Yahoo’s Former Chief Data Officer On Their $800 Million Mistake (TCTV)

Dr. Usama Fayyad has worn several hats at NASA’s Jet Propulsion Lab, Microsoft, his startups DigiMine and DMX, and of course, at Yahoo where he was their Chief Data Officer for four years.

It’s a rich resume with one unifying theme: data. Few people have spent as much time as Fayyad ruminating on this one subject. From finding volcanoes on Venus to creating better algorithms for ad targeting, Fayyad has made a career on crunching massive data sets and creating elegant algorithms to make sense of white noise. It’s somewhat ironic then, that for a man who lives in data, there is actually very little known about what makes Fayyad tick as an entrepreneur and how he shaped the companies he worked for.

In a rare video interview, SGN founder, Shervin Pishevar, recently spoke to Usama Fayyad in Jordan for TechCrunch TV. During this entrepreneur-to-entrepreneur fireside chat, Fayyad opens up about his obsession for data, how he sold his company to Yahoo (after the 6th offer), how Yahoo made an $800 million mistake (that may have triggered the giant’s ugly tumble) and how he almost became the CTO of Google. Many thanks to Shoo Fee TV, a content provider and aggregator of Arab satellite channel listings based in Jordan, for shooting this video.

While there are golden nuggets scattered throughout this interview, the discussion on Yahoo is particularly rich and focuses on the rocky period leading up to Microsoft’s now famous (and failed) takeover bid.

Fayyad describes a torn management team that was searching for direction and clear priorities. At one point (presumably mid-2007), Jerry Yang, then CEO, tried to reassemble a list of 7 priorities, ranked according to importance. One of the top debates was whether Yahoo should focus on becoming an ad network or an ad exchange. Fayyad, the chief data officer, thought it was a misplaced debate, that Yahoo should be paying more attention on the growing gulf between Google and Yahoo’s revenue per search (RPS).

At the time, Yahoo was making roughly “1/6 the money that a search on Google was making,” he says. Fayyad was ready to go to war, with roughly a dozen development projects lined up to “close the gap.” According to his calculations, through these initiatives, Yahoo would have pulled in $800 million in incremental revenues within the year.

Those “close the gap” plans were never fully executed, as management went a different direction—- still captivated by the prospect of gold at the end of the ad network/exchange rainbow. As Fayyad explains:

“I was on the camp that said ad exchange is the wrong thing for  Yahoo to do, primarily for two reasons:  because Yahoo is a big publisher itself so it’s a competitor so how could it run an exchange, can we expect Google to put its inventory on Yahoo, or Microsoft?  The other one was that, exchanges as we all know, publishers will never put their premium inventory on exchanges they only put their crap inventory, so to me an outlet of crap inventory is not necessarily a very interesting thing.

But at the time, through a debate between the execs, it was decided that of the seven priorities, of the company, CTG or close the gap fell from #2, which is where i thought it should be  (#1 being business up, site up meaning the site is up…) it fell to #7, while ad netowrks and exchange taking up… 2 and 3. So to me that bypassing of 800 million revenue of extra cash in the hands…like i said 20/20 hindsight… at the time people were very worried that we would lose the opportunity to take the leadeship in ad network and in ad exchange and they valued that much more than immediate cash. Now me being the pragmatic, startup scruffy guy, I wanted the cash in the bank, give me the cash and then later let me fight my war. I claim and this is my explanation, once we missed that 800 million in additional revenue, stock goes down, Mr. Ballmer shows up, bad offers, cycle, cycle, cycle, expectations of the street goes down, and it was a really bad spiral that the company got into.”

Assuming Fayyad’s $800 million estimate is correct (it’s not that outlandish when you consider he grew Yahoo’s behavioral targeting business from $20 million to $500 million in four years), that’s a fascinating “what if” scenario. There’s no doubt that Yahoo could have used that cash in hand while it chased the two birds in the bushes.

Interestingly, despite his deep disappointment with the reorganization, he stayed on a little longer after a talk with Yang. The soon to be ex-CEO convinced Fayyad that a new strategy was underway. And indeed, that summer Yahoo rolled out an exciting vision at a splashy corporate event. Yahoo even tapped Steve Jobs as the keynote speaker, to deliver his inspirational story about how he turned around Apple. Unfortunately, for Fayyad, expectations never quite lived up to reality, as he says in an almost plaintive tone: “We came up with a beautiful plan and there was no execution because the company had gone through so much turmoil.”

In total there are roughly 30 minutes of footage of Pishevar’s interview with Fayyad, which I’ve divided into five topics: the development of his startup, how he made the case for data at Yahoo, that $800 million-dollar mistake (see above), his brush with Google and finally his latest venture, Oasis 500, a startup accelerator for entrepreneurs in the Middle East. If you want to see parts one to five from end to end, check out the last clip.

Watch out: The globe trotting Pishevar, who has just wrapped up a tour of the Middle East and is preparing to meet new entrepreneurs in Asia, will be submitting future entrepreneur-to-entrepreneur videos to TechCrunch TV.

In part one of this series, Fayyad talks about how his early years at NASA influenced his ideas on data and how DigiMine came together.

Fayyad discusses how made data/analytics matter at Yahoo:

If Fayyad took a left turn, he could have been the CTO of Google. In this clip, he recalls a conversation with Sergey Brin, when Google was in its infancy. The blunt Fayyad told Brin that Google had no business plan.

In part five, Fayyad discusses his new investment fund Oasis 500, which will help budding entrepreneurs in the Middle East. Although entrepreneurs have decent access to VC money in this region, there is very little capital available for young companies.