November 17, 2008 5:02 PM PST

Yahoo CEO Yang to step down

Jerry Yang

(Credit: Yahoo)

Updated 5:11 p.m. PST with Yahoo announcement. Updated 5:21, 6:19 p.m., and 6:57 p.m. PST with further detail.

Yahoo, under fierce financial pressure, has begun a search to replace company co-founder Jerry Yang as chief executive, the company said Monday.

"Jerry and the board have had an ongoing dialogue about succession timing, and we all agree that now is the right time to make the transition to a new CEO who can take the company to the next level," Chairman Roy Bostock said in a statement. "We are deeply grateful to Jerry for his many contributions as CEO over the past 18 months, and we are pleased that he plans to stay actively involved at Yahoo as a key executive and member of the Board."

Yang will resume his position as chief Yahoo, the company said, the role he had before taking over in 2007 after former CEO Terry Semel departed.

After reporting a 64 percent drop in net income and warning that the advertising market is softening, Yahoo announced a layoff of at least 1,430 by the end of 2008 in October. The cut follows another in which about 1,000 Yahoo employees lost their jobs in February. In after-hours trading Monday, Yahoo rose 47 cents, or 4 percent, to $11.10.

All Things D's Kara Swisher reported the move earlier Monday.

Hitting the reset button
"I think it's the right move for the company," said Eric Jackson, an activist Yahoo shareholder who has pressured the company for big changes. However, he added, "It's really too little too late. This is a board failure more than it is Jerry's failure. These problems have been around at Yahoo for well over two years now."

It's unclear at this stage what changes will come with a new CEO, but one possibility is another shot at a deal with Microsoft. "I would expect Microsoft to come back within the next three or four months," Jackson said.

Yang needed to step aside to give Yahoo a chance to start fresh, said David Wertheimer, the former president of Paramount Digital Entertainment and now the chief of the Entertainment Technology Center at the University of Southern California.

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"The problem Yahoo has now is they've got to redefine themselves in a different landscape than they were when Jerry built the company," Wertheimer said. "As much as I like Jerry personally, I think employees, and Wall Street are looking for something revolutionary, a sign that the company is reinventing itself."

Yang patted himself on the back for moving the company in a new direction during his recent CEO tenure. His full statement:

From founding this company to guiding its growth into a trusted global brand that is indispensible to millions of people, I have always sought to do what is best for our franchise. When the board asked me to become CEO and lead the transformation of the company, I did so because it was important to re-envision the business for a different era to drive more effective growth. Having set Yahoo on a new, more open path, the time is right for me to transition the CEO role and our global talent to a new leader. I will continue to focus on global strategy and to do everything I can to help Yahoo realize its full potential and enhance its leading culture of technology and product excellence and innovation.

Yahoo said the search will include internal and external candidates. One leading contender no doubt is President Sue Decker, who has been a close Yang ally. The New York Times reported that other candidates include Dan Rosensweig, Yahoo's former chief operating officer and now with Quadrangle Group, and former AOL CEO Jon Miller.

Struggling for a fix
Yahoo has been struggling for months to improve its financial performance, but things have gone from bad to worse for the company this year, and its stock has sunk to a closing price of $10.63 on Monday. First, the company thwarted Microsoft's unfriendly attempt to acquire Yahoo outright, and later just its search business, though Yahoo appeared to grow more interested in a deal even as Microsoft grew cooler. At one point, Microsoft offered to acquire the company at $33 per share.

The next blow was the economic collapse, which is hurting the advertising market on which Yahoo depends. Even though many expect online ads to fare better than those on TV or in print, Yahoo relies more on graphical "display" ads that are expected to be hit harder than the search-related text ads that supply the vast majority of Google's profits.

Finally, a search-ad partnership with Google fell apart in November when Google decided it didn't have the stomach to fight the Justice Department's threatened antitrust lawsuit.

Is the fix in?
Yang can't claim credit for righting the company, but he has certainly changed it.

One major component, just now launching is the Yahoo Open Strategy, which is designed to rewire Yahoo's computing infrastructure. The goal is to link Yahoo users with social networking elements, enable others to energize Yahoo properties with new applications, and build Yahoo activities into other sites on the Internet. Ultimately, the company hopes for new users and more activity from existing users.

The company also is trying to overhaul its advertising business. Part of that effort involves improving the profitability of its search ads, but a higher-profile element is the Amp technology for display ads. With Amp, Yahoo hopes to make it easier for advertisers to find places to run ads, easier for publishers to find advertisers, and easier for all parties to track just how well ads are doing.

CNET News' Elinor Mills and Greg Sandoval contributed to this story.

Stephen Shankland writes about a wide range of technology and products, but has a particular focus on browsers and digital photography. He joined CNET News in 1998 and since then also has covered Google, Yahoo, servers, supercomputing, Linux and open-source software, and science. E-mail Stephen, or follow him on Twitter at http://www.twitter.com/stshank.