Marissa Mayer's Focus on Yahoo! Partnerships and Search

NEW YORK (TheStreet) -- I had high expectations for Marissa Mayer as Yahoo!'s (YHOO) new CEO, but even I was impressed with her performance on her first earnings call on Monday.

In fact, I haven't heard a more impressive tech executive on an earnings call this year including Mark Zuckerberg, Sheryl Sandberg and Larry Page.

Maybe it's because I've gotten used to listening to Carol Bartz or Scott Thompson on these calls, but listening to Mayer was like manna from heaven. There was no confusing and vague language. There was no head-scratching over her stated plans. It was clear and direct. It was also realistic.

She sees Yahoo! as it is, not as she wants it to be. She sees both its weaknesses and its many overlooked strengths.

This is a huge change.

There can be no "fixes" at the company until it correctly sees the problems that must get corrected. That includes "dumb" things like Yahoo!'s siloed technology across its various properties that don't talk to each other and allow for knowledge sharing of users across them. It also includes tweaking mobile search in the past quarter and seeing it pay immediate dividends.

Beyond the financial stuff that new CEO Ken Goldman covered, there were two areas that Mayer covered that really stood out: Yahoo!'s ability to partner, and search.

Carlos Kirjner of Bernstein asked her whether Yahoo! could "win in mobile without an operating system? Or in the long term wouldn't companies like Apple ( AAPL), Google ( GOOG), or even Microsoft ( MSFT), who control the platform, end up disseminating sic you from any application whether it's material value or that turns out to be important for end users?"

Here's what she said:

In terms of winning in mobile without a mobile OS, I actually view that one of the advantages here is that we don't have a mobile operating system because it allows us to operate and innovate and provide our products across all the different platforms.

So we would like to offer our products on iOS as well as on Android. And I think that it's important to remember that, that list of items, checking stocks, checking news, checking weather, sharing photos, getting all of the -- all of those types of things are things that people do on the phone. And in that situation, Yahoo! has a unique set of content that we can provide our end-users, and that's something we've invested a lot in and I think it's something that is differentiating and a unique advantage.

Of course she's right. What other company in the mobile space could announce partnerships tomorrow with either Apple, Microsoft, Google or Facebook ( FB) or a combination thereof? It is really unique and a source of tremendous value for the company.

It's also a point completely overlooked by Yahoo! critics who like to point out that Yahoo! hasn't done anything in mobile yet. She said as much on the call Monday. But that can change quickly with the right kind of partners no one else has.

And it potentially makes Yahoo! very interesting as the subject of acquisition rumors down the road once it does more of the cleanup of its internal processes.

On search, what stood out to me was that she mentioned "search" first in a list of the "core components of Yahoo!'s business" at the beginning of her talk. She clearly sees the problems that exist with the search partnership between Microsoft and Yahoo!.

She was asked whether search or display was a bigger opportunity for Yahoo:

In terms of your second question, search versus display, these are already two very large, very successful businesses, so think it's difficult to say which one we should choose. It's somewhat of a false dichotomy. That said, I do think that there is potentially more upside in search.

We can see right now that given some of the monetization challenges we've faced, that there is an opportunity there to improve monetization. That said, the content investment that we've made yields so many impressions and page views and so much opportunity around brand advertisement that is very compelling.

So, although she'll work on both (why wouldn't she?), she does see search as a bigger opportunity for the company.

But, how can it be? Critics keeps saying search might be going away. Mark Mahaney of Citi has been a perennial Yahoo! skeptic and immediately turned up his nose that Yahoo!'s board hired Mayer instead of following his advice of basically returning all cash to shareholders and essentially winding down operations.

He asked about the risk to Yahoo! if Microsoft cancels the search agreement with Yahoo! next Spring, which Ken Goldman had previously said on the call pegged at "less than $100 million" over the course of one year: "I assume that's both revenue and EBITDA, but could you clarify in terms of the search risk?"

Goldman acknowledged that all this revenue was essentially profit. But, so what? You're talking about a company that had $1.3 billion in trailing 12 months of Ebitda. $100 million in Ebitda is nothing to sneeze at but Yahoo! could whack a bunch of headcount tomorrow to replace it. More interestingly, Yahoo! can do lots of tweaking to increase Ebitda from search.

Some people like Henry Blodget were saying last night that the beat by Yahoo! on search revenue was due to a Microsoft payment. Microsoft pays money every quarter and Goldman did acknowledge that they paid more in the third quarter than they did in the prior year. But these critics overlook that Yahoo! had a lot of control on the front-end of user experience to drive better search monetization. They've done this in the past and Mayer made that point again last night.

Even before the search agreement expires, Mayer will have lots of an opportunity to improve things further, possibly by $100 million that they might theoretically lose if the deal with Microsoft ended.

Why would Microsoft end the deal? Do they have a better option for Bing? They wouldn't want to.

If the search deal with Microsoft ended, it would be because Yahoo! perceives the opportunity more greater alone than stuck with Bing. Of course, you didn't hear any of that type of thinking last night on the call.

Although they were disappointed, Mayer and Goldman talked about being "hopeful" they could work things out with Microsoft. They have to say that. They'll keep saying that until one day they won't say that anymore.

My big hope is that Mayer can convince Microsoft CEO Steve Ballmer to give her control of Bing with a partnership agreement. Basically, Microsoft and Yahoo! should switch roles with Mayer managing things and Microsoft handling their own front end. All the good search engineers should move back to Sunnyvale, Calif., from Redmond, Wash.

Mayer wouldn't likely go about search the way Microsoft has -- taking Google on head-to-head, and losing. She's more likely to take it in a new direction -- optimized for mobile.

Obviously, every CEO has to back up words with actions. But if your thinking is so muddled that you can't think straight in order to put together coherent thoughts, you will never have successful actions. Mayer is a winner and clear thinker.

It's going to be exciting to watch her perform over the next couple of years.

At the time of publication the author had positions in YHOO and AAPL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Eric Jackson is founder and Managing Member of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. In January 2007, Jackson started the world's first Internet-based campaign to increase shareholder value at Yahoo!, leading to a change in CEOs in 2007. He also spoke out in favor of Yahoo!'s accepting Microsoft's buyout offer in 2008. Global Proxy Watch named Jackson as one of its 10 "Stars" who positively influenced international corporate governance and shareowner value in 2007.

Prior to founding Ironfire Capital, Jackson was President and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and governance consulting firm. He completed his Ph.D. in the Management Department at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management and Corporate Governance, and holds a B.A. from McGill University.

He was previously Vice President of Strategy and Business Development at VoiceGenie Technologies, a software firm now owned by Alcatel-Lucent. In 2004, Jackson founded the Young Patrons' Circle at the Royal Ontario Museum in Toronto, which is now the second-largest social and philanthropic group of its kind in North America, raising $500,000 annually for the museum. You can follow Jackson on Twitter at www.twitter.com/ericjackson or @ericjackson.

You can contact Eric by emailing him at eric.jackson@thestreet.com.

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