Digital Media

Yahoo beat analyst estimates with a second-quarter profit of $141.4 million, or 10 cents a share, but its revenue dropped 13 percent from a year ago to $1.57 billion as search ad revenue declined from the first quarter.

Yahoo Chief Executive Carol Bartz said in a conference call that she was pleased with the results. "We're seeing less fear in the marketplace," she said, adding that the economy is "bumping along the bottom."

Bartz said Yahoo did a great job controlling costs and plans to ramp up spending on priority areas such as engineering, repositioning the company's brand with marketing, improving the efficiency of its advertising platform and getting rid of irritating and high-frequency ads that cheapen the Yahoo brand. The company expects the initiatives "to take $75 million in revenue out of our quarterly baseline," she said.

Yahoo saw strong demand from large advertisers for display ads and page views were up 7 percent, said Tim Morse, the new chief financial officer. "This is an encouraging sign, but we remain cautious about the economic environment overall," he said during the conference call.

Asked if the economy or ad sales have hit bottom yet, Morse told CNET News that seven of 10 different industry sectors in display advertising were up sequentially while all 10 categories were down in search. "It's too tough for us to tell," he said. "We're seeing a mixed bag in our results."

Analysts on the call expressed concern that revenue per search was down significantly compared with the first quarter and counter to what Google reported last week in its financial results.

Bartz said she didn't think it was a meaningful trend and noted that search volume was healthy. "What we're looking for is if we can increase our audience, which we know we can, we're going to drive both display and search revenue," she said.

Ross Sandler of RBC Capital Markets Corp. wasn't convinced. Executives gave a "macro environment rationale, where advertisers are seeing lower conversion rates and bidding less for fewer keywords and less per click than they were even a quarter ago," he said in an interview after the call. "The economy has got something to do with it but it still shouldn't have fallen off the cliff like that."

If not for the impact of currency rate fluctuations, revenue for the quarter ended June 30 would have declined only 8 percent from a year ago, Yahoo said.

Net income per share for the quarter compared with $131.2 million, or 9 cents per share, for the same period a year ago. Analysts on average were expecting income of 8 cents per share on revenue of $1.14 billion.

Yahoo's profitability improved in the second quarter, but revenue declined from a year earlier. This chart shows revenue minus TAC, commissions called traffic acquisition costs paid to advertising partners.

(Credit: Yahoo)

In addition to the currency issue, total revenue was reduced by the sale of Kelkoo late last year and lower fee revenue from voice over Internet Protocol, or VoIP, services, as well as subscription music offerings. Excluding the effects of these items, revenue would have declined 6 percent from a year ago.

Meanwhile, search advertising revenue dropped 15 percent, and display advertising revenue was down 14 percent. Total marketing services revenue declined 13 percent, and fee revenue was down 8 percent.

However, in after-hours trading, Yahoo's stock dropped 75 cents, or about 4 percent, to $16 per share.

Yahoo launched a new home page earlier Tuesday. The company also announced a deal with AT&T under which the telecommunications company will sell Yahoo display ads to local businesses in the United States, starting later this summer.

Yahoo recorded a $65 million net restructuring charge related to real estate, property, and equipment write-offs, personnel severance, and costs offset by a reversal of stock-based compensation expense for forfeited awards.

For the third quarter, Yahoo said it expects revenue between $1.45 billion and $1.55 billion.

The financial results come amid rumors that Yahoo is in renewed talks with Microsoft on a search ad deal. All Things Digital reports that a deal is imminent.

Asked by an analyst on the conference call about Microsoft's new Bing search project, Bartz said it was a good product. "I think Microsoft should be given kudos for Bing," she said. "I think they've done a good job."

Yahoo has 19.6 percent share in the search market, while Google has 65 percent and Microsoft has 8.4 percent share, according to ComScore.

Updated 3:58 p.m. PDT with background, quotes from conference call, and interview.

Yahoo has found a new chief financial officer, naming Tim Morse to replace the recently departed Blake Jorgensen.

New Yahoo CFO Tim Morse

(Credit: Altera)

Morse, 40, comes to Yahoo from Altera, the Silicon Valley chip company, where he was senior vice president and chief financial officer. He's perhaps the most high-profile hire to date for new CEO Carol Bartz, who asked Jorgensen to leave in February but has kept him on the job while she searched for his replacement.

