Mayer follows a long list of people trying to make sense of what was a true Internet search and portal pioneer that has turned into a party joke: Terry Semel, Jerry Yang, Carol Bartz, and Scott Thompson had their runs (does Ross Levinsohn count?), and all left stymied by their attempts at a turnaround.
Why? Simple. It is, to paraphrase Billy Hoyle in White Men Can’t Jump, “hard work trying to make something so ugly look so pretty.”
In fact, to my mind there are only three real turnaround stories over the last 30 years, and Mayer would do well to study them closely:
IBM (NYSE:IBM) is arguably on the Mount Rushmore of American companies. But it got old, a little stodgy and mastodon-big, and lost its way. By 1994, IBM was on the verge of extinction after losing $16 billion dollars and having exactly 100 days worth of cash on hand.
Lou Gerstner took over, cut expenses, sold off assets to raise cash and focused the company with laser intensity on the idea of marrying technology expertise with a new model of services and consulting. It’s worked out very well for everyone at this point, what with IBM stock up around $184 per share, inventions like the supercomputer Watson shaping the future and a forward-thinking board putting Ginny Rommety in the driver’s seat.
Apple (NASDAQ:AAPL) is another turnaround gem. Co-founded by the late Steve Jobs, Apple became a brand name in the late 1970s and early 80s with lots of upside potential. Jobs made perhaps the only big mistake in his business career by luring PepsiCo (NYSE:PEP) executive John Scully with the famous line “Do you want to spend the rest of your life selling sugared water, or do you want a chance to change the world?”
Instead of the world, Scully changed Apple. Its share of the computer market went from 15% in 1985 to 4% in 2005, the company lost $700 million in one quarter of 1997 and the share price languished.
Apple’s board begged Jobs to come back (in his spare time he founded NeXT Computer), and he leveraged the Apple image and a fanatical base of believers with a vision to innovate, innovate and innovate. Apple is now the most valuable company in the U.S.
Ford (NYSE:F) was probably also on the Mount Rushmore of business, but an industry plague that forced Detroit automakers Chrysler and GM (NYSE:GM) to seek government help pushed Ford to the brink in 2008 when the stock price was under $1 per share.
Bloated pension costs, an expensive legacy health care plan, high gas prices, lower sales and shrinking margins put the company on the edge, although it refused government assistance.
Ford found a savior in Boeing’s (NYSE:BA) Alan Mulally, who cut the workforce by one-third, reworked a massive debt burden, sold off luxury brands to raise cash and introduced new product lines that caught the public’s imagination.
After 11 straight profitable quarters, a reinstated dividend and a stock price that has a base, it’s time to say “well done.”
Running Out of Time
So, yes, turnarounds are real, but they aren’t for the squeamish, the meek or anyone who believes they happen overnight.
The good news is Yahoo still has 700 million monthly users, a profitable model that manages to throw off just about $1 billion in income a year, $2 billion in cash and $1 billion in cash flow. Yahoo is neither near insolvent, bankrupt or debt-burdened
The problem is that in an industry that moves at a lightning pace and in a system that demands quarterly, if not monthly, results, time isn’t on Yahoo’s side.
The company was late to the table in social networking and mobile device applications, and it’s losing ground in the online ad sweepstakes. According to The New York Times, Facebook (NASDAQ:FB) and Google respectively own 16.8% and 16.5% shares of the online display ad market in the U.S., with Yahoo now at 9.1%. That’s less than half its 18.4% share in 2008. Continuous cost-cutting won’t replace lost revenue at a quick enough pace to satisfy shareholders.
Gerstner, Jobs (for a second time), and Mulally all managed to find their brand and remarket it to the masses while fixing the culture and balance sheet. Mayer may have to do only one of those well. If she does, put her on the Mount Rushmore of business.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he is long AAPL.