By the end of Wednesday, Wall Street had rendered its verdict on Yahoo's new CEO: The company's share price dropped 3.1%, and at least one respected analyst said he was downgrading his recommendation from Buy to Hold.
Wall Street was unhappy for several reasons. It had been hoping the company would be sold, so investors could get some money out of their shares. But now it looks like that won't be the case. So given that new reality, Wall Street would have liked Yahoo to at least select someone with media or turnaround experience. But it went 0 for 2 on those counts as well. Scott Thompson, until now PayPal's president (pictured right), has neither.
Instead, Thompson, is an ex-CTO who has now been hired to lead a company that has purportedly declared it is no longer a technology company. And while Thompson has a stellar record of building on top of a company that was already working well (he boosted PayPal's user base to 100 million and has set it up to bring in as much as $13 billion in 2013), Thompson has yet to prove that he can take a struggling company like Yahoo and make it work.
And yet, despite all that, there are a few reasons to give Thompson a chance:
Yahoo Might Not Actually Need As Much Of A Turnaround As People Think
Yahoo has come across as a veritable train wreck for the last few years. The lack of meaningful improvements on the company's front end have led many to believe that Yahoo is out of ideas. But the lack of movement on the customer-facing side has been largely due to the fact that the company backburned those while it retrofits the back end. Under the hood, Yahoo used to be a balkanized mess of individual sites that made it impossible to deploy enhancements across the entire Yahoo universe with any kind of ease or efficiency.
So the company has spent the last year and a half or so fixing that—rearchitecting so the company's sites all operate on more or less the same infrastructure. That project was only completed toward the end of last year. With the cleanup behind them, now when the company wants to institute something new, it can roll it out with the metaphorical flick of a switch. That's why, for example, it was able to roll out its new Facebook integrations globally in December, just three months after it first started trying them out on U.S. sites.
Meanwhile, Yahoo teams have been busy developing new offerings, like its IntoNow iPad app. And now that the back end has been tidied up, we might actually see the company start rolling out more front-end offerings that will, in fact, revolutionize the way content is delivered and consumed.
If that's the case, if Yahoo actually does have a viable roadmap, then the company won't so much need someone who can turn it around as someone who can execute flawlessly, which is, in fact, what Thompson has proven himself to be skilled at doing.
Yahoo Might Not Need A Media Guy
Some of Wednesday's grumbling centered around the fact that Yahoo has positioned itself as a media company, and Thompson has no media experience. Before leading PayPal, he was that unit's CTO. And before that he was CTO at a Visa division. And before that at a Barclays unit. So what, Wall Street was wondering, can a guy with consummate experience in payments and financial services bring to a media company?
Perhaps not a whole lot of domain expertise. But then, Yahoo tried that once before. Remember Terry Semel, the former head of Warner Brothers who brought with him a trunk-load of conventional notions of how media and entertainment should work—and then failed miserably when he tried to slap them onto the emerging digital world? Yahoo doesn't need to do that again. It doesn't need to bring in someone with a depth of experience in an industry that is undergoing radical change, someone who is so far inside the box they can't see how it doesn't work in the new world.
Instead, they need folks like IntoNow founder Adam Cahan, who stepped outside the box and came up with some crazy new ideas about how people might like to discover and consume media. And then give those guys their heads and see what wild ideas they come up with. And once those Young Turks have traveled out to the far edges of the known universe and brought back news of what the future looks like, then you can bring in an experienced hand like Thompson to help decide what's worth doubling down on, and how to make it work at scale.
Meanwhile, on the advertising side, Thompson will certainly have to get up to speed. But he has strong lieutenants, like Ross Levinsohn, Yahoo's executive vice president of the Americas, at his side. And so the situation is perhaps not as dire as it might initially seem.
In a call with investors on Wednesday, Thompson said "data" will be key to Yahoo's future success. "My instinct says that down in that data we will find ways to compete and innovate that the world hasn't seen yet."
Sure, that sounds like one of those Business Administration 101 answers that any good executive would reach for reflexively. But to believe that he's on to something, you first have to understand that Thompson is probably not talking about simple dashboard data, like advertising performance among different demographics. More likely he's talking about "big data"—the emerging field that lets people find game-changing insights in humongous data sets.
And humongous data sets Yahoo does indeed have. The company has 700 million users, of all ages, around the world. (Even Facebook isn't that far ahead—its latest public reports puts its user base at 800 million.) Every day, those 700 million souls log in to the Yahoo universe and start making their way around its sites, moving from story to story to story to story—effectively giving Yahoo a media mogul's dream: the largest petri dish in the world to understand what sorts of content appeal to which sorts of people and what sorts of things will make them likely to consume more and more.
The company has already used the insights it's garnered from this data—and the algorithms it's built on top of them—to nab one billion clicks a month on its home page alone. And now it's in the process of rolling those insights out to its other properties in an effort to similarly accelerate traffic there.
So what does this have to do with the new CEO? Thompson already has experience working with large data sets at PayPal. And he recently joined the board of Splunk, a new tech company that has figured out how to harness operational intelligence from massive amounts of data—in real time.
"At PayPal, we were able to create an unbelievably compelling business because we used data to understand risk and fraud better than anyone on earth," Thompson told AdAge on Wednesday. "I am more than 100 percent convinced that there is the same opportunity in the data that is the core of Yahoo's business. I don't know exactly what that is right now, but I am certain that the battle of the next generation of Internet businesses will be made up of who has more data and who knows how to use it better than anyone else."
And if he's right, and if he is indeed able to extract game-changing insights from Yahoo's ever-burgeoning reams of data, he might yet unlock some secrets that turn Yahoo from has-been into media pioneer.
The Bottom Line
There are still many reasons why Yahoo might nevertheless sink like the proverbial lead zepplin. The company might yet be more of a mess than even someone like Thompson can make right. And certainly, Wall Street's just going to have to sit tight, at least for now. But still, there's no need to give up on the company just yet. It's worth giving Thompson a shot. He may yet surprise us all.