Jorgensen will remain as Yahoo's CFO until June 30th, a Yahoo representative said. Morse, also a veteran of General Electric, will start working at Yahoo on June 17 and formally take over the CFO job on July 1.

Bartz is slowly filling out her roster of lieutenants, having brought chief marketing officer Elisa Steele into the fold in February amid a significant reorganization. Yahoo is still looking a head of international operations after hiring Jeff Russakow in April as the head of a new customer advocacy group created by Bartz.

It's unclear whether Morse's arrival will cause further changes to a Yahoo that has been suffering from "reorg fatigue," as Bartz noted in February when announcing yet another reorg. In recent comments to analysts and the press, Bartz has called for Yahoo to cut costs in discretionary areas and simplify its processes, both areas likely to fall under Morse's watch.

Corrected at 3:07 p.m.: The story was updated with the correct spelling of Blake Jorgensen's name, and the hiring of Jeff Russakow as Yahoo's head of customer advocacy.

Yahoo CEO Carol Bartz kibitzed with a luncheon of Wall Street analysts Wednesday as part of a free-wheeling discussion of Yahoo's past sins and future opportunities.

Yahoo CEO Carol Bartz

(Credit: Yahoo)

At the Bank of America Merrill Lynch U.S. Technology Conference, analyst Justin Post noted the "much more open policy" that Yahoo has implemented with regard to the financial world since Bartz's arrival at Yahoo, and that openness definitely applies to Bartz's willingness to candidly discuss Yahoo's situation regarding Google, Microsoft.

Bartz let fly with a few of her trademark zingers, but otherwise had little new to say about Yahoo that hadn't already been covered at events like last week's D: All Things Digital conference or Yahoo earnings calls. Nonetheless, here's a selection of Bartzisms that shed a little more light on Yahoo's efforts during her first six months on the job:

• "Yahoo is swimming in tchotchkes. If I see another T-shirt I'm going to throw up." Bartz came to Yahoo with a reputation as a slash-and-burn cost cutter from her days at Autodesk. She is indeed trying to tighten spending on what she called "discretionary" items such as yet another purple T-shirt, but said that Yahoo will continue to spend quite a bit of money on IT needed to keep its sites up and running.

• "Yahoo has way too much infrastructure. For everything you can do in three steps, Yahoo does it in 22." Along those lines, a lot of the cutting Bartz has tried to implement has more to do with processes and sites that had basically been "abandoned," she said. Some Yahoo properties that were launched during the previous regime stagnated, and therefore gave off a poor impression of Yahoo to a visitor that stumbled upon them. Cleaning up Yahoo's myriad properties--in a much faster way than currently possible--seems like a priority for Bartz.

• "We're not a search company." Bartz has previously said that search is an important part of Yahoo, but seems to think that the hoopla over Yahoo's search position between Google and Microsoft distracts from what Yahoo is all about. Ninety-eight percent of Yahoo's searches come from people who are already on the site, she said. That means Yahoo has to keep finding ways to bring in users to its content sites--such as sports, finance, and local news--and let searches conducted by those additional users drive its ad business rather than fighting the external search branding issue against Google, as Microsoft is trying to do with its new Bing search engine.

A revamped home page coming "later this fall" will help, Bartz said. One feature of that home page will involve getting Twitter messages right onto the page; "everything is flowing in, and we help you flow out."

• "An extroverted engineer looks at your shoes when they are talking to you." Bartz got her biggest laugh of the day with an old joke about engineers, and how she prefers spending time out making sales calls with Yahoo's sales force. This is a key area of differentiation for Yahoo: it says it wants to focus on "high-touch" sales, rather than the algorithmic model that prints money for Google.

The hope is that Yahoo can translate its strength in display advertising to lure revenue from chief marketing officers at big companies thinking about moving a chunk of their advertising spending from television to the Web. For those folks, "your brand is not defined by 20 keywords. You have to put a persona out there," she said, referring to the need for display and/or video advertising. In order to do win that business, however, Yahoo has to take a lot of "friction" out of the Internet ad sales process that just isn't there in the television business.

