On Yahoo’s 20th Anniversary, its CEO presents a progress report on how she’s turning around—and maybe transforming—an Internet icon

It is sunset in Sunnyvale, but Marissa Mayer’s day is far from over. She has a keynote presentation at a mobile ad product launch coming up in a day, and the conference room near her corner office on the Yahoo campus shows evidence of careful preparation. Printouts from her slide deck are pasted on a six-foot-high piece of poster board. Her laptop is open. It is a little past 6 pm, and the 39-year-old CEO strolls into the room.

Our interview is starting, of all things, on time.

Maybe it’s happenstance, but the promptness seems just one more rebuke of what critics (many of them shareholders eager for quick returns) paint as a perpetually tardy CEO whose imperious style is just one impediment to pulling off a massive corporate fixer-upper that was probably impossible in any case. Off with her head, they cry, or, just as distressing, go off and merge with AOL and be sure to fire a lot of people. Despite a lift in employee spirits and stock price—Yahoo shares are about triple their value at the summer of 2012, when Mayer joined—her detractors are charging that it’s too little too late. And if haters ever run short of examples of Mayer’s failings, they can always turn to That Book, a takedown tome written by Business Insider’s Nicholas Carlson that Yahoo did not cooperate with and has consistently refused to comment on.

But Mayer and Yahoo are ready to tell a dramatically different story. During her two and a half year stint Mayer has frustrated the press by apportioning her availabilities with medicine-dropper penuriousness. The explanation was that she was relentlessly concentrating on the big job of “returning an iconic company to greatness,” a phrase she used in her most recent earnings call. When she had something concrete to report, she promised, she would open up.

That time is now. This interview comes on the heels of extensive sit-downs with the core of her executive team, with other ones to follow.

It’s a logical time to deliver her brief. Yahoo is marking its 20th anniversary, and Mayer wants the event to be seen as more celebration than wake. And after fending off wonkish calculations that the entire worth of her company was owed to its $40 billion share of the Chinese e-commerce giant Alibaba, Mayer has finally concocted a plan to get free of that gilded albatross without tax penalties or shareholder revolts. (It involves a deft spin-off of Alibaba stock into a separate holding company—more on that here.) From a valuation perspective, Mayer will now be standing on her own two feet.

But most of all, after 31 months at the helm of a company whose business model had been forged in the age of dial-up, Mayer wants to tell a story of progress. Here is her argument, as might be boiled down on Yahoo’s News Digest app, powered by technology she acquired in March 2013 by buying a company called Summly, headed by a precocious teenager:

She found Yahoo, despite its persistently huge audience, a sclerotic artifact of the desktop era, overly dependent on fading display ads, short of engineering talent and absolutely nowhere in mobile. And now the company is back on track. There are hundreds of new engineers, and an energized culture. Last year it reaped over a billion dollars of revenue in mobile ads — a business that didn’t exist at Yahoo when Mayer arrived. It bought Tumblr, which has 460 million users and is growing faster than Instagram. Yahoo has also built a system that allows app developers — the royalty of the new mobile age — to popularize and monetize their products. Meanwhile, Yahoo apps have won Apple Design Awards for two years running, and the company boasts over 500 million mobile users.

Does this mean Yahoo is officially back? Mayer refrains from making such a proclamation. Nevertheless, that’s the gist of what she’s saying.

“What I’m really proud about is building ourselves a future,” she says. “If you had told me two years ago we would basically have done this, I would have pinched myself. Does that mean that transformation is done? No. Does that mean we have successfully completed step one? That’s been great.”

Twenty Years of Triumph and Squander

March 2 is the 20th anniversary of the incorporation of Yahoo, which began as a handmade directory cataloguing the cacophony of sites appearing on the nascent World Wide Web. When I first visited the company in 1995, I described “a handful of windowless offices, some of them populated by exhausted programmers in sleeping bags.” You had to step over a stack of mountain bikes to see the servers, which then shuffled bits every day to what seemed then like an astounding million users. Even though I was a huge Internet optimist, I would never have imagined that that number would grow to its current billion. But then neither did Jerry Yang, who co-founded the company with his Stanford classmate David Filo. “We were in that startup mode where we were lucky to make it to the next day or next month,” says Yang, who is now a private investor. “We all had dreams and ambitions. But it wasn’t obvious to anyone, even ourselves, how big the Internet would be.” Filo was even more skeptical: “When we left Stanford, we thought the chance of this working out is probably pretty low and we’ll be back there 12 months later, grappling with our advisers to let us back in the program.”

