Author Archives: Ken Goldstein

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The Ins and Outs of Yahoo!

Shortly after it was announced that Yahoo CEO Carol Bartz was departing, the always funny Andy Borowitz tweeted:

“The CEO of Yahoo just resigned. I had never heard of her so I Googled her.”

What makes any great comic funny is the truth underlying a punchline.  I wonder if Andy knew just how close he got on this one, which was reported by the Los Angeles Times.  What Andy points to in far fewer words than I will use is precisely the problem of what went wrong at Yahoo.  Yahoo was one of the three great search engines still standing on the web as late as 2009, in fact it was #2 behind Google and ahead of Bing (a.k.a. Microsoft).  Search was in Yahoo’s DNA, it was a core competency, Yahoo was very good at Search and a tremendous amount of self-selected traffic still flowed through Yahoo Search (Microsoft noticed this, too).

Remember that Yahoo bought Overture in 2003, the pioneer of text-link keyword advertising, and honed paid search advertising as mainstream before Google took it to perfection.  Remember also that Yahoo helped put Google on the map when for a long period of time it outsourced Search to Google in exchange for “Powered By” credit and revenue sharing — a business development deal it later regretted because that little “Powered By” logo pretty much put the Google brand on the global map.  At the end of that deal in 2004, Yahoo took Search back and went on to be a respectable competitor to Google.  Sure its Panama search ad buying system upgrade was a little late to market, but it was also very good.

I have great misgivings about the notion of Monday morning quarterbacking any fellow CEO’s performance, since no one on the outside of any problem ever has enough detail or information to make a well-reasoned assessment of someone else’s decision-making. In the case of Yahoo, I offer this personal observation only for the lessons that I believe need to be evangelized.

Early in her tenure, Carol Bartz made a decision to outsource Search and the text ad auction platform to Microsoft. Her rationale seemed to make sense in the savings she would achieve, but that presumed there was no growth left in Search, which had become dominated by Google to the tune of 65% market share, the remaining share going to Yahoo and Bing.  We all know that Microsoft was spending heavily to gain share, up to and including offering to buy Yahoo for more than $44B.  This post is not about that decision, nor does it have anything to do with the circumstances or theatrics of Bartz’s departure.  It has to do with one and only one thing, my own opinion that the decision for Yahoo to exit Search was not a good decision.  Here is why:

In any company, you strike a balance between what you build and what you buy.  Every senior executive and management team struggles with this every day.  No company — not one of the Fortune 500 companies, not the one person startup in your garage — has all the resources to do everything it wants to do or needs to do.  Management must make tradeoffs, sometimes hourly.  Talent is not unlimited, access to capital is not unlimited, time is anything but unlimited.  Management has to decide what it will build and what it will buy.  Will a company hire talent, buy another company, or outsource a task?  These questions never go away, thus management always needs a framework for making these decisions without guesswork or emotion.  Here in a nutshell is that framework:

You in-source that which is strategic — that which is vital and essential and defining to a company’s success in the landscape of its peers.

You outsource that which is tactical — that which is non-essential to the company’s definition in its chosen competitive space

Let’ start with the basics: an intellectual property company — whether technology based, media based, or design based — is a creative company.  That means success begins with an assessment of one’s unique core competency, and that informs leadership through product strategy, not structural adjustment.  Applying unique core competency to product vision drives innovation, forcing a company to determine how it will always be as good as or better than its peer group or competitive circle.   Creative destruction — the continual reinvention of a product or service through ceaseless innovation — begins with the decision not to position one’s output as a commodity, where price rather than differentiation calls the shots.

When Steve Jobs returned to Apple in 1997, he applied a product vision to absolutely embrace the internet through leapfrog design, which was exactly the right move at the right time.  When Eisner and Wells took over management at Disney in 1984 when it was on the verge of a breakup, they applied a product vision to reinvent the company’s product lines through best in class storytelling, merchandising, and delivery mechanisms.  When Jack Welch took over General Electric in 1981 and decided he wanted to exit small appliances, he applied a product vision to become a market leader in industry leading medical equipment and aircraft engines.  In all three cases, it was product strategy — knowing what to keep, knowing what to dump, and knowing what to pioneer — that led to unparalleled success.  They did not outsource their winning moves, they owned them.

