This story appears in the December 14, 2015 issue of FORBES.
The late October offsite meeting for more than 120 of Yahoo YHOO +3.03%’s top executives at the Park Central Hotel in San Francisco started well enough. The first day jumped from strategy sessions to upcoming product discussions. But on day two, when the topic shifted to employee engagement, and with CEOMarissa Mayer in and out of the room, things went downhill fast. When Bryan Power, Yahoo’s head of h.r., glossed over results from a recent employee survey that showed dramatic double-digit drops in metrics like morale and trust in the company’s executive leadership, various vice presidents began venting to one another. Those murmurs of discontent erupted into outright heckling when another session—billed as an opportunity to improve communication—turned into a lecture from Yahoo’s top brass that many found patronizing. Vice presidents started calling out their superiors for “not listening,” “not understanding” and “not being interested in changing.” Some cursed.
 “It was the most stressful and acrimonious professional meeting I’ve ever attended,” says one participant.
Such is the state of affairs at Yahoo these days. More than three years after Mayer was brought in to turn things around, the original Internet media giant is still failing at its core business and getting whipped not only by Google GOOGL +2.32% and Facebook FB +0.93% but also by newer entrants such as Instagram, Snapchat and even the beleaguered Twitter TWTR +0.00%. In the most recent quarter its net revenue declined 8% and search revenue, a priority of Mayer’s, declined 13%. Overall traffic has continued to inch downward, and none of its new mobile apps has yielded new users or revenue on the scale Yahoo needs to offset the declines. The stock market has rendered its assessment: Yahoo, which has a market value of $31 billion, owns a $30 billion stake in Alibaba, an $8 billion stake in Yahoo Japan and has $5.5 billion in cash net of debt. While investors often apply discounts to the company’s Asian assets to account for possible taxes and other risks related to their eventual spin off, in many models Yahoo’s core business – with $4 billion in revenue and 10,700 employees – has an implied valuation of less than zero.
Mayer inherited a tough situation. The very idea of an Internet portal—a Yahoo or an AOL—is a relic of a Web era 15 years ago when advertisers were willing to pay dearly for a massive home page audience that could direct millions on to a plethora of services like Mail, News, Sports, Finance, Autos and Search. That model doesn’t compute in the mobile era, where apps and social networks dominate.
But Mayer, a star at Google, was supposed to be smart enough to figure a way out. The knives are now unsheathed. FORBES spoke with more than a dozen current and former executives who requested anonymity to discuss confidential matters, and most say a confused strategy and mismanagement, specifically from Mayer, has undermined any attempts at a turnaround. Yes, she originally brought hope, a badly needed focus on products and a keen understanding of technology. But as pressure to deliver results has mounted, there’s widespread belief, as reflected in that employee survey, that she’s no longer up to the task. The past few months have seen a mass exodus, as Mayer lost her chief accounting officer, chief marketing officer, chief development officer, a string of senior vice presidents and an alarming number of vice presidents from across the company in product, engineering, sales and human resources, with more defections to come. Some former executives FORBES spoke with jumped to gigs they saw as more promising, but several said they left out of exasperation with Mayer. “I am so frustrated and upset that so many people’s hard work is just getting destroyed,” says one recent defector.

Mayer, through a spokeswoman, declined to speak with FORBES for this story. Yahoo declined to comment. At a business conference in San Francisco this month she admitted that there was “more to do” as part of her turnaround but said, “One of the things I’m really proud of is that we have built a future” for Yahoo. Two weeks earlier she told Wall Street analysts during an earnings call that Yahoo has “the right talent, the right strategy and the right assets to deliver long-term ­sustainable growth for our investors.” Addressing the defections, she said: “The design and changes in Yahoo’s leadership team are the result of careful planning to achieve the necessary skills, passion and ability to execute growth in our business. Our leadership team today is unequivocally the strongest during my tenure.”
The executives FORBES spoke with dispute that the resignations had much at all to do with “careful planning.” And some increasingly wonder among themselves how long it will be before Mayer joins the ranks of ex-Yahoos.
WHEN, EXACTLY, MAYER’S tenure began heading sideways is difficult to pinpoint. Her hiring in July 2012 was hailed as a coup. Yahoo had just gone through five CEOs in five years, and the last one lied on his ­résumé. Mayer was a rock star—the steward of Google’s search engine and spartan home page—an engineer with a ­reputation for data-driven decision making and a golden touch with consumers. She was Google’s 20th hire and had spent years in its inner circle. Employees at Yahoo’s Sunnyvale headquarters greeted her with handmade Mayer portraits in the style of Obama’s 2008 “Hope” ads.
