Yahoo!’s (NASDAQ: YHOO) new CEO, Marissa Mayer, worked at Google (NASDAQ: GOOG). So did AOL (NYSE: AOL) CEO Tim Armstrong, who took up the reins there in 2009. Mayer may want to take some pages from Armstrong’s playbook. After a slow start, Armstrong and his coworkers have pushed AOL’s share price up more than 150% in less than a year. And the actions AOL took were relatively simple.
The most basic action Armstrong took was to sell some AOL assets. He off-loaded about 800 patents to Microsoft (NASDAQ: MSFT) for just over $1 billion, and then promised he would return most of the money to shareholders. Yahoo! holds assets worth far more — a large stake in China e-commerce company Alibaba and a minority interest in Yahoo! Japan. Management and Yahoo!’s board have stumbled as they have tried to make money on those assets, which by some measures are worth more than $10 billion. Yahoo! only has $1.5 billion in cash now. Recent rumors are that Yahoo! has come close to disposing of those assets, which would balloon its balance sheet and cheer shareholders.
Armstrong also eliminated a large number of brands and bought the Huffington Post for $315 million. The jury remains out on whether HuffPo, which has added millions of dollars in new costs (mostly for journalists), will ever earn a return. Armstrong’s gamble on the content website may turn out to have been too risky. Even as a long shot, the highly visible Huffington Post content has at least a chance to bring in and hold major marketers.
Armstrong also has pushed to find value in the company’s instant messaging and e-mail platforms. Yahoo! has similar products with millions of users. Attempts to make substantial money from these assets have failed for Yahoo! and AOL, just as they have for MSN and Google. If one of the four companies finds a key for the lock, the others at least have an example to follow.
Yahoo! has a large staple of brands, like AOL had. Mayer mentioned to the Financial Times that she will focus on a few. She told the U.K.-based paper that she plans “really innovating in some of the verticals like finance, sports, video and messenger.” AOL has done much the same with the brands that have been most successful in its recent past, although whether the strategy will be successful remains to be seen. Yahoo!’s management understands that video brands are most profitable. Its alliance with ABC shows that. Whether AOL and Yahoo! can get large enough audiences in the online video business to draw high-priced ad campaigns in a sector that is dominated by Google’s YouTube is another initiative with a future of that is impossible to determine. At least each portal has put itself in a position to capitalize on the possibility of an increase in video content.
Armstrong does have one thing Mayer does not. Wall St.views AOL’s local initiative as a boat anchor that pulls down earnings. By most estimates, the cost of Patch was more than $100 million a year. Critics believe the enterprise will never make money. Should AOL shutter it, the company’s stock is bound to rise further. Mayer does not have a similar asset that investors dislike. There is nothing of substance she can shutter to gain the pleasure of the investors who own Yahoo! stock.
And, finally, Mayer still has to make a repair that has been difficult for AOL to make. Each company has lost much of its market share in display advertising. This trend may be irreversible, which means the companies will need to get more for each ad they run. The price of advertising on the Internet has trended down, which creates a barrier for Yahoo! and AOL as they try to increase sales.
If there is a message from AOL for Mayer, it is that the sale of unneeded or unwanted assets has a tremendous value for shareholders. Beyond that, she has problems very like those Armstrong faces. And those will take longer and will be a greater challenge to fix. In the meantime, a culling of operations is likely to be at the core of future plans, because it is probably the only strategy that might work.
Douglas A. McIntyre
24/7 Wall St. supplies content to AOL and Yahoo!, among other online companies.