The turnaround at Yahoo after the refusal of the Microsoft buyout offer was positioned broadly as structural adjustment.  I am sure there were inefficiencies at Yahoo like there are in any big company, but if you solved all those and added no product vision, it really didn’t matter what you solved.  You would have a more efficient machine that produced less visionary work.  That is not a growth company with promise.  It is a factory.  A factory is not a creative company, it is a factory.

For any “portal” platform, Search is not tactical, it is strategic.  I have heard the argument against this for ten years and it just wrong.  How do I know that?  Look at Google.  Search is their core competency, it is their DNA.  So if Search is strategic for Google and you are competing against them, then how is it tactical?  You may choose to decide you can’t compete with them, which is fine, but if Yahoo was not competing with Google, then who was their competition?  Content companies with big editorial and production costs?  Ad networks?  Telecom?  The problem for the Yahoo employees has been that they were never sure, and the company’s valuation is a reflection of that ambiguity.

Imagine that instead of agreeing to the Microsoft partnership, Yahoo had fought with every fiber of its creativity and gained 3 or 4 points of market share from Google on product respect recognized by the public.  Imagine instead of the mass media branding campaign they did two years ago if they had put all of that money into engineering talent and led a battle cry inside the company to take Search share from Google by improving their algorithms, relevancy correlations, and keyword auction technology while mobile was still nascent.  Would the street have valued that commitment and its promise over the one time benefit of cost cutting and the ten-year forecast baked into their financials of the low delta Microsoft contribution?  Would the employees have given everything they had for the pride of winning, not to mention the potential payoff in their stock options?  Was the Search game so over in 2009, just 15 years into the commercial internet, that walking away from Search when you were still positioned as a top 3 player made sense?

And if you were going to exit Search, where was the company’s core creative focus to be redirected?  Long ago, Tandy got out of leather goods to become Radio Shack, a bold move for its time, but one with a rallying cry.  Yahoo got out of Search, so that people today ask, “What is Yahoo?”

Simple lessons replayed:

In-source that which is strategic, outsource that which is tactical. 

If you exit a strategic line of business, you better have a better one to champion as its replacement. 

A technology company is a creative company.

Creative people have a dire need to build that which is great.  That is what they do.  That is how innovation happens.  Creative destruction is how value creation in legendary companies is sustained.

Yahoo may or may not address this on the rebound, but all of us should take the opportunity to ditch the hyperbole and internalize the basics of identifying and sustaining core competencies that are lasting and cherished.  A brand is a promise.  That promise is delivered not by what you rent, but by what you own.

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Is Other People’s Money Different?

Buried among last week’s headlines—that included a nation embarrassing spat between the President and the Speaker of the House over what day our President could address a joint session of Congress and The People—was this gem found among other reports on Thursday Page 3 of the Wall Street Journal (Nathan Hodge, 9/1/11):

The Commission on Wartime Contracting in Iraq and Afghanistan, established by Congress in 2008, unveiled a final report Wednesday that represents the most comprehensive assessment to date of how the U.S. government has managed the more than $206 billion it is projected to spend on contracting in both wars through the end of fiscal 2011.

The findings, first reported by the Wall Street Journal in July, point to what the panel describes as a pattern of waste, fraud and abuse that has cost taxpayers dearly and at times undermined U.S. foreign-policy objectives.

The report includes a copy of an extortion letter sent by Afghan insurgents to a contractor working on a U.S. government-funded construction project in Afghanistan. It also details many instances of projects the panel says were poorly conceived, badly executed and, in the long-term, impossible to sustain without more U.S. or foreign funds.

The commission’s findings were based on hearings in Washington, staff research and a series of fact-finding trips to both Iraq and Afghanistan.

Michael Thibault, one of the bipartisan panel’s co-chairs, said the commission found wasteful spending amounted to between 10% and 20% of total contract and grant spending. Fraud, he added, has ranged between 5% and 9% of contract totals.

