Yahoo’s Critical Next Moves

Is it business as usual or a company reeling from the imminent departure of its CEO?

To hear Yahoo tell it, its operations will continue normally, with Jerry Yang maintaining his CEO role until a successor is found. Yang announced his plans to cede the CEO slot late Monday in an e-mail to employees as well as in a Yahoo (NASDAQ: YHOO) press release.

The day after this news, Yahoo’s shares closed up 8.65 percent Tuesday to $11.55, but the shares have been in free fall since the company rebuffed a buyout offer by Microsoft for $32 per share and, more recently, an ad revenue-sharing deal with Google (NASDAQ: GOOG) fell apart.

“Jerry’s remaining as CEO until a successor is named and we’re executing on our strategy,” Yahoo spokesman Brad Williams told InternetNews.com. “Were proud of the progress we’ve made this year to strengthen the company’s position as a must buy for advertisers and as a starting point for consumers and as a more open and social platform.”

Williams also said the search for a new CEO has only just begun and there are no candidates scheduled for interviews. Yahoo said it’s hired the executive search firm Heidrick & Struggles to help it find candidates, though it also noted internal candidates would be considered.

Dithering with Microsoft

But a slow pace for Yang’s successor is not what outside observers want to hear.

“The fact is Jerry dithered with Microsoft; he was the guy in the way,” said technology forecaster and analyst Paul Saffo. “Yahoo is a huge, successful property, but the hour is getting late. The question is where do the dice land after Yang? I don’t think it’s a foregone conclusion Microsoft comes in and gets Yahoo at a bargain price. Icahn isn’t going to allow a fire sale.”

Carl Icahn is the big Yahoo investor who pushed for a sale to Microsoft and was critical of Yang reluctance to pull the trigger. He’s now a board member of Yahoo. After negotiations broke down, Microsoft CEO Steve Ballmer said he wasn’t interested in buying Yahoo anymore. A Microsoft spokesperson said the company had no comment on whether Yang’s decision changes anything or if the company has renewed interest in buying Yahoo.

Before negotiations shut down, Yahoo also rejected a lesser deal proposed by Microsoft, to buy Yahoo’s search business. In a rare interview, Yang discussed his dealings with Microsoft at the recent Web 2.0 Summit. He repeated earlier claims that it was Microsoft that broke off negotiations, going so far as to say “the best thing Microsoft could do is buy Yahoo.” But he also rejected the idea of selling off the search portion of Yahoo’s business.

“At the end of the day it’s incredibly important we compete vigorously in the search market,” he said. “There is a perception we’re not doing well, but we’re doing better now in search than when we started talking about this deal” with Microsoft.

Next page: What’s next?

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What’s next?

Gartner analyst Andrew Frank agrees the Microsoft fiasco left Yahoo with a perception problem. “This is not a company losing money like others we talk about,” he told InternetNews.com. “The destruction of their market value is proceeding faster than their revenues and profit. Things could be a lot worse.”

Frank thinks it’s important Yahoo bring in someone as CEO with a successful track record in the tech sector that will instill confidence with Wall Street and employees. “Someone who’s a known quantity and a savvy deal maker,” said Frank. “As opposed to [former CEO] Terry Semel, who was a media guy.”

To Frank the deal making aspect is key, because he feels Yahoo needs to continue making alliances and investing to grow. “I don’t think Yahoo’s best strategy is to try and trim its way to profitability,” he said.

Saffo thinks whoever gets the CEO post, the important thing is that they identify what’s most important to focus on and have time to execute. “There are so many moving pieces at Yahoo, it’s hard to see what piece is going to matter the most,” he said. “You need someone who is going to execute short term actions that have a long term horizon. And do that with the approval of the board. That’s a tall order.”

Advertising executive Kathy Sharpe, CEO of digital marketing agency Sharpe Partners, agreed Yahoo needs more focus. “The business has changed and Yahoo hasn’t always changed with it,” Sharpe told InternetNews.com. Yang has pushed the idea of Yahoo being the consumer’s “starting point” on the Internet, but Sharpe thinks that idea is outdated.

“The starting point idea is so 1997, like portals. Portals are dead,” said Sharpe. “We all have our own starting point in our heads, which is ‘where do I need to go right now?’ Sometimes it’s Google, sometimes it’s a Yahoo site or somewhere else.”

Sharpe suggests Yahoo needs to lock in its relationships with advertisers, cutting deals where necessary to ensure continued revenue from that part of the business or risk losing to competitors. She also thinks Yahoo has neglected parts of its business that could benefit from more attention. “They have a great property in Flickr, but I don’t see it upgraded or really incorporated into their ad strategy,” she said.

As for the next CEO, Sharpe isn’t placing any bets. She said Yahoo needs a tech visionary like Apple’s Steve Jobs. “But there aren’t many of him around,” she said.

Analyst Frank said Yahoo’s challenges may seem daunting, but he thinks the company will have plenty of candidates to choose from. “You could ask who wants to be President of the United States with all our problems, but people seem to show up,” he said.

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