February 13, 2008 2:11 PM PST

Memo to Microsoft: Yahoo's A-list

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Given Yahoo's strong background in search, there were several notables in that department that sources said are vital. At the top of several sources' lists was Qi Lu, executive vice president of engineering search and search marketing. Lu is essentially responsible for Yahoo's efforts to make money from Web search--and despite search-market losses to Google, that financial engine is profitable. Microsoft could help Yahoo repackage search in a simpler format to take on Google again.

"(Lu) is recognized as one of the strongest senior engineers at the company," said one source, who asked to remain anonymous.

Others highly respected in the search business include Tim Cadogan, senior vice president of search, listings, and display marketplace, who came with Yahoo's Overture acquisition; John Thrall, head of multimedia search engineering; Jan Pederson, chief scientist for the search and marketplace division; Tim Mayer, vice president of product management in search, and Vish Makhijani, a senior vice president of search.

Microsoft will want to hold on to the media-advertising expertise at Yahoo, too, despite Redmond's ownership of ad and technology firms Avenue A and Altas. Insiders say that those businesses aren't as efficient as they could be, and Microsoft will need to retain the network media people inside Yahoo's performance ad companies Right Media and Blue Lithium to focus on driving traffic outside the network. People working on behavioral targeting, data mining, geo-targeting, and ad profiling will be key to any acquisition.

"It's a technology-driven business--you need the ad server engineers and product people," said a source inside the company. "What you don't need is tons of middle management and content producers. You can strike revenue-share agreements with writers groups and do a better job at it."

Dave Vockell, vice president of ad strategy, and David Karnstedt, senior vice president of North American sales, are others in Yahoo's advertising business that should be kept on the payroll, sources said.

Similarly, Microsoft would likely want to retain Usama Fayyad, Yahoo's chief data officer and executive vice president of research and strategic data solutions. Before coming to Yahoo, Fayyad was the co-founder of two data-mining companies, the DMX Group and DigiMine (which is now Revenue Science). And he spent five years at Microsoft Research running its data mining and exploration group, following a stint at NASA's Jet Propulsion Laboratory.

Voted least popular

Sources say the fat of Yahoo lies in a gigantic middle layer of management, comparable to a list of producers on Hollywood film credits. And there are some executives at Yahoo who are not likely to make the Microsoft must-have list. Some criticize Yahoo's hiring of Aristotle Balogh as chief technology officer, for example, given his background as former CTO of security company Verisign. And Marco Boerries, executive vice president of Yahoo's connected life division, is a controversial figure inside the company, according to sources.

"He was not so well liked internally and Microsoft already has their mobile gurus in Redmond, Wash.," one source said of Boerries.

As for those executives already leaving the company, some former Yahoo employees say their absence is a real loss.

"Horowitz is a real superstar. Smart, charismatic, an inspiring speaker and was the 'voice of the innovator' internally," said one former Yahoo executive. "In many ways he represents what Yahoo (and Microsoft) need--about a dozen more Bradleys."

For Farmer, the layoffs came as a surprise. "Many of the people around me that I heard were laid off were, in my opinion, top quality," he wrote in an e-mail to CNET News.com.

"Microsoft has attempted to recruit me at least twice before. I'm not at all sure I'd spurn them again," Farmer wrote. "In less than 24 hours since my layoff, I've received e-mails of interest from several Yahoo competitors."

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