Let’s extract a few of the more choice words from this excerpt:

Waste. Fraud. Abuse. Poorly conceived. Badly executed. Cost the taxpayers dearly.

Transforming War CostsI haven’t heard one person mention this in conversation. Other than in perfunctory reports, I’ve heard no outrage or rebellion. According to the Final Report to Congress, Transforming Wartime Contracting (August 2011) Executive Summary Page 5: “The Commission’s conservative estimate of waste and fraud ranges from $31 billion to $60 billion based on contract spending from FY 2002 projected through the end of FY 2011.” That’s not less than $30 billion—and possibly twice that much—of our money spent on stuff that it didn’t have to be spent on, for the same outcome. If you paid tax last year, some of that was your money. Willing to let that sail on? I’m not.

I still have wrenching memories from the 1980s of the government audit that revealed we were paying $500 for toilet seats. It was shocking, and never meant to have a command performance. I also know that profiteering in our nation is illegal, but perhaps we don’t have the resources to investigate and prosecute those kinds of abuses any longer. Legal fees are expensive—no sense throwing bad money after bad, right?

I also know that much of the money we use to pay these invoices is borrowed. Not only are we getting fleeced on value, we are paying interest on it to boot, and interest on the interest, because I can’t see a way the accumulated balance gets paid down in our lifetime. If a CEO allows his company to send our government a bill that smacks of fraud or abuse, I really do wonder what he is thinking when he sings the national anthem and stares at the flag in his hometown stadium. If the law and his conscience don’t get him, is he still a patriot as long as he sings the Star Spangled Banner in or out of key? He is not.

For a few thoughtful milliseconds, I want you to pretend you are responsible for 0.01% of that amount in your job ($20.6 million) and it is reported in your hometown newspaper that the public company you work for wasted that money on nothing whatsoever. Your boss calls you in and the conversation goes something like this:

Boss: It’s good to see you today.

You: Thank you, boss. Always good to be called into your office.

Boss: Hey, I need to ask you something. Seems the local newspaper—that printed thing in the machines by the gas station that take quarters—says we lit up $26 million of our shareholders’ money with a blazing torch and got nothing for it. The CEO can’t believe that’s true, and traced it back to our department. So a quick question—did it happen?

You: Well, to be honest, yes, it did, boss.

Boss: I appreciate your candor. Can you tell me why?

You: Not really. I guess I screwed up. I’ll try to do better. None of us are perfect, right?

Boss: Right, none of us are perfect. Some of us don’t watch money closely enough. Some of us make poor hiring decisions. It happens.

You: Am I in trouble, boss?

Boss: Trouble, for absent-mindedly destroying $26 million of Other People’s Money? I shouldn’t think so. You didn’t take any of it, did you?

You: Not a chance, boss. You know I would never do that.

Boss: Know is a pretty strong summation, but I am confident enough it can’t be proven. Hey, another question. When your counterpart at the company where we burned this money sent you the contract, is it possible he committed any possible act of deception?

You: Deception, gee, that’s a hard one. You know, I don’t really know. The thing about fraud is, if it’s committed well, you don’t even know it occurred. So how would I know?

Boss: Exactly, if you are duped, the other fellow is in the wrong. You had no reason not to trust him, so how could it be your fault?

You: So I still have a job, boss?

Boss: As do I. Our investigation is complete. I will report as much to the CEO.

You: Gosh, I felt really bad when I came in here. You are such a supportive boss. I feel so much better,

Boss: As do I, we are in this together. Do try to be more careful with Other People’s Money where you can. And always remember, candor is your friend.

You: Thank you, boss. You’re the best!

For an abundance of clarity, that wouldn’t fly in any legitimate enterprise.

From time to time, you may hear the expression OPM, as in Other People’s Money, as if somehow that is different from your money. If you treat Other People’s Money differently from how you would treat your own money, there is something wrong with you for allowing yourself the permission to do that, and there is something wrong with them for empowering you to do it.

