Aol exec: not clear Yahoo is admitting its problems

November 10, 2010: 12:12 PM ET

Former Yahoo exec turned Aol Consumer Apps President Brad Garlinghouse answers questions about the merger talks, the 'Peanut Butter Manifesto,' and why he thinks Yahoo is still doing it wrong.

Even four years later, Brad Garlinghouse may well best be remembered as the former Yahoo senior vice president who in 2006 shipped out a company-wide Jerry Maguire-esque memo that recognized Yahoo's (YHOO) achievements but chastised the company for lacking vision, accountability and decisiveness. The "Peanut Butter Manifesto," as it came to be called, compared the company's resource spending to spreading peanut butter (thinly) on a slice of bread.

Garlinghouse of course, has since moved on. After a stint as senior advisor to Silver Lake, he joined Tim Armstrong late last year as President of Consumer Applications to help turn around another struggling Internet giant: Aol (AOL). Since then, he's reduced in-your-face advertising on its sites, and played a key role in the acquisitions of social media reader maker Brizzly, now responsible for AIM and Lifestream development, and mobile app startup, Rally Up. Up next: gutting and redesigning Aol Mail, which hasn't seen a major change-up since 2007.

Garlinghouse spoke with Fortune on the company's prospects, his old employer, and whether his four-year-old manifesto still applies to Yahoo today.

More than twelve months since you started. How have things changed?
There was no question morale was low. There's no question today morale is high. People believe -- then again, I'm not objective -- I would say to you as someone who pays a lot of attention to the culture, people believe in what we're trying to do. They want to be a part of it, and they want to prove to the world that Aol can bring to the world the same kind of innovation it brought to the world 15, 20 years ago to the world again.

I do think there was a period of time when Aol lost its way.

From your perspective, how'd that happen?
I'm not dancing around specific Time Warner things, but to me, it's unclear as a new arrival of whether that was an outcome of [merging with] Time Warner, whether it was related, or whether it was totally tangential. The core though, is it lost its focus on the consumer.

The products weren't good. I think there was a period of time where the products we inherited weren't focused. People weren't focused on how to build the best product. In answer to the problems Aol is experiencing, they were [saying], "let's put more ads on the page." It wasn't, "hey, let's build a better product." Let's just put more ads on the page. Well, you get in this death spiral. More ads, slower load time, not as good user experience. Fewer users. But [then, you put even] more ads [on the page] because you have fewer users. You need more revenue. And you just go down, down, down.

One of the first things we did -- this is dating back a while ago -- we took 65% of the ad units out of Aol. That by no means is a clear victory, but it's the right step culturally that we are going to focus our true north on the consumer and really great consumer experiences.

All this talk swirling around an Aol and Yahoo tie-in. Is there truth to that?
There are lots of rumors. Don't believe the rumors you hear. Different stakeholders have different agendas in circulating different rumors. I think suffice it to say, Aol has a very clear strategy of what they're trying to be, and I think some of our competitors' [strategies] aren't as clarified. I think interested parties believe in the management and leadership reflected by Tim, the team he's recruited, and I think they ask questions of some of the leadership of other companies.

Do you think Yahoo could benefit from Tim Armstrong and Aol?
Aol has benefited immensely from Tim Armstrong's leadership. He's been there 18 months; I've been there 12 months. It starts with Tim focusing on hiring world-class people, who have deep experience in the consumer Internet and the reason I emphasize that is that some of our competitors have not built out senior management teams with deep experience in the consumer Internet. That's an important aspect.

You haven't worked at Yahoo in a while, but you were privy to its day-to-day operations for more than six years. What are your thoughts on Yahoo now and what Carol Bartz has done so far?
I think one of the reasons Aol is in a better place today is because the first step to solving a problem is admitting you have a problem. It's not entirely clear to me that Yahoo has internalized and said, 'here are the problems we have.' And if you don't admit you have a problem, you can't fix it.

I have a soft spot for Yahoo. It was a formative time for me. There were fabulous people I worked with. I feel lucky to have had those experiences. I would say with some certainty... I think it's fair to say that morale at Yahoo is not what morale at Aol is.

Do you think Carol Bartz's direction or strategy is clear?
Definitely not. To the extent that you have time -- and I'm not just saying this because Aol now owns TechCrunch -- there's a really, really fascinating contrast Mike Arrington did before we bought them.
TechCrunch Disrupt was in April or May. You might remember what I'm talking about. He asked Carol on stage what was Yahoo. There was like a two, two-and-a-half minutes "What was Yahoo?" He asked Tim Armstrong what is Aol, and it was something like, we are focused on revolutionizing the way content is created, consumed and monetized on the Internet.

Whereas Yahoo was like, we're a platform for people who can do what they like...
Where people can spend their day... There is clarity of purpose at Aol that helps us have clarity of prioritization. We're making decisions about M&A acquisitions. We're making decisions about resource allocations. We know what we're trying to be, and we know what our 'true north' is. And for some reason, it does start with better consumer experiences. And at some point, we're focused on a particular segment of that.

