Decker have almost no room for error.

Thus, as Yahoo faces economic headwinds, sources within the company said that cost cuts in a range of arenas across the board–such as in its media and mobile properties–are being considered to make the numbers promised.

“Yahoo barely made its second-quarter numbers and there is a definite ad recession now,” said one source. “So now we have to once again rethink everything to deliver what we said we would, and the only way to do that is through cost cuts.”

That’s a fair assessment of what probably has to happen, presumably via Aikido and Judo.

Interestingly, Aikido roughly translates to the “way of harmonious spirit” and focuses on a person defending against, while also trying to protect, the attacker by redirecting the energy of the attack itself.

And Judo, often called the “gentle way,” is more competitive, aimed at immobilizing opponents by throwing them to the ground via a variety of moves and then holding them there.

It would be nice of Yahoo’s business prospects were as easy as all that.

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