Whenever you are in control of a business budget, you are being trusted to manage OPM. There is only one way I know how to do that: treat it as if it is your own. Nothing else can be justified, nothing else can be defended. Ask yourself on every allocation that can be tracked back to you: if this were my money, would I say yes? If the answer is honestly yes, you are acting in the best interests of those to whom the money belongs. If the answer is no, then ask yourself why you are saying yes, before someone else does. Your boss is likely to be a lot less understanding than the one depicted above, unless of course he is part of the problem— in which case, get out quickly! Life is much too short to be part of anything you cannot proudly explain.

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Thoughts About Steve

Steve Jobs 1955- 2011Everyone who has worked around technology the past few decades has a Steve Jobs story. Some have observed Jobs at a distance and felt the impact of his creativity and decisiveness, others have worked with him directly and more explicitly experienced his creativity and decisiveness. No meeting with Jobs is forgettable. Most meetings with him begin with a non-disclosure agreement, and since no one is quite sure of the statute of limitations he expects, I shall tread carefully through this post while still sharing some of my own observations.

So much has been said and written about Steve Jobs in the past week it is almost daunting to try to add to the collection without being redundant. In a recent profile on CNBC Titans, Jobs was portrayed in a balanced manner, fully celebrated as the Thomas Edison of our time, of course not without a few bumps in his long and winding road, personal and professional. The day after the announcement that Jobs would no longer be CEO of Apple, Walt Mossberg in the Wall Street Journal expertly assessed the legacy of Steve Jobs as someone who changed the way we live. Coverage and analysis have poured onto the web from professional and citizen journalists, the very volume of which speaks to the somewhat incomparable significance of his contributions.

My personal experiences with Jobs were mostly tied to the launch of the iMac, right after he returned to Apple in 1997. We had just launched a games label at Broderbund Software called Red Orb Entertainment, and Jobs invited us to be part of his new beginning. Riven: The Sequel to Myst, developed by Cyan Worlds, and The Journeyman Project 3: Legacy of Time, developed by Presto Studios, were both largely created on Macs by Mac devotees, so it was easy and natural for us to get onboard. Everything Jobs promised us happened, from the billboards to the print ads to inviting Cyan President Rand Miller to share in the keynote at the Macworld Expo. The iMac was unique, Jobs’s vision was unique, and he wanted unique products to be associated with its beauty. That was the beginning of Apple’s resurgence, and it was magical.

What was most impressive about the return of Jobs was how quickly he brought the core values back to the company that seemed to have evaporated with his initial departure. Meetings at Apple in the non-Jobs years had become, to say the least, painful. Apple had forgotten what was special about it, that its publishers and developers were a unique bunch, and that fully democratizing the Apple universe would serve no one customer well if the core values of Apple were not embraced. Upon Jobs’s return, those core values returned in real-time and included with stunning mandate:

• Intuitive user interface is not optional. If a customer needs a manual, something is wrong. I remember when we received very first prototype iPod, no one in the house knew what it was, but within five minutes of it landing on our doorstep we had it synched and working with iTunes. How much more intuitive does it get than getting a new high-end gadget that never previously existed and have it working flawlessly without instructions?

• Innovation is meant to leapfrog entrenched competitors. The iPod wasn’t a better MP3 player, it was a new vision of how music could be enjoyed. The iPhone wasn’t a better cell phone, it was a lifestyle device that put a computer in your pocket. The iPad wasn’t a better tablet, it was an all media delivery system that is light, fast, simple, and elegant. If Jobs was going to make incremental change, it would be on later versions of his own products. The products he introduced to market were to be leapfrog inventions.

• Think Different is much more than an advertising campaign. Think Different is an intellectual construct that begins by defying grammar and doesn’t end until we have exhausted elimination of the ordinary. It is sometime said the difference between a cult and a religion is how long a movement lasts, and for many devotees, Think Different is something of a religion. It forces us to challenge ourselves to achieve the impossible, and then when we achieve it, make it look simple to everyone else.

