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Yahoo Needs a New Technology

New CEO Marissa Mayer will have to define something Yahoo can excel at.

Marissa Mayer has the sparkle of her former employer, Google, but starting out this week as Yahoo’s newest CEO—its fifth in three years, technically—she faces the same problem that beset her predecessors: What do you do with a company that still makes plenty of money off of a huge online audience but has no technological edge?

New ideas: Marissa Mayer, seen here in May, will have to coax new technologies out of Yahoo or buy them somewhere if she is to turn the company around.

Yahoo, an Internet search pioneer back in the ’90s, has long struggled to innovate technologically while rival Google has thrived. Over the years, the company has outsourced much of its technology—including search, which it gets through a partnership with Microsoft—and its biggest asset is simply its network of websites, ranging from the basic Yahoo.com portal to photo-sharing site Flickr to fantasy sports.

This network is huge: Every month, more than 700 million people around the world visit Yahoo’s sites, according to the company. Data from comScore shows Yahoo’s U.S. audience is second only to Google’s, and larger than those of Microsoft and Facebook.

Yet while the company still has plenty of eyeballs on its websites and brings in more than $1 billion in annual profit, its revenue and profits have been sliding, largely because of its reliance on online display advertising, where growth is hard to come by (see “The Facebook Fallacy”).

That’s where Mayer comes in. Mayer, 37, spent 13 years at Google, most recently as vice president of local, maps, and location services, taking charge of products like Google Maps and Street View. During her time there, she cultivated a hip techie image—the type Yahoo desperately needs to bring back some of its former glory. To sharpen that edge, one thing Yahoo sorely needs is a product users can’t live without, something akin to Google’s search or Facebook’s social network.

Ron Josey, a senior Internet analyst at ThinkEquity, believes the seeds of one such product could be in Axis, an Internet browser the company rolled out before Mayer’s arrival that you can start using on, say, a computer or tablet, and pick up at the same site on a smartphone. It’s available as a browser plugin for desktops and laptops and as a free app for the iPhone and iPad. Josey hopes Mayer will push Yahoo to develop more products like this, and also beef up its focus on the mobile market, where the company has lagged. “It’s sort of a shame that Yahoo, one of the most trafficked sites on the Web today, doesn’t really have the mobile traffic that it has on the desktop,” Josey says.

Some of the work to beef up Yahoo’s products, mobile and otherwise, is likely to come from the inside, but much of it may come from the outside, too, both from hiring promising tech executives and acquiring hot startups—two things that could be easier now given Mayer’s cachet. Eric Jackson, a Yahoo investor who runs the hedge fund Ironfire Capital, thinks Mayer is likely to bring in a number of ex-Googlers, as former Google ad executive Tim Armstrong did when he took the CEO post at AOL in 2009. He also suspects Mayer will want to buy lots of little tech companies, and thinks that, if she’s able to raise Yahoo’s valuation, it might be able to go after some larger ones.

“It was very difficult to get any hot new startup to consider being acquired by Yahoo in the last three years because of all the turmoil floating around,” Jackson says. “It’s going to be much more enticing to entrepreneurs to sell out to her and Yahoo compared to two days ago.”

Yahoo declined a request for an interview with Mayer, and she hasn’t yet addressed investors—she didn’t participate in a conference call with analysts Tuesday to discuss Yahoo’s quarterly results.

Beyond adding and developing techies and technology, much of Yahoo’s success under Mayer may come down to her ability to define what kind of company Yahoo is. While Google has the goal of organizing the world’s information and Facebook sees itself as a platform for sharing, Yahoo has struggled to decide whether it’s a technology or a media company. “The good news is, she must think she can do that,” says Joshua Gans, a professor of strategic management at the University of Toronto, “because she’s leaving a very solid position to take on this challenge.”

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