Firing of Yahoo executive signals tough revival

Marissa Mayer's arrival at Yahoo as chief executive a year and a half ago was widely hailed as an opportunity to infuse the struggling Internet pioneer with the smarts and cachet that had helped her succeed as a top executive at Google. She was one of the earliest employees at Google, with a reputation for inventiveness and attention to detail. If anyone could fix Yahoo, it was believed, it was Mayer.

But the announcement Wednesday that she had tossed out her top lieutenant, Henrique de Castro, was her first public acknowledgment that turning around Yahoo would be far more difficult than has been sometimes been suggested by the fawning media attention she has received.

"That was Marissa's first big hire," said Robert Peck, an analyst at SunTrust Robinson Humphrey. "You can imagine how difficult it would be to admit a mea culpa."

Bringing on de Castro, who was also a longtime Google executive, was just one of many high-profile moves Mayer has made, including buying the blog site Tumblr for $1.1 billion, hiring the television host Katie Couric to be the anchor to a new online news operation and starting an online food magazine.

While Mayer took the public spotlight - for example, she personally introduced Yahoo's new consumer technology site at a trade show in Las Vegas this month - de Castro was charged with the less sexy but equally vital task of reviving Yahoo's advertising business. While that would be a herculean task for anyone at a company whose fortunes have been declining for a decade, de Castro was particularly ill suited for the job, according to ad-industry executives, analysts and people who worked with him at Google and Yahoo.

When Mayer hired him, the choice mystified people both inside and outside the company. And tension quickly developed between the two leaders, according to the company insiders, most of whom spoke on the condition of anonymity because of continuing business relationships.

De Castro, a former consultant at McKinsey, was fond of using spreadsheets but was weak in his knowledge of Google's products, said a person who had worked with him at Google.

Nor was he a charismatic salesman willing to schmooze with Madison Avenue marketers to persuade them to spend their ad dollars on Yahoo instead of on rivals like Facebook and Google.

"Henrique wasn't as market-facing as his predecessors or competitors," said Amanda Richman, president of investment and activation at Starcom USA, which buys billions of dollars of ads a year on behalf of big consumer brands like Kraft and Kellogg.

De Castro did not respond to phone and email messages Thursday.

Mayer declined a request for an interview. Sarah Meron, a Yahoo spokeswoman, said, "We've always been clear that this was going to be a multiyear process, but we're gaining momentum and putting out new ad products and services regularly."

Although colleagues universally described de Castro as very smart, they also said he was a poor communicator with an arrogant, abrasive manner. He is a native Portuguese

speaker, and his strongly accented English was sometimes hard to understand. At Google, de Castro had so many negative reviews from employees that the human resources department had been called in to review the situation, according to a person who had worked with him there.

Google declined to comment on personnel matters.

In the end, the whole misadventure might not matter unless Mayer is able to redirect the company away from its failing core business of selling display ads.

"It certainly didn't help that there may have been internal conflict, but it probably didn't make a big difference, either," said Brian Wieser, an analyst with the Pivotal Research Group. "You can't overcome the structural issues."

The splashy home-page banner ads that Yahoo rode to riches in the early days of the web are fading away in favor of Google's search ads, Facebook's targeted social ads and automated systems that reach consumers on smaller sites that charge a relative pittance. In mobile advertising, the hottest area of growth for the industry, Yahoo has virtually no presence.

In recent months, Yahoo has begun a series of initiatives to increase traffic to its sites, including new mobile apps, an overhaul of its Flickr photo service, expanded video news offerings and the consumer tech site, which is anchored by David Pogue, a former columnist for The New York Times.

"With content, there's eyeballs, and with eyeballs, there's advertising," Peck said.

In addition, Yahoo has overhauled its ad-buying platform and added new formats like native advertising, in which advertisers provide content that looks similar to other articles and videos on the site.

Richman said Yahoo had also been reaching out more to advertisers, sharing more data about users and ad performance than its rivals, helping brands refine their marketing.

For now, investors are basically ignoring all of it.

"The funny thing is how little any of this matters to the stock," Wieser said.

Wall Street values Yahoo, which closed Thursday at $40.34, mostly for its partial ownership stakes in Alibaba, a successful Chinese e-commerce company that plans to sell stock to the public this year, and Yahoo Japan. The core business is not nearly as valuable.

In the third quarter, Yahoo reported revenue of $1.14 billion, down 5 percent from the previous year. Net income was $297 million, compared with $3.16 billion in the previous year, in which Yahoo had a gain of $2.8 billion from a sale of Alibaba shares.

It is not clear whether Mayer will choose another chief operating officer to succeed de Castro. She has divided his responsibilities among a number of other executives, with Ned Brody, a former AOL executive, overseeing the North American advertising business.

Peck said the attention on Alibaba's expected initial public stock offering gave Mayer more time to fix Yahoo's core business.

He also praised Mayer for having the courage to cut her losses on de Castro, even though his departure will cost the company tens of millions of dollars in severance and stock compensation that he was promised.