Why Yahoo's Jerry Yang stepped down

His performance showed that not every start-up whiz can be a turnaround CEO.

By , Staff writer of The Christian Science Monitor

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    Start-up guy? Yahoo cofounder and chief executive officer Jerry Yang at a press conference Nov. 12 in central London.
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The rise and fall of Jerry Yang, the departing CEO of Yahoo, captured the imagination of an industry built on just such meteoric climbs and merciless tumbles.

Just 17 months ago, Mr. Yang got a rare second chance as a cofounder of a start-up to take charge again of his creation in its hour of need. For some techies in Silicon Valley, the moment represented a pleasing break from the outside "suits" and "grown-ups" who invariably take over maturing start-ups at the cost of scrappy innovation. It held out the promise of mirroring another triumphant second act, that of Steve Jobs at Apple.

But any honeymoon in the Valley for Yang ended quickly. He came under withering criticism for his handling of a Microsoft takeover, then for losing a partnership with Google. By the time Yang's step-down was announced Monday the only surprise seemed to be that it took the board of directors so long to act.

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Wall Street rewarded the move Tuesday, with Yahoo shares rising 11 percent to $11.82 as of press time. Investors apparently felt prospects for a Microsoft buyout have brightened – a point which divides analysts. Despite the darkening horizon for online advertising in a slowdown, many agree the company has plenty of strength left, provided the right leader can be tapped next.

Yang didn't seem to be what Yahoo needed now: A founder's strengths differ from those of a turnaround CEO, analysts say. Few excel at both: Steve Jobs may just be that rare exception.

"There are three different skill-sets needed to run a company," says Rob Enderle, principal analyst at Emerging Personal Technologies in San Jose, Calif. There are start-up leaders, transitional leaders, and sustaining managers. "Jerry was a start-up guy. He wasn't a transitional [figure] and certainly not a turnaround guy. He didn't have the demeanor, personality, or drive."

Not another Steve Jobs

Unlike Yang, who settled fairly early into a strategist role in Yahoo, Mr. Jobs was fired from Apple and spent time heading a couple of firms – NeXT and Pixar – before returning. He experienced "near failure" with both endeavors and learned from those mistakes, says Mr. Enderle. Jobs also had years on the outside to plot what he would do differently at Apple if he ever returned.

Yang is widely described as affable, whereas Jobs can inspire fear. "He is a harsh and dictatorial leader," says Enderle. "That's kind of what you need to have with somebody who is running a turnaround. Once you decide the direction you need to go, everyone needs to stand up and go with you."

Another difference: Yang seemed to cling to visions of Yahoo as it was in its heyday, whereas Jobs decided to upend the Apple cart.

"Jobs' success at Apple has been predicated on his willingness to utterly discard what the company was before, during the time when his star was in ascendancy," says Charles King, principal analyst at Pund-IT. Once an also-ran competitor to Windows, Apple is now a consumer electronics company that has scrubbed "computer" from its moniker. "I think Yang was in a way trying to recapture some of Yahoo's glory days."

The failed Microsoft deal

Most observers fault Yang for his failed negotiations with Microsoft. The Seattle software giant placed multiple bids to acquire Yahoo, hoping to emerge in a more competitive position vis-à-vis Google in the online advertising market.

"[Yang] kept saying we should get more money, we should get more money, and [he was] not realizing how precarious their position was," says Enderle.

Others have attributed that blind spot to the founder's sentimental and dated view of Yahoo as a fast-rising company. Yang's negotiating behavior at times suggested he wasn't interested in bargaining as much as playing the role of renegade start-up. Yahoo executives reportedly high-fived when negotiations collapsed.

Investors, led by now-board member Carl Icahn, reminded Yang of his fiduciary responsibility to them to maximize returns. They pressured Yang to show how he would raise the company's falling stock price to the level offered by Microsoft.

Yang then struck a deal with Google to allow the industry leader to serve ads on Yahoo's network in exchange for a share of revenue. When anti-trust regulators began to raise eyebrows, Google backed out. Yang's critics fault him for not trying harder to salvage that deal.

Both Enderle and Mr. King doubt Microsoft will return for a deal. Members of the team pushing for the takeover have left Microsoft, says Enderle. Adds King, "My own sense is they've moved on and there are other things on the table, other plans they've got. But never say never in the IT world."

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