Tech Head's Exit Leaves Yahoo! in Lurch
Vishesh Kumar
05/31/07 - 11:58 AM EDT
Beyond the spin, it's just a bad development for
Yahoo!(YHOO).
On Wednesday, the company announced that Chief Technology Officer Farzad Nazem would be retiring from the company at the end of next week.
Yahoo! tried to play the timing as a sign that it all makes sense. Having seen through the launch of Project Panama -- Yahoo!'s highly anticipated search-ranking system, which debuted during the first quarter -- and a dramatic restructuring of the company, Nazem saw it fit to ride off into the sunset.
Yahoo! shares were recently up 27 cents, or 1%, to $28.65.
And while a move has supposedly been in the works, Nazem took the unusual step of not disclosing it until the last minute for the good of the company, according to the party line. "We wanted to realign the company and, subsequently, the Technology Group, successfully launch our new search monetization system (a.k.a. Panama), and build a solid technology leadership team to help take this company to the next level," Nazem wrote on the company's blog. "It was very important to me to drive all the way to my last day here at Yahoo! without distractions of an announcement like this."
But considering that Nazem has been with the company since almost its inception, he would be hard-pressed to find a more critical juncture to head for the exit. For starters, the launch of the Panama ad system only kicks off a grueling race to catch up with
Google(GOOG) in the amount of money Yahoo! makes per search. Mimicking Google's method for displaying search ads is just the beginning.
The real challenge will be making the many small tweaks to the system to improve the quality of results. Indeed, these "second-order" improvements -- the continuous calibration on the system based on how Web surfers are using it -- has long been pointed out as crucial by Yahoo!'s management. And small refinements are also the reason why Google continues to make the kind of gains it does.
Nazem will also be particularly difficult to replace given his long tenure with the company, and in light of Yahoo!'s complicated technology systems. Rather than the simplest system from the ground up, Yahoo!'s current platform has been stitched together over time and includes the incorporations of major acquisitions like Inktomi and Overture.
The recent launch of Panama, combined with the planned expansion into Europe and Asia, will add another twist. Having someone deeply familiar with all these intricacies is much less risky than having someone learn on the job.
Nazem's departure also will hit Yahoo!'s seemingly always incomplete management team hard. Outside of founders David Filo and Jerry Yang, key players lack a technical background -- despite the increasingly technical bent Yahoo! seems to be taking. Newly hired CFO Blake Jorgensen and Publisher & Advertiser group head Sue Decker hail from Wall Street. CEO Terry Semel, while a hit with advertisers, is said to have first started using email only upon arriving at Yahoo!.
Having another open slot at the top will make it that much harder to complete Yahoo!'s management team -- even as the company needs to be firing on all cylinders more than ever. Yahoo! continues to look for someone to head up its Audiences unit that was formed during the winter shake-up, for example. But strong candidates will want to know what the rest of the management team looks like before signing up. That makes the task of bringing new members on more difficult with every new vacancy.
Those are serious issues Yahoo! investors should be thinking about, no matter how the company portrays its latest management departure.
