Yahoo spends like a tech company, but struggles like a media company

"Know thyself." It is one of the Delphic maxims of ancient Greece, carved into the Temple of Apollo. It is sage advice but also a warning — one that Yahoo and its CEO Marissa Mayer still have not heeded.
Is Yahoo a media company or a tech company? That's the central question that has dogged the once-dominant Internet company for the better part of a decade. It was the question Steve Jobs posed in 2007 when he visited the company headquarters. It's also the question Mayer told people in 2014 to stop asking.
But it's a relevant question, particularly as Yahoo shells out millions to buy expensive talent and buy its way into coolness in the fickle, unprofitable world of media. At the same time, investors breathing down Mayer's neck about how she has handled Yahoo over the last three-and-a-half years. Her critics point out that the company is spending like a tech company — lavish salaries, perks and parties for employees and billions of dollars in company acquisitions — but performing like a media company.
Mayer may still be unsure of what Yahoo is, but investors appear to have little doubt. It is a dying media company that needs to either be sold or stripped down to its barest bones.
In other words, it's time to give up on a Yahoo turnaround.

Hey big spender

Mayer's time as CEO has been marked by one thing: Spending.
Whether it's big media names like Katie Couric or big acquisitions like Tumblr, Mayer has been laying out cash in an attempt to remake the company's image and infrastructure.
The spending has put something of a shinier veneer on the company, but now it looks like little more than window dressing.
Yahoo employees enjoy high-end perks like free iPhones and food while Mayer throws big, expensive parties that feature widely criticized gimmicks around the Great Gatsby and The Wizard of Oz.
She's hired numerous major media names to head up a variety of verticals, paying salaries that are multiples of even the high end in media. Yahoo star Katie Couric reportedly makes $10 million a year despite little evidence that she's resonating with Yahoo readers. Most recently it was the hiring of former Time Inc. executive Martha Nelson as the editor in chief of Yahoo's media side, at $5 million per year. Anna Wintour, the editor of Vogue, by comparison, makes around $2 million.

US journalist Katie Couric (L) and Yahoo CEO Marissa Mayer onstage at the consumer electronics show CES 2014 in Las Vegas, USA, 07 January 2014. The fair runs from 07 January to 10 January 2014.
Image: Britta Pedersen/Associated Press

SpringOwl, an asset management company that includes Managing Director Eric Jackson, who has been one of the most outspoken critics of Mayer, recently sent a 99-page proposal for turning Yahoo around. They note that all of Yahoo's extraneous spending has cost the company around $450 million in the past four years.
SpringOwl is advocating new leadership at Yahoo, and that the company be streamlined — laying off around 9,000 employees, selling its main campus and a variety of other moves — in an effort to make it a more financially appealing company to a potential buyer.
"The world’s largest start-up? What start-up do you know that would spend $108 million a year on free food?" the presentation states.
A Yahoo employee that spoke with Mashable on the condition of anonymity detailed an internal culture of entitlement when it comes to expenses, particularly for employees high up the organizational chart.
One editor filed expenses for Botox injections and an $8,000 sleigh bed for a photo shoot, which the editor then asked to be delivered home. Yahoo reimbursed the Botox and bed costs — and, abashed, sent out an email to employees reminding them not to expense things that don't benefit the entire group.
These were types of lavish expenses that were frequently approved under former chief marketing officer and head of media Kathy Savitt as she built up the tech giant's media presence. (Martha Nelson is said to keep a tighter grip on expenses).
On the company level, there was the recent "Wizard of Oz" photo shoot. The source also said that the company recently recorded a video set to "Watch Me (Whip/Nae Nae)" for the company's holiday party that could cost as much as or more than the Wizard of Oz shoot, which reportedly cost $70,000.
Yahoo declined to comment for this article.

Meanwhile, at the bottom of the food chain, Yahoo relies on contract employees for some of its most important day to day media jobs, including video production and the care of its valuable homepage, which is one of the largest drivers of traffic to other media sites.
If that sounds like a lot, it's peanuts compared to what Mayer has spent in acquiring companies. SpringOwl argues that based on Yahoo's current stock price, Mayer has spent $3 billion buying companies that are now valued by investors at zero.

Yawhoo?

Mayer seems to be dogged by what people think Yahoo could be or is supposed to be. Yahoo could fairly be considered the Dollar General of the Internet — a mass-market, discount retailer that isn't sexy but still has a decent business.
Mayer, by all accounts, wants Yahoo to be cool and hip — reasons that many believe she squashed its pokey "Shine" section for women and is revamping the inelegant but powerful homepage.
The reality for Yahoo is that despite efforts to be cool — renting a house for media's SXSW in Austin, revamping its verticals into high-end magazines or getting into the high-quality video game with a new season of "Community" — Yahoo remains more Dollar General than the chic Barney's it wants to be.
Acquisitions can drastically change a company's direction — AOL's purchase of online video ad platform Adap.tv put it on a road that ended with its acquisition by Verizon for $4.4 billion — but similar acquisitions have done little to change Yahoo's core business of selling ads against media and web searches.
Mayer deserves credit for jumpstarting Yahoo's business in terms of the more lucrative ad formats of mobile, video, social and native ads — what she calls the "mavens." Without those efforts, things at Yahoo could be a lot bleaker.
Acquisitions, big-name hires and a pivot toward the "mavens" has only slowed the bleeding.
It remains a giant that brings in a ton of money and attracts eyeballs, making $1.23 billion in the third quarter of 2015 — but turning that into only $76 million in profit. The quarter before that, Yahoo lost $22 million.

Hard sell

Back in Yahoo's glory days, it was among the most beloved and dominant tech companies, a web directory synonymous with the Internet and a top destination for engineering talent. That was Yahoo 1.0, king of web 1.0.
For a few years now, the world has been contending with Yahoo 2.0: The company that has tried everything to catch up to the modern web and accomplished little in the process.

FILE - In this March 3, 1997 file photo, Yahoo co-founders David Filo, left, and Jerry Yang, right, hold up a fish prop at Yahoo headquarters in Santa Clara, Calif.

Image: Paul Sakuma

The company did have one shining light: A major stake in Chinese e-commerce firm Alibaba worth billions of dollars. Now, even that is slipping out of its hands. Alibaba is the most valuable thing about Yahoo at the moment, so Yahoo's turnaround plan includes spinning itself off to preserve the value of the Alibaba stake. That could take another whole year.
Canyon Capital, a major Yahoo shareholder, isn't terribly impressed. It has advocated that Mayer find a buyer for the company.
“The market already assigns significant negative value to the company’s mature core operating business and assets and, in our view, this delay will inevitably cause further decline in value,” Canyon said in a letter reviewed by Mashable.
"We believe the most responsible way to do so is not through the pursuit of another uncertain and protracted “spin” but rather through the immediate launch of a sale process," the letter concludes.
There's no indication that the letter will do much to change Mayer's mind.
"I remain convinced that Yahoo is on a better path and the right one," she said during a recent conference call.
She seems to be among the last to think so.