When Yahoo announced a year ago that Google vice president Marissa Mayer would become the company’s next CEO, Wall Street pundits had divergent reactions. Some lauded the choice as inspired, while others, like CNBC’s Herb Greenberg, were openly skeptical. “I don’t know what the Yahoo board was thinking,” he said on the show in July 2012. Running Yahoo is a “remarkable challenge for someone [who] has no real leadership experience.”

Fast-forward a year later: Yahoo’s stock is up more than 70%, although it is partly due to an earnings lift from the company’s stakes in Alibaba Group and Yahoo Japan. After making sweeping updates to Yahoo’s products and clinching bold acquisitions such as Tumblr, 38-year-old Mayer, the youngest female CEO to lead a Fortune 500 company, seems to be slowly turning around a demoralized, beleaguered company that Bloomberg Businessweek once called “Silicon Valley’s favorite wounded duck.”

Mayer herself has plenty of buzz: The latest bid for a lunch with her on a charity auction site earlier this week was more than $77,000, compared to $3,450 for former president Bill Clinton and $3,500 for a private cooking lesson for two from Martha Stewart. But more than her hip factor, Mayer has street cred that Silicon Valley can respect — a Stanford graduate with degrees in symbolic systems and computer science who earned her tech chops at Google as head of search and was responsible for key products such as Maps, Earth and Street View. “She’s certainly taking steps to shake things up and move [Yahoo] forward,” says Kendall Whitehouse, technology and media editor at Knowledge at Wharton. “That’s a good thing — and long overdue.”

But is she effective? “I give her an incomplete,” says Wharton marketing professor Peter Fader, who is also co-director of the Wharton Customer Analytics Initiative. “People are talking about [Yahoo] again. Does it translate to sustaining value? That remains to be seen.”

Mayer has been busy. In the past 12 months, she has articulated an identity and vision for Yahoo that some feel the firm had been sorely lacking for years. After hitting its heyday as one of the most popular web portals in the late 1990s and early 2000s, Yahoo lost its way as the technology wave moved to search, then social networking and now mobile. Mayer wants to make Yahoo relevant again by establishing an identity that fits in with the digital revolution. “Yahoo is a consumer Internet company, and consumer Internet is a growth industry,” Mayer said in a conference call with analysts in April to discuss first-quarter earnings. “Personalization will be a key differentiator for us going forward, not only for content but also for advertising.”

Her vision of Yahoo’s mobile future came from a simple exercise: listing all the things that people do with their smartphones. At the World Economic Forum in Davos, Switzerland, in January, she told Bloomberg Television that in addition to phone calls and texts, the top activities on smartphones were checking e-mail, weather, news, stocks and sports scores, as well as sharing photos, watching videos and playing games. Mayer said she realized that Yahoo provided much of the mobile data that formed people’s daily habits. “We have all the content people want on their phones,” she said.

Mayer is convinced the next big wave in technology is personalization of the Internet and she wants Yahoo to be a leader in the space. The web is becoming so vast with all the content and information that is created, “so how do you pull all of it together?” she asked on Bloomberg Television. “It’s really the Internet ordered for you. [Personalization] brings Yahoo back to its roots. Yahoo [first] took the Internet and ordered it up,” she said, referring to the company’s beginning as a directory of hierarchically ordered websites.

But it is not enough for Yahoo to become a jack-of-all-trades — to do a number of things reasonably well but not master anything, Fader points out. “It’s important for them to have something, one thing that they’re really, really good at,” he says. “If the industry is fairly commoditized with many equal players,” Yahoo could be a solid second or third player. “But that’s not the market [Mayer’s] operating in.” Her rivals include Google, Facebook and Amazon, all of which are “formidable,” Fader adds. “They have extra deep pockets, and they are just so good at what they do.”

