Yahoo Is Counting on Apex

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Moreover, Yahoo's expertise has always been in building audiences, not creating whiz-bang technology. Indeed, a key piece of Apex is technology from the ad exchange Right Media, which Yahoo acquired last year. The overriding question is whether the company can reinvent itself as a tech power that can compete with the übergeeks at Google, Microsoft, Facebook, and a raft of Web upstarts gradually stealing away Yahoo's audiences and advertisers. "We have to build an advertising system that lives in the Web 2.0 world," says Yang. If he can't, Yahoo's future could be a slow fade to irrelevance—or, if new Yahoo board member Carl Icahn and other shareholders get their wish, a quick meal for a still-hungry Microsoft.

The Apex project got under way in late 2006 as Yahoo's fortunes headed south. Tensions over the new tech-focused ad initiative broke into public view in June 2007 when ad sales chief Wenda Millard left for Martha Stewart Living Omnimedia (MSO). In an unusually blunt press release about the staff shakeup, Yahoo said "the industry has shifted and requires a different set of skills." Millard later decried unnamed ad networks that sell ad inventory "like pork bellies." The same month, with no sign of a turnaround, CEO Terry Semel resigned and Yang took over.

Despite the turmoil, the project stayed on track through more than a year of development. A half-dozen project leaders and executives conferred every Sunday at 7 a.m. for an hour to plan the week's activities. As a December 2007 deadline to produce a working demonstration system neared, teams worked around the clock to mesh their code.

They made it, but Yahoo's business was deteriorating. On Jan. 29 the company said fourth-quarter profits plunged 23%, and its stock slid to a four-year low. Two days later, Microsoft pounced with a hostile bid to buy Yahoo. For all that, Apex rolled out on time to newspapers in mid-August.

Yahoo's not done yet. It will open Apex initially to newspaper publishers, plus other partners such as WebMD and CNET Networks, this year and through 2009. Advertisers, agencies, and ad networks will follow, and eventually it will expand it to all kinds of online advertising, including search and mobile ads. Meanwhile, the growth of display ads is starting to slow as the economy slumps. "Yahoo's trying to move more into display at just the time it's declining," says Jeffrey Lindsay, an analyst with Bernstein Research. Yang insists Yahoo is in for the long haul. But his time is running short.

Hof is BusinessWeek's Silicon Valley bureau chief.