February 13, 2008 2:11 PM PST

Memo to Microsoft: Yahoo's A-list

Memo to Microsoft: Yahoo's A-list
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Working at Yahoo is getting riskier by the day. Even before merger-minded Microsoft could lay off some of the stars within its acquisition target, Yahoo executives beat them to it.

But there are some key Yahoo employees who are so indispensible for their experience, skill or leadership, that Microsoft would be crazy to let them go in the event of a merger, observers, insiders, and former Yahoo employees say.

Several of those mentioned by sources as vital to Yahoo were among the casualties of Tuesday's layoffs, which totaled an estimated 1,100. The layoffs are the latest black spot for Yahoo, which has been struggling to redefine itself in the shadow of Google's dominance in both search and online advertising. In an attempt to better compete with Google, Microsoft has made a $31-a-share offer for Yahoo, but Yahoo's board has rejected it as too low.

"The company was significantly overstaffed and with a coming consolidation with Microsoft there is going to be pretty dramatic overlap," said Jim Barnett, who left Yahoo in 2003 and is now chief executive of Turn, an automated targeting ad marketplace.

One of the main reasons Microsoft is aiming to buy Yahoo is to improve its expertise on the Web--a market the software giant has yet to dominate despite its best efforts. Even though Yahoo has been struggling, the Internet company is viewed as rich with valuable online brands and talented people. Microsoft will likely want to keep Yahoo employees in a host of areas, including online advertising, social media, and Web search.

"Microsoft needs assistance in the Internet business so they're going to be looking to bring in some Internet-based talent. Yahoo's a step up for them," said Steve Weinstein, research analyst at Pacific Crest Securities.

Still, many talented people departed Yahoo with the layoffs. Casualties include Randy Farmer, who was a community strategy analyst at Yahoo and a virtual worlds pioneer, and Bradley Horowitz, who headed up Yahoo's Advanced Technology Division and oversaw Brickhouse. Horowitz, who could not be reached for comment, may have taken a voluntary severance package and is reported to be joining Google. Salim Ismail, one of his top managers at Brickhouse--a program dedicated to launching innovative products--left voluntarily.

The departures of Brickhouse executives seem to undermine a need at Yahoo to focus on innovative, community-based Web services.

Who to keep

Among the talent pool at Yahoo, several executives stand out in divisions such as social media and search. Those include Jeff Weiner, who oversees Yahoo's consumer Web products. Several sources said he would be a must-hire for Microsoft. "He's a brilliant guy with tremendous insights," said Brian Bowman, who left Yahoo in 2006 as vice president of community and is now chief marketing officer at Reply.com.

Flickr co-founder Caterina Fake is also revered for creating one of the most popular social-media applications, at Yahoo and on the Web. "It would be absurd to lose anyone from Flickr or Delicious," said Danny Sullivan, editor of Search Engine Land.

Several sources also praised Tapan Bhat, vice president of front doors at Yahoo; Scott Moore, who left MSN and is head of Yahoo News; and Brad Garlinghouse, head of communications and community at Yahoo, who bravely wrote the famous "Peanut Butter Manifesto" in 2006 that foreshadowed Yahoo's current problems and suggested layoffs, management changes, and a refocusing on core products.

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