Google so dominates search that it holds a commanding lead in the market, Fader says, and it subsequently built auxiliary services around search such as mail, maps and photos. Facebook is the top social network with other rivals lagging far behind, while Amazon is the undisputed leader in e-commerce. The gap between these companies and their number two rivals is “massive,” Fader notes, which is why Yahoo needs to develop an expertise to attract new users and then support it with other services. Instead, according to Fader, Yahoo has been coasting along, surviving on its legacy customers — people who have not left because they got used to the portal. But these consumers cannot propel the company ahead. “There has to be a hook to make Yahoo a meaningful destination,” Fader states. “You can’t count on that legacy forever.”

Yahoo’s niche, Fader adds, could be mobile, a rapidly evolving sector that is still is a bit like the “Wild West…. There’s no obvious winner. Maybe that’s the space she’s going to own.”

Wind Sprints

Mayer has characterized her turnaround efforts as a series of “sprints,” according to her April earnings call. In her first “sprint,” she said, her goal was to bring excitement back to the workforce, attract top talent and make Yahoo “fit.” To that end, she has replaced employees’ BlackBerrys with iPhone and Android smartphones to keep them up to date with the latest technologies, The New York Times reported in a March 5 story though not without some controversy. Mayer has started providing free food to employees as well and ended telecommuting to boost collaboration,

“Mayer has done some good things quickly to which the market has responded positively,” says Lawrence Hrebiniak, an emeritus professor of management at Wharton. For one thing, “she has tried to revamp Yahoo’s culture to make the company more nimble.”

She updated the Yahoo homepage — its first refresh in four years — to make images larger and the user interface slicker. There is a horizontal, scrolling bar with quick links to the latest news, as well as a list and short synopses of top news below. Mayer also revamped Yahoo Mail, Search and photo-sharing site Flickr, giving away a terabyte of storage in the latter to beat the amount of space offered by rival free photo sites. Flickr now supports high-resolution photos and introduced an Android app. “The changes [at Flickr] are quite significant,” Whitehouse states. “This is a very big step forward for free users of the service.”

Mayer also decided to stop offering Flickr’s professional accounts for $25 a year, although existing “pro” users will be allowed to keep the status quo. Yet some current customers are worried the company will eventually drop the “pro” features. “There’s a danger in alienating long-time paying customers,” Whitehouse notes. But Fader says that such risks are often the price of change: Mayer is trying to reimagine Yahoo’s direction as a company. “That requires tough decisions and she’s making them.”

Yahoo’s second “sprint” is to “build beautiful products” and execute them well, Mayer said during the earnings call. “This is really the fun part. This is where we get to really think about how we can inspire and delight our users and how we can provide them with amazing features.”

Focus on the User

According to Wharton operations and information management professor Kartik Hosanagar, Mayer is trying to “focus a lot more on user experience and content and trying to build the company around four pillars that generate eyeballs: mail (Yahoo Mail), social (Tumblr), photos (Flickr) and search. I suspect offering a good search user experience is high up on Yahoo’s agenda even if the backend is serviced by partners. The only other key content pillar missing is video. I won’t be surprised if Yahoo goes after a big acquisition on the video side as well.” Indeed, Yahoo is rumored to be interested in online video site Hulu, AllThingsD reported on May 26.

After two full fiscal quarters under Mayer, Yahoo’s financial performance is mixed. In the fourth quarter of 2012, the company posted a 2% increase in revenue to $1.35 billion, its first gain in four years. The results prompted research firm eMarketer to raise its forecast for Yahoo’s 2013 net revenues to $3.28 billion, an increase of 3.2% compared to the prior projection of a 2.2% gain. While Yahoo’s U.S. ad revenues grew in 2012 for the first time in years, the research firm said, it is expected to continue to lose market share in search to Google and Microsoft. Moreover, Yahoo’s display ad revenue is expected to grow far slower than the industry.

Financial results were lackluster in the first quarter of 2013. Yahoo said revenue fell 7% to $1.07 billion. Excluding traffic acquisition costs, revenue was flat year-over-year. Net income did beat Wall Street’s expectations, but largely as a result of lower costs. The core business suffered: Display ad revenue fell 11%; the number of ads sold tumbled by 7% and price per ad declined by 2% excluding South Korea. Search revenue fell by 10%. Excluding South Korea, paid clicks rose by 16% but price per click fell 7%.

