Digital Media

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.

Yahoo's tab in its efforts to fight off Microsoft last year ran $79 million, according to the company's filing Friday with the Securities and Exchange Commission.

Yahoo spent much of that bill on outside advisers who helped it weigh , which ranged from a total buyout bid for $33 a share to an eventual offer to acquire only Yahoo's search business. Yahoo rejected all of Microsoft's proposals.

Part of the $79 million bill was also attributed to hiring outside advisers for fighting off a proxy contest by activist shareholder Carl Icahn, who eventually settled with the company and received three seats on Yahoo's board.

A portion of the bill also went to Yahoo's outside advisers considering its controversial search agreement with Google, which ultimately ended with the companies walking away from the deal when federal antitrust regulators said it would challenge the deal.

For Yahoo, however, the true cost was much greater than just $79 million.

In the process, Yahoo founder and CEO Jerry Yang stepped down after enduring the brunt of shareholder anger and has since resumed his role as chief Yahoo. Sue Decker, who was Yahoo's president during the tumultuous year, lost out her bid to become the next CEO when Yahoo's board named former Autodesk chief Carol Bartz to oversee the troubled Internet company. And Yahoo saw an exodus of executives in June 2008.

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

Microsoft's CEO Steve Ballmer reiterated his interest in landing a search deal with Yahoo during a midyear strategic update with analysts Tuesday, according to a CNBC report.

But while Ballmer is apparently willing to re-engage in a dialogue with Yahoo regarding a potential search deal, the software giant has been "rebuffed and ignored" by Yahoo's new CEO, Carol Bartz, on any overtures it has made to initiate discussions, said a CNBC reporter, citing anonymous sources.

Yahoo was up 5 percent to $12.57 a share in pre-market trading.

Yahoo, meanwhile, apparently is operating without a top M&A executive, following the departure of Gerald Horkan, the company's senior vice president of corporate strategy, according to a report in The Wall Street Journal.

Horkan, who spent most of last year as Yahoo's dealmaker in Microsoft's failed bid to acquire the search company for as much as $33 a share, left Yahoo a few weeks ago and has not been replaced, the Journal reports.

Carol Bartz, Yahoo's newly minted CEO, is reportedly preparing for a management shake-up that could result in an expanded role for its chief technology officer, according to a report in The Wall Street Journal.

The changes, which could be announced as soon as this week, are aimed at putting Yahoo's decision-making process on a faster track, as well as consolidating some of the company's operations to create a more uniform appearance across its sites, according to the report.

Under Yahoo's prior management with Sue Decker as president, the organizational structure and decision-making process were not only complex, but were further complicated by Decker's highly analytical mind, which one former employee described to CNET News as creating analysis paralysis.

According to the Journal, some areas, such as product development and marketing, which were sprinkled throughout the company, will be consolidated into their own respective standalone departments.

Companies across a number of industries have faced similar decisions: whether the benefits of having specialized teams wrapped around a single product line is more effective than having a single marketing department or a standalone product development group to cover all product lines of a company.

Yahoo's chief technology officer, Aristotle Balogh, could find his role expanded to include leading the product development strategy. Meanwhile, Hilary Schneider, who oversees Yahoo's North America advertising, publishing, and audience groups would assume the title of North America head, according to the report.

Within Yahoo's media operations, one item on the table is to potentially separate the group into three areas--vertical programming, network programming and search monetization--according to a report in AllThings D.

The deck chairs at Yahoo are a-changing once again, with the company's chief communications officer, Jill Nash, stepping down in the next few weeks, a company spokesman confirmed.

Nash, who joined Yahoo in January 2007 as its PR head, will assist in the transition once her replacement is found, said Brad Williams, a company spokesman, noting that she is not leaving to take another job.

Nash's resignation announcement comes less than three weeks after Yahoo named its new CEO, Carol Bartz.

Her pending departure follows that of Yahoo President Sue Decker, who announced in mid-January plans to resign after she was passed over for the CEO post.

Nash, however, did not have her hat in the ring for the CEO job and it's not clear what her future plans will entail. Nash was not immediately available for comment.

The departure of Yahoo's PR head was first reported in AllThingsD.

It was a rather blase day for Yahoo's closing stock price Friday. It didn't shoot to the moon on the latest Microsoft takeover rumor, nor crater to the Earth's core on fears that the software giant is never coming back in some shape or form.

CEO Carol Bartz

But, nonetheless, Yahoo's newly minted CEO, Carol Bartz, was likely taking notice. Her potential fortune is tied to Friday's closing stock price.

Bartz, under her compensation package, is eligible to reap the rewards of 5 million stock options, which carry an exercise price based on Friday's close of $11.73 a share.

There's a catch, however.

Bartz's shares won't begin to vest unless Yahoo's stock rises by a minimum of 150 percent above the exercise price. That means Yahoo's stock needs to climb to $29.33 a share and maintain that average closing price for 20 consecutive trading days, in order for Bartz to vest one-third of the 5 million shares.

And she needs to do this by January 1, 2013, or all 5 million options go poof.

If Bartz can hurdle the first leg of the Yahoo vesting challenge, she could find herself holding 1.67 million options with a value of roughly $48.9 million.

Potentially, there is even more to come.

Here's how Bartz can score the rest of the 5 million options. The methodology remains largely the same, except for the percentage increase required and number of shares that vest:

•175 percent increase, stock hits $32.26 a share, one-sixth of options vest.

