Yahoo’s announcement today that it is being hit with a $2.7 billion judgment related to a 2003 deal done through its Mexican subsidiary is yet another indication of the company’s splintered old strategies and its struggles to refocus. The deal, with Ideas Interactivas and Worldwide Directories, was to develop an offline print version of its online local business listings in Mexico which would have included maps, businesses and landmarks. What the company was thinking in 2003 getting into this deal is unclear now, but it’s a mistake that is costing them big.
In the short time Yahoo CEO, Marissa Mayer, has been at the helm she has announced company efforts to refocus and get better at doing fewer things. In hindsight, it may be easy to judge Yahoo’s decision to get into the deal in the first place. Especially in light of some of the trends in internet usage in Mexico. Forrester Research predicts that by 2016 internet penetration in Mexico will rise to 48%, compared with its current 38%. While Mexico’s internet adoption rate is lower than in the U.S. or Europe, certain segments are growing faster than others. Social networks are big and growing in Mexico with 90% of users signing on to one regularly.
Turning any organization around is generally not a quick process, but turning Yahoo around may have to be if Marissa Mayer is to keep her job. Being a CEO at a major company like Yahoo is much akin to being a head coach for a major sports team. It’s all about, “what have you done lately?” One bad year for a CEO, just like one bad season for a coach, can spell disaster for their careers and many a CEO has been given even less time to show results.
Mayer has showed decisiveness and resolve since taking over at Yahoo, even shutting down the company’s Korean unit recently. An offline print catalog in today’s internet environment may be viewed as nothing short of a harebrained idea, but let’s not forget how rapidly the internet is evolving and the fact that the deal in Mexico was initiated in 2003. Many second guess Yahoo’s initial plans to get into an offline business in Mexico. But, one thing that is not in dispute is that the $2.7 billion judgment is a big hit to the company, representing more than 10% of Yahoo’s total market capitalization.
Going forward, how Yahoo responds to this debacle in Mexico will go far in determining how the market treats the company’s stock, as well as the company’s overall financial health. They’re big fish in a big pond and their competitors will certainly be more than happy to take advantage of any weakness Yahoo shows in how it deals with this latest development. Marissa Mayer came to Yahoo with a strong pedigree, having been a top executive at Google after thirteen years with the company working her way up the ranks. Her unique combination of technical engineering knowledge and business acumen may be what Yahoo needs to steer it down the road to future success. But, only time will tell how Yahoo will rebound from this latest setback.
