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Turmoil at Yahoo puts struggling Internet giant and its CEO in the spotlight

October 8, 2010 |  3:03 pm

On a conference call to introduce herself to Wall Street as Yahoo Inc.'s brash new chief executive in January 2009, Carol Bartz demanded that everyone give the struggling Internet giant "some friggin' breathing room."

On the heels of bungled merger talks with Microsoft Corp., investors weren't thrilled with the surprise word choice of an executive with no experience running an Internet company to oversee one of that industry's toughest turnaround challenges.

They are even less thrilled now. Bartz, with 18 months left on her four-year contract, has talked a mean streak but not delivered on promises to boost Yahoo's languishing stock price or to sharpen its strategic focus as Yahoo continues to battle rising competition from Facebook Inc. and Google Inc.

Bartz Yahoo declined to comment. Privately, some investors say their patience has worn paper thin. In the meantime, private equity firms are pushing acquisition scenarios such as a merger with AOL that would put ex-Google executive Tim Armstrong in charge of the combined company (a job offer he apparently has turned down before he took his current turnaround gig). But two people familiar with the situation say that Yahoo board members have not taken any steps to replace Bartz.

Yahoo shares closed at $14.49 Friday. Its stock price has fallen by about 15% so far this year, far below the $33 per share that Microsoft was prepared to pay for the company in May 2008. Microsoft withdrew the bid when company co-founder Jerry Yang balked.

Scrutiny will only intensify in two weeks when Wall Street pores over Yahoo's third-quarter earnings to assess the Sunnyvale, Calif., company's performance and growth potential and parses Bartz's explanation for the recent exodus of top media and sales executives.

The chief concern: Consumers continue to spend more time and advertisers more money on other popular Internet hangouts like Google and Facebook despite Yahoo's efforts to recruit fresh talent and roll out new products, deepening the financial and spiritual funk that began under Bartz's predecessors, Hollywood mogul Terry Semel and Yang.

Just how far that star has fallen was in full view Friday when a report that Yahoo was interested in buying online commerce phenomenon Groupon Friday prompted an interesting reaction from Groupon's founder.

"There is a lot of innovation happening on the Internet, yet those products are not coming from Yahoo," said Caris & Co. analyst Sandeep Aggarwal.

Yahoo emerged as one of the brightest Internet stars in the late 1990s, a popular portal that pulled together content from a variety of places including its own editorial team. But its growth was overshadowed, first by Google, which dominates Internet search and the advertising that goes with it and is pushing hard into display advertising, and now by Facebook, which runs the world's largest social networking service with more than 500 million members.

Bartz, 62, whose long career in Silicon Valley included 14 years running software design firm Autodesk, has cautioned that it could take several years for Yahoo to stage a comeback, pointing out that Apple Inc. did not take off as soon as co-founder Steve Jobs returned to the company in 1997.

People close to Bartz say she is assembling a more nimble team and point out that she has brought greater financial discipline to Yahoo and gotten rid of businesses that were not central to Yahoo's core mission. Bartz also struck a deal with Microsoft to use its Bing search engine to power searches on Yahoo websites which is supposed to lower the cost of competing with Google.

But the latest executive losses including Hilary Schneider, an executive vice president who oversaw Yahoo's advertising in the U.S., and strained relationships with the leaders of Yahoo's valuable Asian investments, Alibaba Group's Jack Ma and Yahoo Japan's Masayoshi Son, have renewed questions about Bartz’s leadership. Yahoo has a 40% stake in Alibaba and a 35% stake in Yahoo Japan.

"The grace period is ending," BGC Partners analyst Colin Gillis said.

In an interview with USA Today, Bartz asked herself the question that is on a lot of investors' minds: "Am I the perfect person for the job at Yahoo? No. Am I good for the job? Yes."

Only time will tell if that answer is good enough.

-- Jessica Guynn

Photo: Yahoo Chief Executive Carol Bartz

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