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For Yahoo, a need to move at Web speed

Times Staff Writer

A decade after figuring out what works online, Web pioneer Yahoo Inc. is trying to figure out what works online.

Yahoo Inc. attracts more visitors each month than any other Internet site and trails only Google Inc. in online-advertising revenue. But it’s wrestling with the same disruptive forces hammering old and new media alike: rapidly evolving technology, changing audience tastes and growing competition.

Shares of the Sunnyvale, Calif.-based company fell 2% on Wednesday in a sign that investors were hoping for more from a corporate restructuring designed to sharpen the focus on users and advertisers.

Several top Yahoo executives tendered their resignations in Tuesday’s shake-up, joining notables from AOL, CBS Digital and Fox Interactive Media in stepping aside as their companies navigate a media marketplace that’s changing at Web speed -- that is, the speed of light.

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“Good times are back online, and yet good companies are scrambling to keep up,” said David Card, an analyst with Jupiter Research. “And everybody’s just trying to keep up with Google, which is very hard.”

Despite Yahoo’s success over the last decade, its considerable advertising connections and its hundreds of millions of global users, the company is struggling to find itself, analysts said.

As traditional media companies try to be more like Yahoo, Yahoo is trying to be more like Google, which is far more efficient at turning clicks from its visitors into cash from its advertisers.

“Yahoo is the first of the purely Internet media companies to experience an identity crisis,” said Tim Hanlon, a senior vice president at Denuo, the media consulting arm of ad giant Publicis Groupe.

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“A lot of digital media companies are going to start having a lot of nervous breakdowns themselves.”

The restructuring is Chief Executive Terry Semel’s most public admission that Yahoo is having trouble innovating at a high pace. Yahoo’s stock price is off more than 30% this year, while Google’s is up 18%. Yahoo shares fell 57 cents Wednesday to $26.86.

Only two years ago investors were lauding Semel, a former co-chairman of Warner Bros., for rescuing Yahoo from the dot-com bust after he joined in 2001. But now some are asking whether Semel is the right executive to lead the company through its next phase.

“He’s certainly been the right guy to run it over the last five years,” said Citigroup analyst Mark Mahaney. “He turned the company around. Whether he’s the right guy to run it the next five years, I’m not sure.”

For his part, Semel said in an interview that he was “having a great time” running Yahoo, which two Stanford grad students started as an online directory in 1994. Semel said the company’s first five years or so were about building an audience. The next five, which he oversaw, were about building products. Now Yahoo is entering its third phase: focusing on its users and advertisers.

“I see this as an enormous opportunity for our company,” he said. “I’m someone who believes in change.”

But recently the world has been changing faster than Yahoo.

The site attracts 130 million U.S. Web surfers a month, according to research firm ComScore Networks, and is the Web’s largest broker of brand-oriented display ads. Many of its properties, including news and e-mail, rank at or near the top of their categories.

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“Yahoo still has a very big, loyal audience,” Card said.

But Time Warner Inc.'s AOL and Microsoft Corp.'s MSN are competing more strongly for advertising dollars, and Google is better than Yahoo at matching targeted ads with search-engine results, said Mark Kingdon, CEO of ad agency Organic Inc.

Meanwhile, community websites such as Fox’s MySpace and Google’s YouTube are gaining traffic and advertisers. Yahoo has acquired several social-media operations, such as the bookmarking site Del.icio.us and the photo-sharing site Flickr, but has yet to incorporate them broadly across its properties.

“Simply because Yahoo was a pioneer in the industry doesn’t ensure its success forever,” Kingdon said. “A smart idea grew into a major portal. Now, that major portal must transform itself. At Yahoo’s size, that is a big, significant challenge.”

Somewhere along the way, Yahoo began to closely resemble the traditional media companies it was supposed to displace, Denuo’s Hanlon said.

“I think Yahoo has been a victim of its own success,” he said. “They have truly made the transition from being a start-up, renegade, change-the-world kind of company to being part of the classic media club. With that change, your wardrobe needs to change. You have to act differently.”

Semel said he reorganized the company in part to help it move more quickly. Yahoo now has three main divisions, focusing on users, advertisers and the technology to support the two.

Announcing their departures were Chief Operating Officer Dan Rosensweig, a former magazine and Internet publishing executive, and Yahoo Media Group head Lloyd Braun, a former chairman of ABC television.

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Chief Financial Officer Sue Decker was elevated to oversee the advertiser group. The company said it was beginning an outside search for an executive to run the division focused on users.

chris.gaither@latimes.com


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