• "This is like me trying to buy Office from Steve. This is not a minor issue." Bartz handled the inevitable questions about Yahoo's on-again, off-again romance with Microsoft by recognizing that while there are some compelling opportunities if Yahoo and Microsoft were to enter into a search partnership, there are more than a few issues, as well.

"Do we trust them to do the technology right? Would we save money?" she wondered. Bartz thought offloading Yahoo's search business would save about $500 million--far less than analysts had estimated--including data-center and employee costs, but there would be lost revenue to factor in, of course.

Microsoft's motivation, however, is clear, at least as Bartz sees it. "They have Google envy, and they really have to stop that money machine because that money machine is coming back on desktop apps."

Yahoo's 5 percent layoff is going to be different this time.

So new Chief Executive Carol Bartz promised Tuesday as she announced first-quarter financial results and described the impression she's now begun trying to make on the Internet pioneer. Instead of an across-the-board cut, Yahoo's layoff of about 675 people is intended to enable new hiring and investments in the company's bigger Internet properties.

Yahoo CEO Carol Bartz

(Credit: Yahoo)

"We have good engineers but have to hire more and get them focused on the right stuff. It's probably the most important thing Yahoo's going to do to really become a big strong growing international company," Bartz said during a conference call to discuss the company's lackluster first-quarter results.

Specifically, she said the company will hire engineers to bring Yahoo's major properties onto a unified global platform rather than its current variety of different systems for different countries. Today's scattered technology infrastructure has prevented Yahoo from adapting quickly and adding new features, especially outside the United States, she said.

The choice shows Bartz isn't taking a quick-fix approach to Yahoo's problems. First comes engineering, then comes a better experience for Yahoo users, and only then comes the financial return. "All that investment will pay off, I believe, with more innovation, faster and better user engagement, and the stuff we need to be a hot site. If we're a hot site, the advertisers will follow," she said.

And Bartz cautioned that the revamp isn't going to be complete soon.

"To fully globalize all our platform is probably a couple-year program," Bartz said. "You can't underestimate the past focus the company had on the U.S. market...The international properties almost had to fend for themselves."

As an example, Bartz pointed to a revamped Yahoo Music site that opens up to content from YouTube, iTunes, Amazon, and other sites and lets Yahoo members share their music-related activity with their friends. That revamp wasn't possible internationally, she said.

Venting frustration
During the call, Bartz generally stuck to her script, reining her characteristically salty language. But some of her frustration with Yahoo's sluggish pace shone through at the end of the hour-long call.

Yahoo's engineering focus "was sort of scattered to the winds. There were engineers in almost every country, and way too many product people. We had one product management person for every three engineers," Bartz said. "We had a lot of people running around but nobody fucking doing anything!"

Projects like the Yahoo Open Strategy have been more than a year in the making and only are arriving gradually. Yahoo is a big property, and changes necessarily come slowly as the company tries to figure out what works and doesn't as it tows its massive user base toward new technology, but meanwhile, rival Google touts its experimental "launch early, launch often" philosophy.

Even as Google expands into telephone services, Web browsers, mobile phone operating systems, general-purpose cloud computing infrastructure, and any number of other projects, Bartz is keeping Yahoo focused on its core assets: a number of high-traffic Web properties.

Bartz specifically pointed to Yahoo's home page, sports, news, finances, mail, search, mobile, and entertainment sites as the companies focus, saying the company will deliver a "wow experience for our users."

Patience, patience
Patience could be hard to come by. Yahoo's first-quarter revenue, excluding commissions paid to partners, declined 14 percent from $1.352 billion to $1.156 billion.

Yahoo's revenue is under pressure.

(Credit: Yahoo)

The company was hurt by a variety of factors. Revenue from graphical "display" ads on Yahoo sites dropped 13 percent worldwide to $371 million, while revenue from search advertising dropped 3 percent to $399 million. Affiliate marketing revenue, a search-related category, declined 16 percent to $511 million.

Revenue per search dropped along with the economy. "It's like online window shopping. People are grazing around, they're just not clicking through to buy," Bartz said.

