Brad Stone & Ashlee Vance
Carol A Bartz, chief executive of Yahoo!, has been hobbled. Three weeks ago, doctors gave her a new left knee, made of titanium and plastic. As a result, she is limping around Yahoo!?s headquarters here, occasionally standing to hold a chair and stretch her leg while a bottle of Percocet sits at the ready on her desk.
Yahoo! also underwent invasive surgery recently, selling its search business to Microsoft for an initial 88% share of search revenue in a 10-year deal. Since that move, Yahoo! too has limped along, with disappointed investors asking whether Bartz could have gotten more favorable terms and with Yahoo! shares tumbling more than 15%.
In a recent interview, Bartz said she sold the search business because Yahoo! could no longer continue to match the level of investment Google and Microsoft were making in searching, one of the web?s most technologically- complex businesses.
While reducing the marketing and infrastructure costs associated with search, the deal will also provide money that Yahoo! can use to bolster other businesses. Bartz plans to invest the money in Yahoo!?s display ad, content and mobile services technology. ?My first reaction when I got here,? she said, ?was that I wouldn?t even do a search deal until I looked at our expense structure and our actual options and looked at what our prime job was, which is to grow audience.?
Yahoo! will lose some of its most talented engineers to Microsoft and as many as 400 employees through layoffs. The deal also undercuts years of investment around search technology. By selling the technological crown jewels, the company also may lose some of its high-technology credibility among employees and others in Silicon Valley, as well as among customers.
But the core of Yahoo! remains intact, according to Bartz. ?We haven?t eviscerated the company,? she said. Given Yahoo!?s battering by investors, Bartz lamented that Yahoo! and Microsoft failed to explain the relationship better to Wall Street. She blamed herself for a comment she made several weeks ago, at an industry conference, that Microsoft would have to pay Yahoo! ?boatloads of cash? to win its search business. That statement, she said, helped to solidify an expectation that Yahoo! would receive $1 billion or more upfront as part of the deal.
?I made a mistake. I was never interested in doing it for upfront money. That doesn?t help me operate a business,? Bartz said. Analysts estimate that the new deal?involving what many people saw as Yahoo!?s most important asset?is worth only around $4 billion to $5 billion.