That year, the co-founders made what Yang considers one of their smartest decisions, forgoing leadership roles in favor of a more experienced duo of top executives. The year after, in 1996, Yahoo went public, because that’s what baby Internet companies did back then. Yang would like to take that one back: he felt it was too early. “I remember driving home and coming into the office, and it was ‘Oh my god, what have we done.’”

In the short term, all was fine. The team led Yahoo to glory, defining the modern Internet portal, a digital Gladstone bag which either had or pointed to all you needed: mail, news, fantasy sports, financial information, video, music… you name it. Display ads—little billboards on the screen, often promoting brands— paid the freight.

Then came the dotcom bust, and Yahoo’s stock fell from a high of 108 to a bottom of four dollars. Yang notes that though the stock price had cratered, Yahoo’s user base kept growing. But because of its financial woes (that damn IPO!) Yahoo was ill-prepared to rise to the challenge of building a world-class search engine in 2000. Instead it licensed technology from a small company called Google; Yang and Filo had rejected an offer to buy the company several years earlier.

Later that decade, Yahoo’s new CEO Terry Semel, a Hollywood executive who joined in 2001, broke off the deal and starting rebuilding Yahoo search. It was a credible effort, but it would never catch up. Meanwhile, the could-a, would-a, should-a’s of Yahoo kept piling up. A decade after it first passed on Google, Yahoo almost bought Facebook: at the last minute, Semel reportedly decided to negotiate a lower price, and Mark Zuckerberg walked away from the deal. Semel left in 2007, pressured by outside investors; he is generally credited with expanding Yahoo’s audiences and revenues after the dotcom crash. The biggest coup of his regime was hardly noted: its prescient purchase (led by Yang) of a 40 percent share of a Chinese e-commerce company called Alibaba. But Yahoos now say that in those years, the company culture became more top-down, less geeky and less prepared to face the next wave of technology; Yahoo was tilting more media than tech. And its business began to struggle. “The company wasn’t setting itself up for success,” says Jeff Bonforte, then a Yahoo VP. “The world was moving away from Web 1.0 to Web 2.0. The smart phone was about to come out — and the company didn’t go full in.” (Bonforte joined the ongoing talent drain.)

In 2007, Jerry Yang once again became Yahoo CEO, inheriting a company on a downswing. He fought off a hostile buyout bid from Microsoft at $31 a share (Yahoo stock fell to $9 in the aftermath). Yang was elbowed out in 2009, replaced by a former CEO of Autodesk named Carol Bartz.

Somewhere in those years, Yahoo passed on the opportunity to buy Twitter, LinkedIn and YouTube.

Bartz quickly made a deal that haunts Yahoo to this day, outsourcing Yahoo’s search technology to Microsoft for ten years. “I was not a fan of giving up control over something so critical to the business,” says David Filo, who has kept his post as Chief Yahoo (concentrating on technology) since its founding. His worry was that the move would send a signal to top technical talent that Yahoo was no longer interested in cutting-edge computer science. “It probably played out even worse than I thought it would,” he now says.

Bartz was out in 2011 and Yahoo seemingly installed a revolving door with greased gears in its CEO suite for the next year: four leaders stepped up and down. The most spectacular flameout was former PayPal president Scott Thompson, who resigned after investors discovered falsehoods on his resume. Yahoo was at a precipice — was it a media company or a tech company? Could anyone restore it?

Mayer was the surprise choice: a widely respected technologist who had long been one of Google’s top product talents. When she told the Yahoo board she was pregnant, they didn’t flinch. The news of her hire stunned and generally delighted Silicon Valley. When I spoke to her briefly on the July 2012 day she was hired, I asked what she would take with her from Google to Yahoo. “Focus on the user,” she said.

“Given that she was the fifth CEO in twelve months, there was obviously skepticism,” says David Filo. “Everybody is going to wonder, Will this be the fifth and sixth or seventh or what? When is it going to stop?

“But her background was exactly what we needed.”

An App-y Beginning

Despite the skepticism, Mayer arrived at Yahoo on a wave of good will — employees made a poster of her in the style of Shepard Fairey’s Obama “Hope” poster. And she returned the favor by instilling Google-style perks such as free food and a friendlier IT policy at Yahoo. But the challenges were prodigious. Before she could tackle the product and revenue problems, she needed to identify the best current employees and buttress them with a wave of incoming talent. “We really needed to build ourselves a future,” she says.

She went about this with none of the confusion that racked her predecessors over whether Yahoo was a tech company or media company. She was a product person and wanted people who were going to build products for Yahoo.