But online search remains key to Yahoo's future, Bartz said, though she declined to say whether it's necessary for the company to be a primary player or whether it would work if it's using another company's search results. Microsoft and Yahoo held many discussions in 2008 about such a partnership, with Microsoft taking over the business one option, and such talks appear to be on again according to All Things D and the Wall Street Journal.

"I'm well versed enough in the search business at yahoo to say it's absolutely critical to Yahoo. It's critical to our customers and partners that they have a combined search and display experience on the Internet. I haven't changed my position on that. Relative to anything else with Microsoft, I'm not going to comment," she said.

Bartz also specifically touted one hybrid project, Yahoo's plan to bring branded display ads to search results, which today feature only text ads.

In the long run, though, Bartz remains a believer in traditional display ads.

"Pulling back on brand advertising is a short-term solution that leads to long-term brand erosion," she said, and those with premium brands won't resort to just bidding for search keywords to preserve their brand.

Yahoo's revenue is under pressure.

(Credit: Yahoo)

Yahoo, which announced a profit drop of 78 percent for the first quarter of 2009 on Tuesday, said it plans to cut about 5 percent of its employees.

Yahoo's first-quarter net income dropped 78 percent annually to $118 million as the company struggled with the recession's effect on online advertising, but the company's cost controls helped soften the blow--at least for shareholders. Several hundred Yahoo employees will be directly affected in the third major layoff in a just over a year.

"To allow flexibility for accelerated strategic investments and targeted hiring in its core operations, Yahoo expects to reduce its number of current employees worldwide by approximately 5 percent. The majority of impacted employees are expected to be notified within the next two weeks. The company is also continuing to implement non-headcount cost reductions," Yahoo said.

New Chief Executive Carol Bartz said in a statement that the company is positioned well for an economic recovery.

"Yahoo is not immune to the ongoing economic downturn, but careful cost management in the first quarter allowed our operating cash flow to come in near the high end of our outlook range," Bartz said. "While we experienced pressure in both display and search advertising in the first quarter, we believe Yahoo remains one of the most compelling advertising buys on the Internet."

Revenue, excluding commissions paid to partners that carry Yahoo advertisements, declined 14 percent from $1.352 billion to $1.156 billion, well short of the $1.204 expected by analysts.

Update 2:22 p.m. PDT: The Yahoo finished the first quarter of 2009 with 13,500 employees, so a 5 percent cut would affect about 675.

Yahoo cut 1,520 employees last December and about 1,000 in early 2008

But the cuts this time are different, Bartz said in a conference call.

"This is not the kind of across-the-board (cuts) Yahoo undertook in the fourth quarter in response to the macroeconomic environment," Bartz said. Instead, she said, it's part of Yahoo's effort to streamline, trim its product portfolio, eliminate duplicate efforts, and enable hiring in areas where the company wants to invest.

So what are the areas where Yahoo plans to focus its attention? Bartz called out its home page, sports, news, finances, mail, search, mobile, and entertainment.

"We will maniacally focus on our most important products," Bartz said.

Overall, she said, page views worldwide increased 8 percent, she added.

Update 3:15 p.m. PDT: Yahoo announced Jeff Russakow will become senior vice president of customer advocacy, reporting to Bartz, on Friday. Previously he led global enterprise support services, corporate strategy, and other operations at Symantec.

"We need to do a better job of listening to Yahoo!'s users and advertisers and incorporating their feedback into our products and processes," Bartz said in a statement.

The company also is hiring a chief financial officer to replace Blake Jorgensen, who said Tuesday's conference call with financial analysts will likely be his last with Yahoo, and a head of international operations.

Yahoo CEO Carol Bartz has one word for investors attempting to gather any information floating in the wind about whether Yahoo will, or won't, do a deal with Microsoft: chill.

Bartz, speaking Tuesday in San Francisco at her first investor conference since taking the helm as Yahoo CEO more than six weeks ago, relayed the same message she conveyed to Microsoft CEO Steve Ballmer.

"I said this to Mr. Ballmer, I will not negotiate with you and 30,000 of my closest friends. I will negotiate privately," said Bartz, adding to investors, "If something happens, you will know about it then." She made her remarks, which were available via audiocast, at the Morgan Stanley Technology Conference.