As an outsider, it's still not clear to me that some of our competitors are able to have that same clarity.

So the 'Peanut Butter manifesto.' Do you regret it, and is it still applicable to Yahoo today?
I don't regret writing it because it's what I truly felt and believed. I regret being the focal point and lightning rod for Yahoo's problems. It wasn't intended to be in the public domain. If you read it, it was intended to be constructive. We have problems. Let's admit it. Here are some ideas on how we can fix them.  But we've gotta get on this. I think it's unfortunate it got into the public domain, but I don't regret writing it.

Do I think it still applies? There are clearly aspects... I mean, a lot of companies struggle to focus on challenges on being a leader in various organizations is to here's our laser focus on what we're trying to be. Tim has done a good job of getting us where we're trying to go. There are definitely negative proof points I would highlight for where Yahoo is today with its peanut butter.

Like?
One of the things that still confuses me and being educated about the industry, I'm still confused by, are they in the search business? They're not in the search business.

That Bing partnership confuses things.
Yes. If you read what has been said publicly, I don't know how to answer that question. And I'm pretty knowledgeable about this. Aol is pretty confident that we're not in the search business. We are not a principal of the search business, and we generate money from search as many companies do. I don't get, 'we're going to yield search to Bing.'

I'm surprised they didn't put Bing search on the homepage of Yahoo. The Yahoo brand. That's part of the peanut butter problem. What do you want the Yahoo brand to mean to me as a consumer? Is it search? Mail?

That seems to be a continuing problem.
I used to play a game. I would do off-sites with a team with 20, 30 people and I want you say the name of the company, and I want you to say the first word that comes to mind. You say eBay, you think auction. PayPal. Payments. Google. Search. You go through the list. You go through five, six or seven of these things. You come to Yahoo, and you get very different answers from very different people. What is Yahoo?

Part of the search question is do you want people to think Yahoo is search or do you want people to think something else. There's nothing wrong with a portal strategy, but then embrace it. Here's our portal strategy. We're not going to be all things equal. Our brand is about bringing pieces together. The Peanut Butter manifesto reflects that we just can't be schizophrenic.

One large Yahoo shareholder I spoke with recently said that Tim Armstrong is Yahoo's best chance to revive itself. Would you agree with that?
Tim Armstrong has been the true north of why Aol is in a dramatically better place than it was a few months ago. Every situation is different and every company is different. But it starts with people in culture. Tim Armstrong understands that, and I think he has focused on that, and he has built a group of people and a culture that is thriving.

Your next project is a major revamp of Aol Mail. Some pundits have said, perhaps prematurely, that email is on its way out thanks to texting and social networks like Facebook.
Listen, email's still the killer app of the Internet. It grew 10% in 2009 in the United States. There's segmentation analysis from companies like Nielsen that show the heaviest users of social networking are actually using email more.

Why do you think that's the case?
If you think about your own email experience, Facebook notifications get sent to your email. LinkedIn notifications come to your email. All of these different pieces feed into what is still kind of your core email. I think the risk for failure of email is think we're in the email business and not the communications business.

When I joined Yahoo, Yahoo Mail was at number 3. It was the first product I was managing. Even now Yahoo Mail is twice as big as Gmail, twice as big as Hotmail. But I do think there's very little innovation in the email space. Since Gmail really, nobody has done anything that made you think, Oh, that's interesting. Yahoo is hitting safe shots with their email product.

We at Aol think there's an opportunity to redefine what email is for the consumer. Despite introducing email to the masses in the 90s, we lost our way. We think now is an opportunity to be more aggressive, to take more chances.

You've scooped up several properties over the last year. What roles do they play in the company?
For a long time, I think Aol had not been playing a smart offense. Beebo was a Hail Mary pass, and that was a previous administration. I think we have people who are very plugged into what's going on in the Internet, where the Internet's going. We should take advantage of the balance sheet to do interesting product and talent acquisitions.

Different acquisitions have different plays in different spaces, obviously. TechCrunch is the side of the fairway where strategically we're trying to go. They have a very high-quality reputation and product. Fits very much into a multi-modal media experience.

So if we were to play that word association game, it'd be 'Aol' and…
In consumers' minds historically, it's an ISP. Where we would like the brand to be is that Aol is a high-quality online content experience, and people know when I see Aol it's high quality, at scale. It isn't just a blog. Some of the things you read online you don't know what kind of quality to associate with it. We want to be high quality at scale.

Are we there? No, but that's part of admitting where we want to be versus where we are.

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About This Author
JP Mangalindan
JP Mangalindan
Writer, Fortune

JP Mangalindan is a San Francisco-based writer at Fortune, covering Silicon Valley. Since joining in 2010, he has written on a wide array of topics, from the turnaround of eBay to the evolution of net neutrality. A graduate of Fordham University, Mangalindan has also written for GQ, Popular Science, and Entertainment Weekly.

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