Mayer put a focus on mobile, an area Yahoo had badly neglected. She talked of sprucing up Yahoo franchises that were “daily digital habits,” like e-mail, search, finance and sports. Growth, she told Wall Street, would be a “given.” ­Talent began joining the company, some of it through a steady stream of acquisitions of small companies, many in mobile business. Mayer also made some bolder bets, most notably the $1.1 billion acquisition of Tumblr in May 2013, a fast-growing blogging and social networking platform. That she was able to complete the deal, when her predecessors had missed out on promising startups like Facebook and Twitter, was itself seen as a victory.
Mayer also made flashy media investments, hiring Katie Couric to be Yahoo’s global anchor in November 2013 and bringing on a string of high-profile journalists to create digital “magazines” focused on tech, health and fashion. She invested in original video series to battle the likes of Netflix and Amazon and sought to claw her way back into the search business, which Yahoo had largely outsourced to Microsoft. With Yahoo’s traditional display ad businesses in decline, Mayer began to define the future of the ­company around a handful of areas: mobile, video, native advertising and social, eventually coming up with the acronym “MaVeNS” to encapsulate her efforts. Plenty of Yahoos, especially those whose projects thrived, became Mayer fans. “She’s the best leader we’ve had,” says Marco Wirasinghe, who was at Yahoo from 2010 to this summer and led the development of Yahoo Weather, an app Mayer frequently lauds as a notable hit.
Not everyone saw it that way. Some of her most senior executives say the data-driven approach she honed at Google seemed to give way to snap judgments. Early in her tenure she demanded that a landing page ad on Yahoo Mail be removed simply because she didn’t like the user experience. Executives pushed back, noting the ad brought in roughly $70 million annually, to no avail. “She knew she didn’t like it, but there was no thinking about the impact,” says a former executive. Similarly, Mayer insisted on introducing a new ad product during a keynote speech at the Consumer Electronics Show in Las Vegas in January 2014. The team responsible for the product, Yahoo Ad Manager, insisted it wasn’t ready, but it was pushed on a small set of advertisers with disastrous results: Only about two in ten campaigns outperformed an earlier system, and Yahoo had to pull the product while the team fixed it.
Mayer hired some executives without fully vetting them with her team, and some of those decisions proved costly. One of her first big hires was Google sales executive Henrique De Castro, brought on as chief operating officer. De Castro failed to meet sales goals and Mayer fired him after 15 months, but not before he reportedly pocketed as much as $109 million in compensation and severance. Mayer also spent a year without a chief information officer after her IT operations chief David Dibble quit for personal reasons in 2013. In August 2014 Mayer finally announced to her executive staff that she had found the right person in Netflix executive Mike Kail, who came recommended by her husband, the investor Zachary Bogue. Three months later Netflix sued Kail for fraud, after he allegedly collected kickbacks from vendors. Yahoo ­quietly let him go in May.
Mayer’s propensity for micromanaging also exasperated many of her executives. By her own admission, Mayer spent an entire weekend working with a team of designers to revamp the Yahoo corporate logo, debating such details as the right slant for the exclamation point (9 degrees from vertical). Mayer also insisted on personally reviewing even minor deviations from a compensation policy she had instituted. When managers wanted to give top performers a bonus or raise above the parameters she had set, they had to write her an e-mail explaining the circumstances and wait for an approval or denial. Some managers dispute that this was a hard-and-fast rule. Mayer also insisted on reviewing the terms given to hundreds of contractors and vendors on a quarterly basis, whether they were engineers or writers or makeup artists. “She would go line by line and decide on what date a contract should end,” says a senior executive. Adds another: “It was a colossal waste of time.”
But perhaps none of these incidents damaged morale more than Mayer’s reorganization of Yahoo’s product teams. When Mayer launched the effort last fall, everyone agreed the existing structure had outlived its usefulness—for instance, mobile products was partitioned from other groups. But Mayer embarked on the process without laying out a grand vision for it. Instead, she began sketching out different scenarios in one-on-one meetings with various executives, floating one plan by one exec and a different by another. Unable to make up her mind, the process dragged on for months. “She went through 20 different permutations,” says an executive with knowledge of the process. “The product guys were twisting in the wind, not knowing what they were going to run.”
Product releases slowed to a trickle, and a turf war brewed as executives became concerned with their futures. Jon McCormack, a star executive who had joined Yahoo in January from Amazon and was promised a broad engineering portfolio covering critical areas like mobile, landed in the vacuum created by Mayer’s indecision. He was gone by the end of February and now works for Google. When Mayer announced the new structure in April, it was too late. “That was the beginning of everyone losing faith,” says another senior executive. “That’s when people started to look for other jobs.”