When I worked at Disney, I remember well the weekend we had a staff preview at our new theme park in Anaheim, Disney’s California Adventure. Disney had not yet bought Pixar, that was years away, so the relationship between the companies was quite separate. One of the attractions at the new theme park was a whimsical movie about the history of California hosted by Whoopi Goldberg that delved into what made California unique. That attraction no longer exists, but what I remember most about it was the section on Jobs, largely painting him not only as part of California’s history, but our nation’s economic advancement. The portrait was magnificent, because his contribution to the world through the Silicon Valley miracle was magnificent. It was more than California, it was more than technology, he was settling the new frontier. What felt weird to me was that what I was seeing was indeed history, but it was happening now, current events, a real man and a real life changing the lives of all of us with each new idea and grand leap forward. I never got to meet Walt Disney or Henry Ford or Sam Walton, they were more icons to me than tangible people. Steve Jobs had become part of our lore while he was still young and his legacy was unfolding in our time.

Yet of all the emblematic impact of Steve Jobs, what resonates most with me is what he means to the notion of reinvention. Here is a guy who was driven out of the very company he founded by the very fellow he had invited to help him run it. Had he done nothing else after that event he would have forever been part of the Silicon Valley story. Then he founds another company, then Apple falls on almost unrecoverable hard times because it has lost its way and he returns, embracing that new-new thing called the Internet and helping chart its hockey-stick future. As a sideline, he buys a small computer graphics company from George Lucas and helps guide it to become one of the most successful entertainment production studios of all time.

Like so many others, I am trying hard not to write a tribute, but instead capture the spirit of what the contributions of Steve Jobs can mean to every one of us, whether or not a devotee. The point is that reinvention is possible no matter how hard we fall on our face, and that is a lesson always worth re-learning. Reinvention is not the stuff of storybook fables and pep talks, but the stuff of necessary and vital resilience. We need concrete examples to see that reinvention is possible, that lives and devices and ideas can be reinvented if we have the will and commitment to Think Different.

For me, that is the legacy of Steve Jobs. All that he has accomplished in a lifetime is astonishing, but like his very small peer group of great visionaries who have led our economy forward, it is the abstract notion of reinvention that I see and feel whenever he is present, nearby, referenced, or invoked. No matter how many English teachers correct us, I hope we will never stop saying the words Think Different, attributing them appropriately, and giving all we can to reinvent the legacy.

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CliffsNotes as Long Form

Neal Gabler always makes me think; last week he made me think a little harder.  His op-ed piece in the New York Times on August 13, 2011 “The Elusive Big Idea” (which I added to the Corporate Intelligence Radio Library) caused me once again to reflect on our spiritual respect for the technological achievements that too commonly enter our lives without enough awe.  Thousands of years of civilization and learning have taken us through The Renaissance, The Industrial Revolution, and now Digital Transformation, putting on our desks and in our hands more MIPS (millions of instructions per second) than humanity ever could have envisioned just a half century ago, with Moore’s Law in little jeopardy of compromise anytime soon.  And the question remains: what are we doing with it?

Gabler is a prolific author and senior fellow at the Annenberg Norman Lear Center at USC who suggests in his recent essay that in this post-Enlightenment Age, we may for the first time be going backward intellectually, and that as “information narcissists,” we are allowing our brain cycles to be consumed by endless temporal factoids at the cost of more thoughtful inquiry.  I can’t do a better job of making the point than Gabler, so I invite you to read the full piece which is linked above, but his concern stems from the impact of the parade of dribbling tidbits from the internet that distract us from the harder work of digesting and discussing what were previously known to us as Big Ideas, the most recent of which were summarized in The Atlantic and didn’t seem so big to Gabler (me either!).  We store and remember these media snacks for their brief life cycles, failing to reserve more extensive internal processing power for the ambiguous and abstract.