•200 percent increase, stock hits $35.19 a share, one-sixth of options vest.

•225 percent increase, stock hits $38.12 a share, one-twelfth of options vest.

•250 percent increase, stock hits $41.06 a share, one-twelfth of options vest.

•300 percent increase, stocks hits $46.92 a share, one-sixth of options vest.

Compensation experts note Yahoo's stock option incentive is rather rare. Usually, options for CEOs vest over time and by achieving certain performance metrics. In Bartz's case, however, the 5 million shares are based solely on Yahoo's stock price appreciating over the next four years.

This type of options package ties Bartz's good fortune directly with that of Yahoo investors.

And given that the company now has shareholder activist Carl Icahn on its board, the chances of Bartz later getting her options re-priced at a lower strike price are slim to none.

Carol Bartz, Yahoo's brand-new CEO, revealed her first public assessment of embattled Yahoo on Tuesday, arguing the company is stronger as a whole than as the sum of its parts.

"This is a fantastic Internet property, and it doesn't deserve everybody trying to pick it and pull it apart," Bartz said in a conference call after Yahoo reported mixed fourth-quarter results. Looking at statistics such as how many people use Yahoo, how long they stay on the site, and how they value its properties, she said, "This is not a company that needs to be pulled apart and left for the chickens."

Yahoo CEO Carol Bartz

(Credit: Yahoo)

The obvious question is what that means for the possibility of selling the search business to Microsoft, a possibility that emerged last year, though the companies couldn't agree to terms. Bartz wouldn't rule out that transaction nor declare it a great idea, but her tone left the impression she'll need more convincing.

Specifically, she said she's not going to put the interests of short-term shareholders looking for a stock pop ahead of the long-term investors who are more patient for the company to improve its operations.

"It's my job to make sure that as a company we look at anything that makes sense long-term for the company and creates shareholder value. It's very easy to have different shareholder interests. Some are short-term so they can jump out, and some (are) long term. It's our job to make sure we're looking at the bell curve of shareholder value," she said. "Everything is on the table."

Whither search?
She shared a smidgen of thinking about the search business specifically, though she qualified it with the comment that Yahoo would have to invest in it regardless of whether the company wanted to keep it or sell it. For one thing, it's "extremely useful" to understand users' intent through searches. For another, query growth, stemmed market share losses to Google, and faster introduction "increases the value of the product. It's good for our brand and our shareholders, no matter what our long-term plan."

Chief Financial Officer Blake Jorgensen also went into some detail about the search business.

"We're building off the road map, first with Panama (Yahoo's search ad sales system) and now with our continued innovation with Search Assist, SearchMonkey. It's helped us stabilize the share," Jorgensen said. And Yahoo's numerous and often high-traffic properties help keep search ticking, he added.

There were some encouraging statistics for Yahoo's search business. Revenue increased 11 percent globally and 18 percent in the United States, Jorgensen said. In the United States, search queries increased 10 percent compared with the year-earlier quarter. Overall, revenue per search grew in the high single digits, he said.

But not all is well. Google last week was relatively bullish about its search-ad business, reiterating its argument that the directly measurable return on advertising investments make it stronger during times of economic trouble. Jorgensen, in contrast, offered a note of caution that the economy means people aren't searching for things to buy as often. "We're tending to see cost-per-click growth, but click yields and fewer commercial queries are starting to impact revenues in general," Jorgensen said.

In defense of Yahoo
She continued with the assertive tone set in her introductory press conference just two weeks ago, coming out guns-a-blazin' as a strong Yahoo advocate, someone who's willing do what's right rather than come up with potentially damaging quick fixes.

"I didn't come here to sell the company," she asserted.

The stock market responded with a collective optimism to Bartz's debut and the financial results, pushing the stock up 59 cents, or 5 percent, to $11.93 in after-hours trading.

There was no question who's in charge of the company now. Former CEO Jerry Yang was present during the conference call, but for whatever reason didn't make so much as a peep during the question-and-answer session.

Wooing younger users
Microsoft isn't the only company Bartz is monitoring. Facebook, too, with its younger users, also is on the list. As the mother of a 20 year old, "I'm very familiar with Facebook," Bartz said.

And while it's nice to have the young users on your site, "They do grow up," Bartz said. People in their late 20s are "much more interested in Yahoo Finance. They don't have all day to put pictures up and chat because guess what, they're off the dole," she said.

And, she added, that age group is easily jaded. "Just as MySpace was hot and it moved to Facebook, who knows what's next? We have a lot going on. We're dabbling in it with Yahoo Open Strategy. I was surprised. We have a demographic that serves the entire Web. I think we can get some growth in other areas," she said, mentioning that aging baby boomers are less technically intimidated than today's senior set.

Bartz has a lot of work ahead of her and didn't pretend otherwise. Specifically, she pointed to communication problems within the company, a muddy presentation of its strategy, slow decision-making, and a lack of focus. She'll "move swiftly" to right these wrongs, she said. And of course the economy is dismal.

The sober tones seemed present more to assure the audience that she wasn't a pollyanna. Overall, it seemed outweighed by the kind of optimistic tone one might expect from a new CEO. Twice she said Yahoo's prospects look better from within the company than from the gloom-and-doom press view she got in 2008.

"If we have strong products, we will attract the audience that just beats everything," she said. "It's not just about search. It's about people coming for content and information."