FASHION BLOGS and society pages always go crazy for the Metropolitan Museum of Art’s Costume Institute Benefit, New York’s most exclusive and chic event. This May, somewhere between the entrances of Lady Gaga and George Clooney, there was Mayer, strolling the red carpet in a scarlet Oscar de la Renta beaded gown. Mayer was ­cochair of the event, along with Wendi Murdoch, actresses Jennifer Lawrence and Gong Li and Vogue editor Anna Wintour.
Yahoo paid close to $3 million for the privilege—$2.5 million for the sponsorship and the rest for ancillary events. Besides the celebrity press photos and mentions of Mayer in her dress, Yahoo didn’t have much to show for its money. Its name was mentioned on the program, but its iconic corporate logo was nowhere to be found. Yahoo ad sales executives hoped to invite their best clients to sit at one of their two tables, but Mayer instead filled them with a few employees and a larger group of friends.
Yahoo Styles, the one property that could have materially benefited from Yahoo’s largesse at the gala, saw a drop in audience that month, and its overall traffic is down 54% in the U.S. in the past year, according to comScore.
That sad formula—expenditures without offsetting results—abounds. Despite millions spent on acquisitions to build a first-class mobile development team, the only Yahoo app in Apple’s top 100 is Yahoo Mail, at No. 84 in mid November. (Tumblr hovers around 100th place.)
Yahoo’s media investments have fallen short, too. Traffic to Yahoo Screen, which includes many of its video initiatives, is down 50% in the last year, according to comScore, and Yahoo is taking a $42 million writedown on video investments like Community, an original video series, because, in the words of chief financial officer Ken Goldman, “We couldn’t see a way to make money over time.” Yahoo Beauty and Yahoo Health are down 33% and 11%, respectively. The one Yahoo property that is up significantly is Tumblr, whose usage rose 56% in the U.S. in the last year. Yahoo has said that Tumblr will be a $100 million business this year. Yet Facebook-owned Instagram, whose global audience is comparable in size to Tumblr’s, is expected to bring in nearly $600 million, according to eMarketer. While Mayer likes to trumpet the rapid growth of her “MaVeNS” (mobile, video, native advertising and social) to $420 million in the most recent quarter, that growth has not been enough to prevent Yahoo from contracting. Mayer’s original turnaround strategy was to be built on “people, products, traffic, revenue,” in that order. She initially brought some good people, but hasn’t delivered on products, traffic or revenue. And now, the people are fleeing.
Wall Street has largely ignored the tumult and the disappointing results for a simple reason: None of it matters to investors—for now. Yahoo shares have been little more than a tracking stock of Alibaba, the Chinese Internet giant it acquired a big stake in years ago. Once the often delayed ­spinoff of the Alibaba shares goes through—it is expected to do so by January—Yahoo’s core business will come into sharp relief. Mayer has said she plans to “narrow our strategy and focus on fewer products,” and has hired McKinsey to go through what some executives believe could be a cut of 2,000 or more jobs. Speculation that a private equity buyer could sweep up what’s left is rampant.
Plenty of Yahoos still say they “bleed purple”—a shorthand for their loyalty to and love for the company. They bemoan its descent into irrelevancy with sadness and insist that lots of talent and valuable assets remain. One product expected to survive Mayer’s knife is Index, a mobile search service and platform comparable to digital assistants like Google Now and Microsoft’s Cortana. The product is months late, according to insiders, and Yahoo employees are divided on whether it has a shot at competing with rivals. Investors are skeptical. Today Yahoo accounts for only about 12.7% of searches in the United States, down from about 13% when Mayer took over. Even insiders say virtually no one deliberately seeks Yahoo search when they decide to look for something. “She says she’s going to change how people are going to search on mobile,” says Ben Schachter, an analyst with Macquarie Group. “My answer is, ‘Good luck.’ ”
Things have become so dire that some insiders are speculating that Mayer will throw in the towel and look for a graceful exit—perhaps using the birth of her twins, expected around the New Year, as a reason to step down. Others say that’s nonsense and that Mayer will continue to fight, as long as the board keeps her on the job.
The outcome of Mayer’s turnaround efforts, if not her chosen path or methods, may have been inevitable. About a year into Mayer’s tenure a group of a dozen or so executives from Yahoo’s glory days gathered for a private dinner at a Silicon Valley mansion. There was lots of reminiscing and, as the wine flowed, the topic of Mayer inevitably came up. She was a good hire, perhaps a great one, many agreed. But would she succeed? Not one of the executives thought so — and not one could articulate a plan to make Yahoo grow again.

Miguel Helft is the San Francisco Bureau Chief for Forbes. Follow him on Twitter at @mhelft.