Regardless of any potential Microsoft deal, Bartz was adamant that Yahoo needs to retain access to its search data, because it is key to knowing what its users' intent is when conducting searches. That information assists Yahoo in delivering relevant ads to users, who would then potentially have a greater reason to click on the ad, which would result in a payment to Yahoo from the advertiser.

She noted that Yahoo's top 200 advertisers are looking for the Internet search pioneer to provide a combined one-stop shop of both paid performance ads and display ads.

Bartz added that in delivering the content that users seek, the traffic to Yahoo's sites will grow and advertisers will follow.

Mail is one area she is particularly excited about and noted that the company is gearing up to release a new version of its service.

"We have a billion e-mails passing through our servers every day. Mail is really important to us and that is why I'm excited about a new mail service," Bartz said.

But one area that Yahoo has held back on investing in extensively is Yahoo Maps. Although there is a maps feature on the site, it pales in comparison to the street views and satellite views found on Google.

Noted Bartz: "I don't use Yahoo Maps. I use Google Maps."

Whether Yahoo maps will be a feature Yahoo retains has yet to be seen. There is Yahoo's Wall of Shame, after all. Yahoo products that the company is contemplating fixing or ditching find their way to the wall.

When Yahoo's new CEO Carol Bartz met with company Chief Financial Officer Blake Jorgensen nearly two weeks ago, she delivered him a pink slip, sources said.

And while Bartz has not given any indications of a front-runner CFO replacement, the expectation is it will be a candidate from the outside and, hopefully, soon, said sources familiar with Yahoo's thinking.

"The CFO position will be her decision to make, not the board's. She'll have an opportunity to build her own management team," said one source.

Microsoft, meanwhile, does not expect Yahoo's CFO search, nor the time it will take for a new CFO to become familiar with the company, to slow down any potential of landing a search deal with the Internet pioneer, said one high-level Microsoft source.

After all, in the last go-around when Microsoft announced its , it was Yahoo's treasurer who was actively engaged in day-to-day discussions, not Jorgensen or Yahoo's then-president, Sue Decker, said the source.

"I thought it was a little out of the ordinary, but not unheard of," said the source, adding, "Yahoo's treasurer was the one who had their hands all around Yahoo's business and their numbers."

Such an arrangement made sense, noted another source, given Jorgensen, who , was there for only seven months when Microsoft made an unsolicited offer to buy the company.

Yahoo's treasurer is part of the corporate finance team that Decker created when she was Yahoo's CFO. The corporate finance team, as with other large companies, is responsible for building financial models to assess valuations and methods of payment for deals and mergers and acquisitions, which Yahoo's corporate business development team may consider, the source said.

As a result, whether Yahoo has a new CFO in place, the company can still move forward in vetting any deal that Microsoft may want to put forward. The treasurer, Ron Will, is still in place, despite the restructuring announced Thursday, a company spokesman said.

It makes sense that Bartz would look at swapping out Jorgensen for someone who she will self-select, said Umesh Ramakrishnan, vice chairman of executive search firm CTPartners.

"Given the fact that Yahoo continues to be under pressure from Microsoft, it shows that the financial aspects of Yahoo are just as important as the products," Ramakrishnan said.

Although Microsoft is interested in a search deal with Yahoo, the two companies are not engaged in any active conversations, said the Microsoft source.

"If an effort is accelerated to engage in talks, it will be because of the CEO, not the CFO," the source added.

Chief Executive Carol Bartz announced how she reorganized Yahoo in a blog post Thursday, but she shared a bit more about the priorities in an internal memo to Yahoo employees. Here's the full text of the memo.

From: Carol Bartz

Date: Thursday, February 26, 2009

To: All employees

Yahoo CEO Carol Bartz

(Credit: Yahoo)

Subject: Our New Organization

Yahoos,

As I've gotten to know Yahoo! over the past several weeks, I've developed a point of view on how our organization should be structured to set us up for success.

Our goal is simple: to consistently deliver awesome consumer and advertiser experiences, everywhere in the world we do business. Delivering great customer experiences is everyone's job at Yahoo!--and each part of our organization will have a clear role in making that happen every day.