Mayer, however, noted positive trends within Yahoo in the quarter. After the homepage revamp, interactions were up more than 25%, she said during the earnings call. Since launching Yahoo Mail for iOS, Android and Windows 8, daily active users on the apps were up more than 50%. Search traffic was up as well, she said. In March, Yahoo had more than 300 million mobile monthly users, up from 200 million at the end of 2012.

The culture at Yahoo is becoming more attractive, too, Mayer suggested, noting that the number of people applying for jobs in the first quarter has nearly doubled from a year ago, while the attrition rate for top talent has been halved. Meanwhile, one in seven hires in the quarter were “boomerangs,” or former staffers returning to Yahoo. “Today, more people are planning to work at Yahoo and more employees are staying,” Mayer said. “Companies with the best talent win, and it’s clear we’re now back in the game.”

Mayer’s search for the best engineering talent and technology also motivated her to make a series of acquisitions, the biggest of which is the $1.1 billion purchase of Tumblr. Other purchases include news summation site Summly, which she bought from a U.K. teen, mobile recommendation site Stamped, to-do app Astrid, video chat startup OnTheAir, Pinterest-like social content curator Snip.it, mobile recommendations app Alike, personal recommendation site Jybe, conference-calling service Rondee, photo app maker GhostBird and games software provider PlayerScale.

“Growth certainly seems to be a strategic goal,” Hrebiniak says. “Acquisitions such as Tumblr and perhaps Hulu will add eyeballs and growth as portals with access to more people.” Instead of shrinking Yahoo to focus on a few services, Mayer seems intent on broadening the company’s products. “Rumors of additional acquisitions would suggest a broad-based growth strategy rather than a focused thrust in a dominant area like search,” he adds.

Diversification Drive

Such diversification has its benefits. If Yahoo focused on delivering only a few services, it risks boring users who could quickly flee. Hrebiniak cites a recent Piper Jaffray survey of teens that showed a declining fascination with Facebook: 33% listed it as their most important social network, down from 42% last fall. “This suggests that it’s tough staying relevant, cool or hip, especially with the young, heavy Internet users. Focusing on one thing or a core product may eventually lose eyeballs,” he notes.

Mayer is adding considerable eyeballs with the purchase of Tumblr and its 300 million monthly users. Together, Yahoo and Tumblr will now reach more than a billion users, Mayer said at the New York press conference announcing the acquisition. Tumblr also is home to 108 million blogs and 50 billion individual posts. Users of the blogging site collectively spend 24 billion minutes a month on it, one of the highest user times on the web, Mayer noted. To keep users from leaving, she pledged to keep Tumblr independent. “We are not going to screw this up,” she said at the event.

Yahoo’s chase of users is indicative to Whitehouse that Mayer’s strategy is to make Yahoo a greater player in advertising rather than moving to a partial subscription platform. “It’s a strong indication they are doing everything they can to strengthen their properties as platforms for advertising,” he says. Another example is Mayer’s decision to close Flickr’s premium advanced photography account to new users and move most people to an all-free format. That means Mayer wants to get as many users as possible so she can sell more ads against them. “Underlying those moves is her attempt to re-establish Yahoo as a significant advertising platform,” Whitehouse notes. “All seem to fit into that pattern.”

It is not hard to spot a Google-like approach in Mayer’s moves. “There is no doubt that Marissa’s Google experience influences her actions at Yahoo,” Hosanagar states. For example, the design of Yahoo Search has been simplified to focus on search results and less on other content. “The Google touch is clear,” he says. “This is all not surprising because the Google approach is clearly in her DNA.”

For her efforts thus far, Mayer received a 2012 compensation package worth $36.6 million, mostly in stock awards. Last year, the Yahoo board passed over interim CEO Ross Levinsohn for Mayer because she was seen as more of a “visionary,” Hrebiniak notes. But whether or not she can bring back the mojo to Yahoo is still up in the air. “They’re putting her on a pedestal,” Fader says. “At some point, she has to deliver.… That’s why she earns the big bucks.”