Yahoo! has to decide its course, then pick a chief

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: There’s a new parlour game in Silicon Valley: guessing who will replace Jerry Yang at the helm of the troubled Internet giant Yahoo!.

Yang, a Yahoo! co-founder, said he would relinquish the chief executive role once a successor is named and revert back to being “chief Yahoo!”, the strategy position he held before his 18 turbulent months running the company.

But even before its new boss is selected, Yahoo! has an even more fundamental decision to make, say analysts. Does it want to remain an independent company, trying to grow in a range of businesses while it combats Google in the crucial arena of Web search? Or should it finally listen to the devotees of deal-making and sell some or all of itself to another player, most likely Microsoft?

Steven A Ballmer, Microsoft’s chief executive, has said he has no interest in making another bid for Yahoo!, but he has expressed repeated interest in buying the company’s search business. Observers and Internet veterans agree that this remains the company’s most attractive option.

“Yahoo! is still in many ways the definitive brand of the consumer Internet, but I don’t think they can or should compete with Google any longer,” said Ross Levinsohn, the former president of Fox Interactive Media. “That game is over.” If the Yahoo! board agrees, it will want an experienced chief executive with a history of deal-making who is also capable of running the online media properties that are left behind.

Potential candidates who could embrace this vision of Yahoo! include Peter Chernin, the president of the News Corp; Jonathan F Miller, the former chief executive of AOL; and John Chapple, president of Hawkeye Investments, who was listed on the activist investor Carl C Icahn’s alternative slate of Yahoo! directors during a proxy battle last summer.

But some observers think Yahoo!’s board could forgo any kind of deal with Microsoft and select a leader who stabilises the company, unifies its employees and tries to capitalise on its broad technological assets. Candidates that fit with this strategy include Marc Andreessen, the co-founder of Netscape, and Jeff Jordan, a former eBay executive who runs the online reservations start-up OpenTable.

Susan L Decker, Yahoo! president, will also be considered for the job, although analysts say anyone from Yahoo!’s current leadership would encounter significant scepticism from investors. The Madison Avenue advertising industry is one constituency rooting for Yahoo! to remain independent and intact. It often looks at Google and Microsoft as competitive threats that increasingly seek to broker the sale of ads in all media formats, and in some cases to help advertisers create their own Internet spots.

Yahoo!, on the other hand, remains a largely unthreatening friend. “The ad community doesn’t want another big Internet player sitting in the hands of someone that competes with them,” said Mike Leo, the chief executive of Operative, a digital advertising technology firm.

To avoid deals that would break up Yahoo!, a new chief executive would need to finally tackle some of the well-chronicled cultural problems that former employees said seemed to get worse under Yang.

They include a climate of indecision, constant, interminable meetings and widespread overlap of responsibilities. The new chief executive will also have to deal with a legacy of head-scratching management moves—like Yahoo!’s announcement last month that it would lay off 10% of the company but only announce who was being cut in December. That put Yahoo! employees under a two-month cloud of uncertainty.

Whatever the Yahoo! board decides to do, it still has some considerable assets with which to work. The company still attracts 500 million users a month, is the leading Web email service, and has many other profitable Internet franchises in news, sports and video.