What Will It Take to Fix Yahoo!?

Analysts: Ditch Yang, Get a Strategy, ‘Grow Up’

Yahoo! Inc. (YHOO), fresh off its stunningly bad third-quarter earnings, is floundering. Bested by rival Google Inc. (GOOG) when it comes to, well, just about everything, and lacking any apparent strategy, Yahoo! has plenty of work to do to regain its status as an Internet pioneer. To get there, analysts say, the Sunnyvale, Calif.-based company needs to tackle two entrenched, intertwined problems: Inadequate management and an ineffective game plan.

First up, the management dilemma. If there’s one aspect about which analysts agree, it’s that Yahoo! co-founder and CEO Jerry Yang has got to go. Whether he’ll be ousted or agree to step down, however, is up for debate. Some experts predict Yang has to turn around Yahoo! by the beginning of 2009’s first quarter or say goodbye to his job. Some say he has until the end of that quarter. Still others think he has another year. Regardless, they all concur — Yang is not the man to cure Yahoo!’s ills.

“I think it’s clear that it’s time for Jerry Yang to go,” said Daniel Taylor, senior analyst of digital media for Yankee Group. “It wasn’t clear a year ago. ... He came back in, said, ‘We need to restructure.’ We have Susan Decker in there — she’s supposed to be some brilliant, hardworking genius ... but a year down the road, I don’t know. I’m not impressed.”

Yang took over in mid-2007 when Yahoo!’s six-year CEO, former Hollywood exec Terry Semel, resigned without notice. But Semel was, in Taylor’s words, “useless.” Yahoo! made money under Semel’s watch, although not enough to justify his paycheck. In 2006, with stock options and bonuses, Semel’s compensation totaled $107.5 million. That angered shareholders, who felt Semel was raking in income while depriving them of the kind of value Google investors were getting.

Yahoo!’s key problem seems to be its lack of focus. The company is tops in terms of e-mail users, and it’s made some interesting acquisitions in photo site Flickr; Jumpcut, an online video-editing platform; and del.icio.us, the bookmark-sharing service. Yet nothing has electrified investors or stood out as a clear strategy for the company.

“I don’t think Yahoo!’s really thought about what they want to be when they grow up,” Taylor said.

Yahoo! does social networking. But Yahoo! 360 in no way measures up to Facebook or the News Corp.-owned MySpace. Yahoo! does photo sharing. But Flickr isn’t monetized the way it could be. Yahoo! does e-mail. But it hasn’t figured out how to target advertising as Google has done with Gmail. None of those properties has been “utilized to their fullest potential,” said Mukul Krishna, director for digital media at Frost & Sullivan.

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