Yahoo Inc Yahoo Inc One of the early sensations of the Internet by jvvignesh


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									Yahoo Inc.

One of the early sensations of the Internet age, Yahoo has become a collection of Web
sites that serves more than 700 million people, doing business in more than 20
countries. It is the Web’s fourth largest site; only Google , Microsoft and Facebook are

Yet, despite its huge audience and its dominance in online news, sports and
finance, Yahoo’s future is in doubt . Potential buyers have been circling to pick up parts
— or perhaps the entire company — since the messy firing in September 2011 of Carol A.
Bartz , Yahoo’s former chief executive.
For years, Yahoo’s board has been pilloried for a parade of missteps, including ceding
ground to upstarts like Google and Facebook and failing to sell itself to Microsoft in
Following the resignation of Jerry Yang, Yahoo’s co-founder, the company tried to
revive the troubled brand by announcing in February 2012 a major board shake-up,
 replacing nearly half of its directors. The company also named a new chief executive ,
Scott Thompson, former president of PayPal.
But, in early May, Mr. Thompson’s job came into question, when Daniel S. Loeb, a Yahoo
shareholder and the director of the hedge fund Third Point, accused the chief executive
of inaccurately stating his academic credentials and demanded his dismissal. Mr. Loeb
said that Mr. Thompson claimed degrees in accounting and computer science from
Stonehill College in Boston, but Mr. Thompson earned only an accounting degree, since
Stonehill did not offer degrees in computer science by the time he graduated.
On May 12, Mr. Thompson stepped down, after just four months on the job , sending the
flailing company into limbo once again.
Mr. Thompson will be replaced on an interim basis by Ross Levinsohn, Yahoo’s global
head of media. Alfred Amoroso, the director in charge of an internal inquiry into Mr.
Thompson’s record, will become the company’s new chairman.
The decision is meant to move Yahoo past one of the most embarrassing episodes in the
Web pioneer’s history as the company tries to revitalize itself.
Mr. Thompson’s departure also signifies a victory for Mr. Loeb, who had waged a bitter
proxy fight to get his nominees onto Yahoo’s board. Under the terms of the settlement,
Mr. Loeb will gain a board seat, as will two of his designees, Michael J. Wolf and Harry
Job Cuts Ahead of a Restructuring
In April 2012, Yahoo said that it would lay off 2,000 employees, or about 14 percent of
its workforce, as part of a broader restructuring effort. The layoffs are part of a
reorganization under Scott Thompson, Yahoo’s former chief executive.
Mr. Thompson told Yahoo’s remaining 12,000 employees that he was restructuring the
company around three core groups: “consumer, regions and technology.” The consumer
business will include media properties, commerce businesses like Yahoo Travel and
Yahoo Autos, and social media properties like Flickr.
Yahoo employees and investors have been waiting for the company’s management to
address its decade-long identity crisis, during which five chief executives were dismissed
in five years.
With 700 million visitors, Yahoo still maintains one of the largest audiences on the Web,
but has been unable to increase revenue. The company continues to cede advertising
market share to competitors, notably Facebook and Google, and has frustrated
shareholders with its reliance on cost-cutting rather than new areas for innovation and
Based on the restructuring, it appeared Mr. Thompson planned to hedge much of
Yahoo’s future on the media and content properties it hopes will tether visitors to its site
and lure back advertisers, as well as on the data it has on its users. Sources inside the
company said that it was unclear how the company would leverage the information to its
The company is also engaged in a patent dispute with Facebook. Yahoo sued Facebook
for alleged patent infringement in March, which prompted Facebook to file a countersuit
 in April. Facebook’s suit claims Yahoo violated patents responsible for some 80 percent
of its revenue in 2011, or more than $4 billion.
Talks With Asian Partners Collapse
During the fall of 2011, the board entertained multiple offers from a broad swath of
suitors. In late November, the company was leaning toward the sale of a minority stake
to private equity suitors. Separate investor groups led by Silver Lake and TPG made bids
to acquire stakes of roughly 20 percent.
By late December, the board seemed to be leaning toward a sale of its Asian assets in
the Alibaba Group and its Japanese affiliate back to their majority owners in a
complicated tax-free deal valued at about $17 billion.
But in February 2012, those talks collapsed . This sudden development raised new
questions about the future of Yahoo, which had counted on completing the deal to raise
billions of dollars to reshape its operations. It also put additional pressure on Mr.
Thompson to provide a clear vision of what the new Yahoo would look like.
Yahoo had been counting on financing the transformation, at least partly, by reaping
billions of dollars from selling back most of its 40 percent stake in Alibaba of China and
all of its 35 percent stake in Yahoo Japan.
But the talks to put together a tax-free transaction ended on Feb. 13, after several days of
negotiations in Hong Kong, according to people briefed on the matter.
Yahoo and Alibaba, which is led by Jack Ma, had tried to reach an agreement over
Yahoo’s stake several times before, including in late 2010. And Alibaba and
Softbank, Yahoo Japan’s majority owner, planned to reach out to Yahoo in hopes of
reaching an alternative deal, including one that was taxable, according to a person
briefed on the matter.
A taxable stake sale would bring in far less money for Yahoo, though it would at least
provide some additional capital to back Mr. Thompson’s turnaround campaign.
Partnering With ABC
Yahoo is known for its portfolio of media sites. In October 2011, the company announced
that it had partnered with Walt Disney’s ABC unit to showcase articles and videos from
ABC News, and to create a co-branded Web site for “Good Morning America.”
But the Yahoo sites also suffer from symptoms infecting the rest of the company: shifting
priorities and a shortage of innovation. Yahoo has another problem too: a lack of respect,
