September 7, 2011 7:35 pm

Yahoo left behind as world moves on

Yahoo’s revenue and share price remain roughly where ousted chief executive Carol Bartz found them when she took the helm in January 2009, but the landscape in which the pioneering US internet company operates has changed dramatically.

As a result, Yahoo now has a much smaller share of the much larger amount of time spent online by all internet users, who are spending more of their time – and sending more advertising dollars – with the likes of Facebook and Google.

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The total US display online ad market is set to grow by a quarter to $12.3bn this year from 2010, according to research group eMarketer, with Yahoo’s slice of that falling from 14.4 per cent to 13.1 per cent.

Yahoo chairman Roy Bostock told the Financial Times on Wednesday that he was convinced the company could grow its top line again, given its strong brand recognition and still-enormous audience.

“You look at that set of assets and you say you can build from these if we aggressively set out to do that”, he told the FT.

Shareholders and Yahoo employees speaking privately a day after Ms Bartz announced via e-mail that she had been fired “over the phone”, said that she had completed the first half of a complex turnround job but not the second.

“Carol’s general decisive nature was good for Yahoo in the short term, but it didn’t work out well in the longer term,” one longtime mid-level employee said.

Taking over from founder Jerry Yang, a beloved figure but poor manager, Ms Bartz greatly simplifed a command structure that had allowed many mid-level executives enormous freedom but assigned little responsibility.

She shed employees and doubled profit margins, though her abrasive style put off some who should have been crucial allies, including in Jack Ma, head of Alibaba Group, the Chinese e-commerce company in which Yahoo has a 43 per cent stake.

Yahoo had two significant rounds of job cuts under Ms Bartz as she tried to refocus the company on core strengths and pitch advertisers on premium packages.

As for the second part of her task – finding a way for Yahoo to grow again – Ms Bartz floundered, employees and advisers said.

Ms Bartz has a background at big companies that sold to other businesses, including Autodesk and Sun Microsystems. So when she joined Yahoo, she had little feel for the consumer market or even for the broader internet, three people who worked with her complained.

That could be why she agreed to spend $100m on a vague advertising campaign that promoted the Yahoo brand instead of touting its specific offerings, including news, finance and sports web pages, video entertainment and e-mail and other services.

Ms Bartz did not fulfill pledges to make Yahoo significantly more “social” and to keep its users around for far longer during each visit. Yahoo’s e-mail and other core offerings are languising behind the competition.

“A lot of people are happy to see a change here”, another executive said, though he faulted the board for dismissing Ms Bartz before having a successor lined up.

Yahoo named Tim Morse, chief financial officer, as interim chief executive as it seeks a permanent replacement.

“We have talented teams and tremendous resources behind them and intend to return the company to a path of robust growth and industry-leading innovation,” Mr Bostock said in a press release issued late on Tuesday. “We are committed to exploring and evaluating possibilities and opportunities that will put Yahoo on a trajectory for growth and innovation and deliver value to shareholders.”

Yahoo shareholder Eric Jackson was among those who cheered the move, which sent shares up 5 per cent on Wednesday. “It is a big positive in my mind. It sends a message that the board is going to be very open minded to creating value”, he said.

Ms Bartz was initially greeted warmly by Yahoo shareholders after the previous leadership failed to consummate an acquisition by Microsoft, which was willing to pay a large premium to bolster its search-engine competition with Google.

But she came under fire before her first year was up after negotiating a more limited alliance with Microsoft. In that deal, Yahoo tapped Microsoft to produce the automated part of its search results, saving development money but splitting ad revenue.

The complex arrangement has failed to generate as much search advertising revenue as executives had predicted. In the meantime, Yahoo has shown nowhere near the growth in user time spent on its site as Facebook and Twitter, so that display ads have also failed to match prediction.

Insiders suggested a turnround or even a sale would be easier if Yahoo first sheds its Asian assets, as is more likely now.

“Given continued share losses in both display and search over the past few years, we are not surprised by this announcement”, Barclays wrote to investors on Wednesday. “However, we note that this transition is likely to prolong Yahoo’s turnround in an internet environment that is rapidly changing.”

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