The timing of this announcement is important. As soon as decisions were made, I wanted you to know about them--even if that means we don't have all the details nailed down yet. Yes, there's been a lot of speculation in the media over the past few days...that's been a little frustrating, but I'm not willing to speak publicly about decisions before they're final. Today, they are--so I'll lay out our new organizational structure for you now.

I know you guys have reorg fatigue. Hang in there--our intention is to leave this structure in place for two to four years. We'll continue to make adjustments as needed, but we expect this core structure to stay put.

The structure outlined below will enable us to make big improvements in our product quality and operational efficiency. Part of that is simplicity--I'm frankly amazed at how complicated some things are here! We'll have much clearer decision making and accountability. Product and regional teams will share responsibility for revenue targets and expense management, but we'll have one P&L, for which I'm accountable.

We will also be in a better position to really listen to and understand our customers --both consumers and advertisers. I think we've gotten into the habit of focusing internally too much and we sometimes forget who we're here to serve. You'll notice that our management structure puts a renewed focus on the customer, with stronger feedback loops across the company...and they all come through me.

Also, as you know, no organizational structure is a substitute for collaboration, communication and trust. We'll all need to evolve our behavior a bit--as teams and as individuals--to make this structure work the way it's designed.

So here's the overview, with the roles that will report directly to me. As you'll see, some of our leaders are still to be determined. I know you'll want more detail than what's below--you can learn more on Backyard: http://backyard.yahoo.com/ourorg.

Products: We've combined Tech and Product groups under one roof, led by Ari Balogh as EVP Products & CTO. Ari's charter is to deliver global products that enable extraordinary consumer and advertiser experiences. Ari's direct reports now include one leader for each product group--we've taken care of the "two in a box" problem.

One important note: The Connected Life team has been integrated into various parts of the new organization. Our mobile strategy remains a key part of Yahoo!'s focus going forward and all of our product groups will own mobile innovations. After leading Connected Life for four years, Marco Boerries has resigned from the company to spend more time with his family in Europe. We thank Marco for his important contributions at Yahoo!.

Regions: There are now two: North America and International. As I've said before, international growth is critical for Yahoo!, which has become too reliant on its U.S. business over the years.

The regions deliver Yahoo!'s products, programming and services to consumers, partners and advertisers in local markets. They will partner closely with the newly formed Regional Solutions & Products group in Ari's organization to help drive a significant shift in how Yahoo! develops products for different geographies. The goal is to have global platforms on which regional product offerings are based.

The North American region--comprised of the U.S. and Canada--is led by Hilary Schneider. The leader of our International region, to be hired soon, will be responsible for a cohesive Yahoo! global strategy and seizing our international growth opportunities. Until we determine who'll lead the International region, Rose Tsou (Asia), Rich Riley (Europe) and Keith Nilsson (Emerging Markets) will continue to report to me.

Marketing: Elisa Steele will be joining Yahoo! as our Chief Marketing Officer (CMO), effective March 23. Elisa joins us from NetApp where she was SVP, Corporate Marketing. Previous to NetApp, she held executive positions in marketing at Sun Microsystems. Elisa will oversee our global marketing strategy and provide direction for our marketing function. She'll bring together the various Yahoo! marketing teams that have been spread across the company. Reporting into Elisa will be Brand Marketing, Audience Marketing, Corporate Communications, Insights, Policy & Privacy, Community Affairs and related central teams. I'm delighted to have Elisa joining the team.

Customer Advocacy: As I said, we can do much better in hearing the voice of the customer across Yahoo!, and incorporating what we hear into all of our work day-to-day. We have opened a search for a leader, who will oversee Customer Care and Ad Operations globally with the goal of improving how we support Yahoo!'s users and advertisers. In the interim, these teams will continue to report to Hilary.

Service Engineering & Operations: This new team is responsible for delivering common technology services at scale, including application management and infrastructure. No matter how cool our products are, the customer's experience won't be great unless our applications consistently deliver. Note that we're bringing Service Engineering together as one group because these engineers bring expertise that is best applied horizontally. Leading this organization is David Dibble, who joined Yahoo! in December. David's team also will be accountable for delivering more effective corporate IT systems.