not only from an indifferent public, but also from advertisers and investors, who grew
impatient waiting for the turnaround promised by Ms. Bartz, who became chief
executive in 2009.
When Ms. Bartz was hired, she replaced the company’s co-founder, Jerry Yang, in the
uncertain aftermath of a failed takeover attempt by Microsoft in 2008. As chief
executive, she moved aggressively to focus on Yahoo’s strengths in news, sports, finance
and entertainment and on increasing revenue from online display advertising. She
engineered a deal that turned over its search operations to Microsoft, but that failed to
live up to expectations. After Ms. Bartz’s dismissal, Timothy Morse, the company’s chief
financial officer, was named interim chief executive.
Yahoo’s problems are not the kind that are easily fixed. Over the years, various people in
charge have neglected to develop the new social networking tools , video services or
mobile apps that consumers now prefer to use. In that way, the tale of the company’s
misfortunes is a vivid illustration of the transition from Web sites that publish
professional content to a new digital world dominated by mobile phones and sites where
the users are the content creators.
Yahoo astutely capitalized on the first huge shift in how people read — moving online
from paper — but failed to follow Internet users and advertisers to cellphone screens and
social networks. It has tried to become a media company. Meanwhile, the next
generation of companies, like Google and Facebook, have happily satisfied the demand
for information and entertainment — not by creating content but by building mobile and
social networking services that attract users and, increasingly, valuable advertisers.
A Directory of Interesting Web Sites
Jerry Yang and David Filo founded Yahoo in 1994 while they were Stanford University
graduate students. Yahoo was at first a handmade directory of interesting Web sites. The
site quickly evolved into the first and biggest Web portal. It offered pages on a range of
topics — news, sports, music and so on — mainly organizing content
created by other sites. And it offered services as well, like e-mail and instant messaging.
While many people saw Yahoo as a place to search the Internet, it originally did not
operate its own search engine. Instead, it used search from companies like AltaVista and
later Google. Indeed, Google got much of its early traffic and credibility from its initial
support from Yahoo.
The company ran into trouble when the Internet bubble burst in 2000 and 2001. Its
share price collapsed; it laid off employees, and it replaced its chief executive, Tim
Koogle, with Terry S. Semel, a former Warner Brothers executive. Mr. Semel tried to
diversify the company into fee-based services and online commerce. But it was Yahoo’s
advertising business that came roaring back, attracting marketers because it had the
largest audience on the Web.
By December 2002, the company acquired Inktomi, a search engine provider. And in
2003, it bought Overture Services, which sold search-related ads. With those two
companies, it began to compete head-on with Google, both as a search engine and in the
search ad business.
Google, however, continued to gain an increasing share of the search and advertising
markets. And Microsoft decided to enter those areas as well. With pressure on Yahoo
building, Mr. Semel resigned as chief executive in June 2007. Mr. Yang took over the top
management spot and appointed Susan Decker, a former Wall Street analyst, as
The company continued to retrench and disappoint investors. In January 2008, it said it
would cut 1,000 of its 14,000 jobs.
An Enemy Turns Friendly: Microsoft
Microsoft made a $47.5 billion hostile offer to buy Yahoo in 2008 after on-and-off talks
about a merger led nowhere. After a bruising four-month battle, Microsoft abandoned
the offer. Anger among Yahoo shareholders led to a management change and the
replacement of Mr. Yang with Ms. Bartz, an outsider.
A tough-minded technology executive and founder of Autodesk, Ms. Bartz had a
reputation for decisiveness. The board appeared to signal that Yahoo would undergo the
kind of drastic change that many investors had been clamoring for.
In 2009, Yahoo handed over its search engine and related advertising to Microsoft, its
one-time search nemesis. The deal, forged by Ms. Bartz, allowed Yahoo to focus on
display advertising — banners and other graphical ads — where it remains the industry’s
leader. In addition, the terms of the 10-year agreement with Microsoft provided Yahoo
with a lucrative 88 percent of the search-generated ad revenue from its own sites for the
first five years, much higher than is standard in the industry. Microsoft agreed to provide
the underlying search technology on Yahoo’s popular Web sites through Bing, its search
Getting People to Stick Around Online
The deal with Microsoft brought revenue to Yahoo. But overall, revenue growth at the
company has been disappointing. In the first six months of 2011, revenue from display
ads was essentially flat, at $1 billion, while the online ad industry grew at about 27
Yahoo’s problem is that Internet users are spending a bigger portion of their time with
Yahoo’s competitors. The percentage of time users spend on Yahoo is down a third from
its high three years ago, while the share of the time spent on Facebook has catapulted
more than sixfold over the same period, according to the measurement firm comScore.
Yahoo is putting its money on original content to get people to stick around longer. The
model is Yahoo Sports. Over the last few years, sports, more than any other Yahoo media
site, bet big on original coverage by hiring reporters and writing original articles. Yahoo
Sports also produces a number of online video shows, including game highlights and
Fantasy Football Live.
Partners like ABC will also provide shows, helping keep costs down, according to Yahoo
executives. And Yahoo will continue to produce its own online shows, they say, believing
that professionally produced video appeals to advertisers more than the skating dogs and
off-tune singers on YouTube.
Yahoo tried to acquire Hulu earlier in 2011, sources said. It is unclear whether Yahoo’s
board plans to press ahead amid the distraction of a strategic review of its business and a
potential sale of all or parts of the company.

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