The worst year of Yahoo's life

For CEO Jerry Yang, 2008 was going to be the year when Yahoo's long-awaited technology and business turnaround began in earnest, then it all went wrong.


After years of decline at the expense of Google and nimble startups like Facebook, MySpace and YouTube, Yahoo would come roaring back and eventually reclaim its position as the ruler of the Internet roost. Leading the comeback, Jerry Yang would reprise the role Steve Jobs played after retaking Apple's helm.

That was the plan when Yang, a Yahoo co-founder, had taken over as CEO in mid-2007 to save his company. Optimism ran high. Some pundits said no one knew Yahoo better than Yang, and that he had the mix of technical and business knowledge to right the ship.

After several corporate reorganisations in 2006 and 2007, Yahoo finally had the right structure in place, the company's upper management argued.

Yang's goals were ambitious: Make Yahoo the preferred starting point for users, the preferred marketing vehicle for online advertisers and the preferred Web application platform for external developers.

In short, Yang would ensure that when the 2008 holiday season rolled around, Yahoo investors, partners and employees would have plenty to be jolly about.

Things haven't quite worked out that way.

Instead, the year brought two big rounds of layoffs, an embarrassing exodus of high-profile managers, disappointing financials, a tanking stock price, free-falling employee morale and little or no advances in key areas, like search usage and search advertising. Oh yeah, and yet another corporate reorganisation that many cynically viewed as more spinning of the wheels.

At the centre of it all was Microsoft's historic acquisition attempt. It's clear that it radically disrupted Yang's plans and that he failed to handle the situation properly. It was a curve ball that, hard as he tried, he struck out on.

Although he never admitted it, the unsolicited bid clearly rankled Yang, whose turnaround vision for Yahoo didn't include a merger with Microsoft. "The Microsoft offer was a devastating distraction for Yahoo's upper management," said industry analyst Greg Sterling from Sterling Market Intelligence.

It's unclear whether Yang may have been able to execute his turnaround plan better if the Microsoft bid hadn't been made, Sterling said. "The other way to look at it is that the Microsoft situation simply accelerated the inevitable," he said.

The Microsoft offer had to be dealt with. Whether Yang liked it or not, the $31 per share, $44.6 billion cash and stock bid represented a 62 percent premium for Yahoo shareholders when it was announced on 1 February.

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