Yahoo Must Shed Assets for Better Focus

Whoever takes embattled Yahoo CEO Jerry Yang's place will need to pare the former Web sweetheart's services to effectively compete in a market where it is under siege from Google Inc. and multiple social media players for online advertising, analysts say.

Yang, who Monday announced that he will step down as Yahoo's CEO once a replacement is found, had taken multiple unsuccessful steps in recent months to turn around the flagging Internet pioneer. In May, he fended off Microsoft's move to buy Yahoo , and then failed to consummate a planned search partnership with Google .

Then, after Google backed away from its proposed deal with Yahoo earlier this month, Yang called on Microsoft CEO Steve Ballmer to re-start negotiations to buy the company.

Yang is not perceived as having that kind of "boldness or decisiveness" that a company competing in today's Web landscape needs, said Andrew Frank , an analyst at Gartner. "[Yang's departure is] a sign that Yahoo needs to really find leadership that can restore confidence in the company. I don't think they are so much in danger of immediately going under as they are in facing continued erosion of confidence in the company's leadership and direction."

The next CEO, he added, must convince the market that Yahoo has a sound plan and the decisive leadership to carry it out, he added.

"Yahoo suffers right now from a somewhat fragmented portfolio of service and innovations," Frank added. "Rationalizing that portfolio with or without some kind of new partner or merger is going to be very important. Yahoo isn't getting the synergy that it needs out of this combination of stuff that they have."

David Card, an analyst at Jupiter Research, now part of Forrester Research Inc., added that the new CEO will need to do an inventory check of Yahoo's assets. Yahoo finds its traditional Web portal model under siege from Google while multiple upstart social networking players cut into its potential advertising revenue, he added. "Yahoo really has not pulled off an answer to those threats," he noted.

However, Yahoo does have a large, loyal audience base that is increasingly offering up user-generated content that could be used to help its advertisers target the users, Card added. "They have a lot of information about their customer base," he said. "In theory you could open those things up to a more socialized approach and or you can use that information for advertising targeting. It hasn't been able to convince advertisers that the value is there ... to take advantage of that targeting."

In addition, Yahoo under Yang has maintained the need to remain in the search business because of its potential advertising revenue, Card noted. "They believe there is this magic that can happen when you understand the search side and the display side. This is another thing that Yahoo has not proven to anybody. The new CEO has to make a tough call on whether that is reality or not," he said.

Greg Sterling, an analyst at Sterling Market Intelligence who blogs at Search Engine Land, noted that Yang's successor needs to understand both the high technology and media businesses.

"The incoming CEO, whoever he or she is, is in a similar position as US President-elect Barack Obama -- inheriting something of a mess," Sterling noted. "Yahoo has a great brand and assets but there's less margin for error than there was before the recession kicked in and before one-too-many re-orgs."

The Yahoo workforce is likely numb from the company's recent history and reorganizations, he added. "The incoming CEO will need to gain their confidence and allegiance at a time when there's a 10% reduction-in-force [coming]," he added. "Gaining the trust of Yahoo employees, putting a personal stamp on the company without initiating another re-org or major change of direction and restoring the market's confidence in Yahoo's future are just a few of the big tasks ahead for the new Yahoo CEO, whoever that will be."

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