Yahoo's fate riding on Yang's successor as CEO

updated 6:11 p.m. ET Nov. 18, 2008

SAN FRANCISCO - With Jerry Yang quitting as Yahoo Inc.’s chief executive, the Internet company’s board will confront pivotal questions as it looks for a new leader.

Should Yahoo swallow its pride and try to strike a buyout deal with Microsoft Corp. at a price far below Microsoft’s $47.5 billion offer from 6½ months ago? Or should Yahoo still pursue a long-awaited turnaround that’s becoming more difficult to achieve as the economy tanks?

If Yahoo plays it safe and hires someone from within or someone friendly with Microsoft, it could signal the board merely wants an interim captain who can steer the ship until Microsoft, or possibly another buyer, comes to the rescue.

But should Yahoo recruit a CEO with a prestigious resume or pluck an up-and-coming technology star, it will be seen as a sign that the company is digging in to remain independent for the long haul.

“It’s time for Yahoo to decide if they are going to keep entertaining offers or really start to focus on a business strategy,” said Mike Leo, a veteran online ad executive who now runs Operative Inc. “Yahoo still has some great assets. They have just been mismanaged.”

Most analysts and investors have interpreted Yang’s departure as precursor to Microsoft’s acquisition of Yahoo in its entirety or at least its search engine, which ranks a distant second in usage behind Google Inc.’s.

Yahoo shares gained 92 cents, or more than 8 percent, to close Tuesday at $11.55. That’s a fraction of the $33 per share that Microsoft offered in early May before Yang’s request for more money prompted the Redmond, Wash.-based software maker to withdraw its bid.

(Msnbc.com is a joint venture of Microsoft and NBC Universal.)

The negotiating breakdown infuriated shareholders and their fury intensified as Yahoo’s stock plunged to its lowest levels since early 2003.

Yang, Yahoo’s co-founder, clung to the hope that he could still engineer a comeback, but his plans went awry yet again this month when Google backed out of a proposed ad partnership to avoid an antitrust battle with the federal government.

The loss of Google’s help, which was supposed to boost Yahoo’s sagging profits, evidently prompted Yang and Yahoo’s board to conclude they needed to announce a change in command even before a successor had been found. Yang, 40, will remain CEO until his replacement is hired and then revert to his former advisory role of “Chief Yahoo.”

Yahoo so far has given few clues on the leadership skills it’s seeking, saying only that it wants a CEO “who can take the company to the next level.” The company has hired Heidrick & Struggles, an headhunting firm, to recruit its next CEO.

Although Yahoo’s profits and stock price have been crumbling for nearly three years, analysts say the company’s huge audience of about 500 million Internet users and leadership positions in e-mail and news could still attract a big-name executive. “Yahoo can still be salvaged,” said Forrester Research analyst David Card.

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