Turnround at Yahoo must look past short-term

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Wednesday’s Wall Street reaction to Terry Semel’s attempt to turn Yahoo back from the road to irrelevance said it all.

Its shares, which have languished this year as the stock of competitor Google has flourished, fell 2.1 per cent on Nasdaq to close at $26.86.

However sensible the new strategy and organisational structure he is trying to impose on the internet company, this will not be an easy turnround to pull off.

The biggest questions left open by the shake-up: the composition of the Yahoo chief executive’s new senior management team, as well as the fate of many other current managers whose roles are about to get turned upside down.

The decision to look outside the company for someone to run the new audiences division, as well as a new chief financial officer, has left two of the top five executive positions open, yet for some even this may not have been enough, says Scott Kessler, internet analyst at Standard & Poor’s.

“Some people had hoped there would be a change at the top,” he said. Amid the short-term upheaval he has set in motion – Mr Semel says he plans to spend a month reviewing the current roles, and to have the senior vacancies filled by the end of March – the Yahoo boss needs to solve three inter-linked problems.

The first and most tortuous will be to reorganise Yahoo’s many separate product groups into a new audiences division. In the process he will try to turn the company’s piecemeal, overlapping and sometimes badly targeted and marketed products into a set of internet experiences capable of rivalling the likes of MySpace and YouTube.

The second challenge will be to complete the unfinished work of Project Panama, an overhaul of Yahoo’s keyword advertising system that was meant to put the company more on a par with Google but which has fallen badly behind schedule.

Armed with this more efficient way of “monetising” internet traffic by targeting advertisements more effectively at users, the third job will be to extend the Yahoo advertising platform more broadly across the internet, finding a broader base of publishers to broaden its distribution.

Sue Decker, Yahoo’s highly regarded chief financial officer, has been handed this task as part of her first broad management role in the company.

All three of these fixes will need to run in parallel if Mr Semel’s shake-up is to have any chance of success.

“There have definitely been challenges in bringing together Yahoo search and Yahoo’s portal,” said Chris Bowler, media director at Agency.com, a specialist online media buyer.

“They still operate as different environments for the consumer and with two separate sales forces for the advertisers. As such, Yahoo hasn’t really been able to leverage the asset that Google does not have: the Yahoo network,” he said.

Creating a more efficient advertising system, one that Yahoo could use to lure publishers away from Google and on to its own network, also depends on the company’s ability to turn its massive scale to better advantage.

Yet with Microsoft switching its MSN audience over to its own advertising system this year and ending its partnership with Yahoo, the company has faced new challenges in maintaining its reach.

“There is a huge monetisation gap between” Google and Yahoo, said Mark Syal, head of Walker-i, an online media agency.

“The real problem is the size of the Yahoo network compared to the Google network. Google’s network is huge and it is all about search.”

As long as Google can offer other website owners a more efficient way of generating advertising from their audiences, this will leave Yahoo with a steep hill to climb, however effective the eventual technological fix of Project Panama.

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