'Peanut butter' memo reveals sticky situation at Yahoo

Yahoo has become a victim of its own success, analyst says

Industry observers nodded in agreement last week at the conclusions of a scathing internal assessment that has come to be called the "peanut butter" memo.

Written by Brad Garlinghouse and leaked to The Wall Street Journal, the memo comes at a time when many say the Web portal has lost its competitive edge. In it, Garlinghouse -- a senior vice president of communications, communities, and front doors at Yahoo -- argues that the company must stop spreading a thin layer of "peanut butter" across myriad opportunities and instead focus on key areas, improve upper-management accountability and reorganize, including a headcount reduction of as much as 20 percent.

Like other noteable executive memos, Garlinghouse's missive didn't say anything that hadn't been said before. But its peanut butter analogy did crystallize the problems facing Yahoo, just as Bill Gates "Trustworthy Computing" set a vision for Microsoft employees in the area of security in 2002.

"The basic idea is very much on the mark, and I'd expect Yahoo would try to respond and become more focused," says financial analyst Clayton Moran, a senior vice president at Stanford Group Company. "But it's going to be challenging."

The confidential memo, which The Wall Street Journal obtained and posted on its Web site, says Yahoo lacks "a focused, cohesive vision" which has made it "reactive" and eager to be "everything to everyone."

As have many companies before it, Yahoo has become a victim of its own success, said Allen Weiner, a Gartner analyst. By nailing the all-in-one Web portal model, it became that market's dominant player, but now it must adapt to a changing landscape and must become better at integrating services.

"Yahoo is by no means out of the game, but [it's time] to execute on a more tightly focused vision. That's what's missing. Garlinghouse is right in saying there are way too many people doing way too many things," Weiner said.

The Wall Street Journal reported that Garlinghouse wrote the memo in October and circulated it among Yahoo's top executive brass. In response, Chief Operating Officer Dan Rosensweig appointed Garlinghouse to head a committee tasked with studying the memo's issues, the Journal reported.

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Juan Carlos Perez

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