Corporate Functions: Blake Jorgensen will be leaving Yahoo! and I am searching for a new CFO. Blake will remain through a transition with his successor, and I want to thank Blake for all of his great contributions to Yahoo! over the past two years. Mike Callahan will continue to lead our Legal team, and David Windley leads our Human Resources function. Joel Jones joins the team as my Chief of Staff.

So that's the high-level view. These changes are effective immediately, but we've got more work to do in filling out the structure of each group. In the short term, this transition will be challenging for many of our people. My executive staff will be working with their organizations as quickly as possible to create further clarity. For example, we'll need to recast budgets and adjust work areas so we have the right people working side-by-side.

I want to thank all of you who've shared your ideas and views with me since I arrived. Several leaders across Yahoo! came together to design this new structure--I've been very impressed with their dedication to the right outcomes, particularly how they've embraced the need to eliminate the silos that have been a drag on this organization for so long.

I think this organizational structure has the potential to solve many of the issues you've helped me better understand. Of course, new issues will emerge. But I know we'll be aligned and nimble in tackling them together.

This is a tremendous, proud company with a powerful brand, great products and a bright future. Now's the time to get more focused than ever on delighting our users and advertisers. Let's show them how great Yahoo! can be.

Carol

In the six weeks since Carol Bartz took over as Yahoo chief executive, she's interviewed employees and executives, learned the company's businesses, assessed what's good, diagnosed what's wrong, and now reorganized Yahoo management to set it on a new course.

Now comes the hard part.

Yahoo CEO Carol Bartz

(Credit: Yahoo)

The assertive Bartz expects the new, simpler management structure to produce faster decisions and better accountability among executives. She also ousted Chief Financial Officer Blake Jorgensen, hired Elise Steele to the new chief marketing officer post, and set up a customer advocacy group to make sure Yahoo pays due attention to its users and advertisers.

Those are high-level actions, though. For them to have an effect, they'll have to trickle down to the rank and file who are responsible for everything from selling ads to revamping Yahoo Mail.

Reorg fatigue
And Yahoo has reorg fatigue. Compare the verbiage of Thursday's change with that of Yahoo's last big restructuring in June.

Here's Sue Decker, who agreed to step down as president when Bartz arrived, speaking last June: "The changes we're making today will help deliver superior global products for users and enable faster and better decision-making."

Now here's Bartz in her blog about the reorg: "For us working at Yahoo, it means everything gets simpler. We'll be able to make speedier decisions...and we have a renewed focus on the customer. For you using Yahoo every day, it will better enable us to deliver products that make you say, "Wow.'"

So clearly it takes more than words to address a company's issues.

Cleaner responsibility
The biggest part of the change is Bartz's effort to clean up the chain of command. Earlier, the company had aligned engineering and product groups that jointly worked on the same projects; now those are unified under Executive Vice President Ari Balogh.

With the move, Yahoo is "trying to kill the seemingly indestructible silos that have been a part of Yahoo since the beginning," said UBS analyst Benjamin Schachter in a research note.

However, there still is a joint ownership issue. Balogh oversees the vision and creation of Yahoo's products, but Hilary Schneider and an as-yet-unchosen executive are in charge of delivering them to the world--Schneider in North America and the other executive elsewhere.

If the hand-off is smooth and cooperative, that doesn't have to be a problem. And with one executive rather than three responsible for the world beyond North America, collaboration shouldn't be as complicated.

Neutral to Microsoft
By centralizing power, the reorg might make it a smidgen easier to carve off Yahoo's search and search-advertising business to Microsoft, a possibility that keeps resurfacing. But that's more likely a decision that would be made by Bartz and the board, so it's probably not wise to infer that such a deal is more or less likely after Thursday's change.

And note that Yahoo appears headed in the other direction, with tighter integration rather than isolation between search ads and display ads. For example, people's search queries can be used to help choose which display ads are shown in an attempt to target them at specific Yahoo users.

One thing is clear, though. There's no doubt Bartz is in command and is working to take the initiative.

Replacing the CFO, adding a CMO, and personally installing the other executives into their new posts was the first step to reshaping Yahoo the way Bartz wants. Now she'll be better able to push, prod, cajole, and coax the rest of the company along.