Terry Semel was pissed. The Yahoo CEO had offered to buy Google for roughly $3 billion, but the young Internet search firm wasn’t interested. Once upon a time, Google’s founders had come to Yahoo for an infusion of cash; now they were turning up their noses at what Semel believed was a perfectly reasonable offer. Worse, Semel’s lieutenants were telling him that, in fact, Google was probably worth at least $5 billion.
This was way back in the summer of 2002, two years before Google went public. An age before Google’s stock soared above $500 a share, giving the company a market value of $147 billion — right behind Chevron and just ahead of Intel.
As Semel and his top staff sat around the table in a corporate conference room named after a Ben & Jerry’s ice cream flavor (Phish Food), $5 billion sounded unacceptably high. Google’s revenue stood at a measly $240 million a year. Yahoo’s was about $837 million. And yet, with Yahoo’s stock price still hovering at a bubble-busted $7 a share, a $5 billion purchase price would essentially mean that Yahoo would have to spend its entire market value to swing the deal. It would be a merger of equals, not a purchase.
Terry Semel — a legendary Hollywood dealmaker, a guy who didn’t even use email…
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When Semel became co-CEO of Warner Bros. in the early 1980s, he was steeped in the marketing and distribution plumbing of Hollywood. So it’s no surprise, in retrospect, that his legacy is as one of Hollywood’s biggest innovators and risk takers. In the 1980s, it was Semel who pushed the idea of renting Warner’s excess movie-distribution capacity to other moviemakers as a way of creating a more stable income stream. Almost every studio now has such an arrangement. In the 1990s, he and partner Bob Daly financed Batman and made merchandising an integral part of the way movies are financed and marketed. During Semel’s tenure, revenue at Warner Bros. grew tenfold to more than $11 billion.
But now, despite Semel’s achievements in Hollywood and early success at Yahoo, Silicon Valley is buzzing with a familiar refrain: Wouldn’t an executive with a little more technology savvy be a better fit? Semel has been Yahoo’s CEO for nearly six years, yet he has never acquired an intuitive sense of the company’s plumbing. He understands how to do deals and partnerships, he gets how to market Yahoo’s brand, and he knows how to tap Yahoo’s giant user base to sell brand advertising to corporations. But the challenges of integrating two giant computer systems or redesigning a database or redoing a user interface? Many who have met with him at Yahoo say he still doesn’t know the right questions to ask about technology. “Terry could never pound the table and say, ‘This is where we need to go, guys,’” one former Yahoo executive says. “On those subjects, he always had to have someone next to him explaining why it was important.” One could have made a convincing argument two years ago that such deep technical knowledge didn’t matter much. But now we have empirical evidence: At Yahoo, the marketers rule, and at Google the engineers rule. And for that, Yahoo is finally paying the price.
