Rumors abound that Yahoo is set to cut 1,500 to 2,000 employees, under a plan being weighed by CEO Jerry Yang. Sadly, layoffs now only seem logical: Yahoo is doing too much, to too little effect. Extraneous projects are staffed by personnel who should be doing more productive work, or none at all. Cruel? It's capitalism — a notion Yahoo has struggled with since its birth. But it's also not a solution to Yahoo's problems. Simple math shows why.
Yahoo has 12,000 employees; they are generating approximately $7 billion in annual revenues. Google has 16,000 employees, generating nearly $17 billion. (For this calculation, I've used the companies' third-quarter revenues and annualized them.) Google's employees generate more than $1 million a year in revenues apiece; the average Yahoo employee, only $620,000. Meanwhile, Google spends exactly twice as much on R&D as Yahoo does.
Cutting Yahoo's employee numbers by 2,000 would raise Yahoo's productivity to $750,000 per employee — still far short of Google. (That assumes, optimistically, that the cuts have no effect on revenues.) Layoffs, in short, are not a strategy for competing. They are, however, a strategy for selling.
Microsoft, persistently mentioned as a possible buyer of Yahoo, presently generates $700,000 per employee. Yahoo in its current state would drag that number down. A shrunken Yahoo, by contrast, would improve Microsoft's efficiency.
Will Yahoo cut itself down to size? One has to think even employees are hoping so. Not because they want to lose their jobs, but because they want to see Yahoo do something, anything. And there are certainly enough underemployed types at Yahoo who could stand to have more work handed to them. Management may have gotten Yahoo into this pickle. But it will be up to the rank and file — those who are left — to get it out.