Since I have spent almost my entire career as part of the problem and never the solution it would be hard for me to get on this bandwagon without impeaching a life’s work, but I have to say, I am sympathetic to Gabler’s critique.  I remember well our teachers’ fears when we were growing up, watching and memorizing ceaseless half hour episodes of Gilligan’s Island and The Brady Bunch, that our fragile attention spans were being decimated by the power of television.  Every sitcom with its full 22 minutes of content has a beginning, middle and end, it tells a story with resolution that is mostly satisfying and even has three laughs per script page.  Prior to that you’d need an hour of dramatic TV for story, prior to that a 2 hour movie, prior to that a 3 to 4 hour stage play, and prior to that a novel that might be as brief as Huck Finn but could be as long as Moby Dick.  Indeed, our generation was the beneficiary of staggering efficiency.  We welcomed those little yellow books then called Cliff’s Notes covering a novel with about 90% compacting — but then again, that still left a thirty or so page pamphlet that had to be read.  The second year I was in college something crawled out of cable called MTV, and that took storytelling down to just about three minutes, even more efficiency, and many of these micro video operas were created by TV commercial directors, who could tell a story in 30 seconds.  When YouTube gets the job done in under 8 seconds, I say that’s nice, but that was the easy part of the optimization, that just knocked out the last 22 seconds, the hard work of leaving Herman Melville in the dust was already diced and strained long ago.

How about that, an entire moral tale bypassing hundreds of reading pages, fully consumable in 22 minutes with two breaks for bathroom and pantry runs — O Brave New World (that’s a line from The Tempest, which is a play that was written by Shakespeare, who was a kinda like Steven Spielberg, back when Queen Elizabeth I would have had her mobile tapped if phones had been invented)!  So if our attention spans are now down to 140 characters because that’s the Twitter standard adopted from mobile texting, how do we keep “longer forms” viable and where do we get into trouble when we don’t?  I don’t have a solution anymore than Gabler does, because efficiency really is attractive for anyone who does not know what they are missing in the nuances of polysyllabic adjectives and adverbs, but I do worry about the ramifications.  Because so many stories are now reported in sound bites, those featured in stories have learned to communicate with directed outcomes in sound bites.  I am not too worried about this for entertainment purposes, if someone enjoys an 8 second tree squirrel ballet on YouTube and doesn’t wish to sit through The Mahabharata, I see it as their loss, but the sun will come out tomorrow.  Eventually all culture could be destroyed, but after a few generations no one will remember.

What I do worry about is news and government leadership.  Currently we seem satisfied to be internalizing critical issues in sound bites, and that is why we are being treated like idiots by our incumbent and aspiring leaders.  They are taking for granted that we don’t have the patience to get in the weeds, so they are feeding us unsprouted seed fragments.  They are failing at devising levels of substance because it is not required of them, we are accepting their failure, and the cycle repeats.  We must make this stop.

The first decisive media sound bite I can remember was the Ronald Reagan game winning “There you go again” to Jimmy Carter in their 1980 debate, halting then President Carter from launching back into a long form malaise of more pedantic matters.  I sense that much of Reagan’s future success was defined real-time in that smack down, and we learned to like him for style whether or not he followed through with substance.  It seemed quite unscripted and endearing, and it worked.  Today we listen to endlessly planned runs at sound bites, poor imitators of extemporaneous reduction, not even extracting them from context because they are context.  We must make this stop.

How can we obstruct the content obstructionists?  Again, Gabler is much more eloquent on the problem than I am, but I fear neither of us has a good solution.  Here is what I can tell you — gadgets and efficiencies are going to continue to accelerate, and even if we could break free of needing to interpret consequential texts and tweets and posts, our kids are in it for the short haul.  All I can suggest is that we do everything we can to teach them an appreciation for reading, help them to understand that multitasking while useful is the antithesis of focus, and lead by example by not letting any leader off the hook with a chorus of sound bites and no carefully composed libretto.  The information is there if we want to read it or hear it or debate it, more than has ever been available is now being ignored, but we have to be willing to invest the time.  Just like you won’t accept second-rate technology, stop accepting second-rate garbage in the form of info morsels where substance is required.

Feel free to still enjoy YouTube and reruns of Gilligan’s Island.  Society will survive the culture shock, but where brevity is meant to mask laziness among issues that are critical to our sustenance, that has to be called out.