INTERNET GIANT EXPECTED TO REFOCUS ON TECHNOLOGY UNDER NEW CEO YANG AFTER LOSING MARKET SHARE TO GOOGLE
Article Launched: 06/19/2007 01:29:10 AM PDT
Earlier this decade Yahoo gambled that content and Hollywood would be the key to its success.
Google banked on technology.
Monday's dramatic shake-up at Yahoo, with the ouster of showbiz veteran Terry Semel as CEO and the installation of co-founder Jerry Yang and financial wizard Sue Decker at the helm, is a long-awaited acknowledgment that Yahoo's bet was the wrong one. Yang as chief executive and Decker as president are expected to refocus the Sunnyvale Internet giant on technology.
But is it too late?
While Semel, 64, oversaw a turnaround following the dot-com collapse of 2000, he has been under fire in recent years as Yahoo has been increasingly eclipsed by Google.
After failing to buy Google in 2002, Semel bought advertising technology that had inspired Google's business model - but failed to make integration a top priority until last year. The delay allowed Google to ring up $10.6 billion in advertising sales in 2006 - 40 percent more than Yahoo - while claiming 48 percent of the U.S. search market, compared with 28 percent for Yahoo, according to comScore.
Yahoo at the same time focused on content partnerships, often with the Hollywood studios that Semel used to work with. Google focused almost obsessively on improving its core search technology.
The result: Yahoo's value has fallen by more than 35 percent since early 2006. A delay of new advertising software and a steady exodus of talent have prompted concern that the company has lost its competitive edge.
These numbers prompted Yahoo's shareholders to send Semel a powerful message last week that they didn't believe he was worth his paycheck, which would have been $71.7 million if he had remained at the company.
Even California Gov. Arnold Schwarzenegger took a dig at Semel at a dinner for entertainment honchos held at the Tech Museum in San Jose last week. Schwarzenegger noted that he did not accept a salary as governor "unlike Terry," who was one of the hosts.
In a letter to the board of directors, Semel noted he had desired to step back for some time. "It is the right thing to do, and the right time is now," Semel said. He will continue to serve as chairman of the board of directors.
Yahoo said it will not be paying Semel severance and that he will forfeit any unvested options.
Semel's options, which were worth $71 million in 2006, prompted a shareholder revolt at Yahoo's annual meeting last week. About one in three shareholders voted not to re-elect three members of the board of directors who made up the compensation committee.
Pat McGurn, executive vice president and special counsel of Institutional Shareholder Services, said the vote provided a catalyst for the board to act. "I think this was all about performance," he said.
"I am excited for the company," said Eric Jackson, a shareholder who sparred verbally with Semel at the meeting. "I think Jerry Yang and Sue Decker are very capable, and they will bring a lot of energy and passion to their new, enhanced jobs and will ultimately do a great job at leading the company."
Although Yang, 38, has never been chief executive of Yahoo, he has been part of the management team - with the title "chief Yahoo" - since co-creating the site with David Filo in 1994.
"They have got the right guy," said Allen Weiner, an analyst with Gartner who has known Yang for more than a decade. Weiner said having an engineer in charge will help motivate engineers and attract technical talent.
Yahoo's stock jumped almost 3 percent to close at $28.12 after the news leaked. The stock climbed an additional 4 percent in after-hours trading after the news was confirmed.
But some analysts were skeptical that the management change would solve Yahoo's problems, which include weakness in selling advertising on Web sites not owned by Yahoo.
Indeed, Yahoo's woes led the Sunnyvale company to enter into talks with Microsoft, which reportedly drafted a $50 billion offer to buy Yahoo.
David Garrity, research director of Dinosaur Securities, said the management shake-up increases the chances that Yahoo will be bought in the next 12 months.
While Semel was a lightning rod for criticism of the company, Yang deserved some of that scrutiny, said Trip Chowdhry, a financial analyst with Global Equities Research in Half Moon Bay. As an executive officer at Yahoo since its founding and its second-largest individual shareholder, Yang had the opportunity in recent years to help steer Yahoo in the right direction.
But he didn't take action until shareholders raised a fuss about Semel's compensation, Chowdhry said.
In a conference call with analysts, Yang described Semel as a "true role model and a mentor" who had fostered an open, honest culture. Yang said he had learned to be a better leader - and a better person - by watching Semel.
Yang and Decker endorsed Yahoo's current strategy and said deals with eBay, Comcast and a consortium of 12 newspaper companies, including MediaNews, the owner of the Mercury News, would lead to significant growth in the years ahead.
"Yahoo is a company that started with a vision and a dream, and make no mistake, that dream is very much alive," Yang said during the conference call. "We intend not merely to be a strong competitor but to be an even bigger winner in our industry."Sphere: Related Content