Yahoo!'s Misguided Manifesto

Let me be clear about where I'm coming from: I'm neither long nor short Yahoo!. I have never worked there.

But I use its site daily, and I have interviewed smart, entrepreneurial people there who, if laid off, wouldn't have trouble finding a job at one of Yahoo!'s fast-growing rivals. I'd even bet the Peanut Butter Manifesto's leak has inspired some of Yahoo's more valued workers to send out their resumes.

That's what happens when memos surface urging a company to kick as much as 20% of its staff to the curb. One in five Yahoo!s? Good grief. Where did that figure come from? It sounds like a big number somebody pulled out of his peanut butter jar, one meant to make a dramatic point. Sad to say, it did just that.

This is a move that, long term, will hurt Yahoo! investors as much as anyone. Along with Google, Yahoo! is one of the brightest beacons of innovation in the Internet sector -- which, far from retrenching, still has the potential to drive revenue and profit for years, if not decades. What Garlinghouse advocates is dimming that beacon and snuffing out promising ideas that could bring new revenue streams.

The worst thing about this panic-room strategy is that it's a complete capitulation to Google right when Yahoo! finally has a shot, with Panama, at improving its share of the search-advertising market. Sure, Yahoo! is losing its momentum. But this response is a power play not from an MBA textbook but from Machiavelli.

Just because some start-ups that Garlinghouse incubated at CMGI deserved mercy killings doesn't mean the same fate should befall young projects at Yahoo!, where the technological know-how is deeper and project management is more seasoned. Cutting back is sure to weaken Yahoo! when it should be growing.

But why take my word for it? Here's Garlinghouse in that 2002 Harvard case study on the peril of "irrational" layoffs: "If you cut your headcount, you destroy your ability to grow ... so you cut your headcount again to reduce burn. The result: a death spiral!"

If Yahoo!'s top executives give in to Chainsaw Charlie Brown, the stock will surely pop. But when it does, Yahoo! investors would be smart to cash out ahead of the death spiral. Do not pass go. Do not look back. Just take the money and run. As for Yahoo!, the grief will not be good.