Column : No cheer for Yahoo!

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: An uneasy year so far for Yahoo has perhaps worsened with co-founder and CEO Jerry Yang stepping down. Yang had taken over from former CEO Terry Semel in 2007, who had been at the Internet giants helm of affairs for six years. Under Semel, Yahoo had seen revenues grow from $717 million in 2001 to $6.4 billion in 2007, but what hadn’t pleased shareholders was the fact that Yahoo no longer remains the force in the Internet space that it once was. Compared to the $1.78 billion Yahoo reported for the last quarter, Google clocked $5.54 billion, and is the leader by far in Internet search and revenues.

The real trouble for Yahoo began in February this year, when Microsoft made a public, and almost boisterous $44.6 billion offer for the company. At that time, Yahoo was trading at around $19 per share, and Microsoft offered as much as $31 per share. From the onset, Yang appeared to be dismissive of the offer, and Yahoo rejected the deal. Microsoft remained at the table for negotiations, reportedly even increased the bid by $5 billion. There were reports that Yahoo eventually came down to $37 per share, but no deal was finalised. In the interim, Yahoo announced a restructuring, and there were murmurs of News Corporation owned AOL also being interested in Yahoo. Billionaire investor Carl Icahn, who owned around 5% of Yahoo, wanted the company to accept Microsoft’s offer, and was publically distrustful of Yang.

In July, Microsoft withdrew their offer for Yahoo after having failed to convince Yahoo to accept, and Yang suggested that the distraction of the Microsoft bid was behind them. Icahn accused Yahoo of sabotaging the deal with Microsoft, and not working in the interest of shareholders by sabotaging the deal. After a fairly public spat with allegations being traded between Yahoo and Icahn, Icahn eventually settled with Yahoo for three board seats. He was, however, still pushing for a sale, while Yang appeared to be more keen on keeping Yahoo independent.

There was some respite for Yahoo when, in June, it announced a 10-year deal with Google which would get them between $250-450 million in operating cashflow. According to the deal, Yahoo would run ads from Google Adsense next to its own sponsored search results. Given the dominance that Google enjoys in the Internet advertising market, as well as the massive popularity of Yahoo that makes it an important destination for advertisers, the implementation of the deal was held back; there were fears that the US government may begin an anti-trust investigation into the deal, and the companies decided to give regulators time for a review.

In October, Yahoo reported a 64 per cent decline in net income for the third quarter, lowered its forecast given a decline in the ad market, and announced plans to lay off at least 1,430 employees. The uncertainty hadn’t been good for the company—an acquisition bid impacts growth as potential partners may defer deals, employee morale suffers, and some may even leave for safer environs. Things fell apart for Yang earlier this month, when Google announced its withdrawal from the search advertising deal with Yahoo: after four months of review, and discussing changes to the agreement, Google felt that it was best to walk away from the deal since it felt that an anti-trust case was inevitable if the deal went through.

Yang hadn’t appeared to be very keen on a deal with Microsoft initially, and had rejected the earlier offer; after the Google deal fell apart, Yang, at a conference in San Francisco, said he would be open to a deal with Microsoft. It’s interesting that Microsoft rejected Yang’s overtures: it could have well led to his downfall, given that shareholders, and indeed Carl Icahn believe that Microsoft will not trust Yang again. In that case, the search for the new CEO, is possibly the search for a CEO who will be able to sell Yahoo off—once the most dominant player in the global Internet industry.