Yahoo's Bartz Starts Strong

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Renewed Deal Chatter

However, Bartz provided few specifics on what's coming next for Yahoo—especially concerning Microsoft. The software giant's repeated buyout and search-ad deal offers last year were all rebuffed by Yahoo under co-founder Jerry Yang, who handed over the CEO reins to former Autodesk (ADSK) Chairman Bartz in January. Bartz met Microsoft CEO Steve Ballmer recently, raising the possibility that the two companies are considering a range of deals.

One possibility being floated is that Yahoo could let Microsoft take over sales of search ads on both firms' sites, while Yahoo could handle display ads for both. Such a deal could save Yahoo as much as $1.3 billion annually and bring in as much as $800 million in revenues from Yahoo selling display ads on Microsoft's sites. The Boomtown blog reported on Apr. 20 that talks were heating up between the two companies, but it appears that Microsoft is more enthusiastic than Yahoo.

In keeping with an earlier vow not to negotiate in public, Bartz said little about the potential for a deal. "Search is a very valuable business for Yahoo. That's all we're going to say about search for today," she told analysts. She also reiterated her belief that Yahoo needs to retain some stake in search to help it target display ads better. "Search is important to our users and search is important to our advertisers," she said.

Being Careful with Search

That's why some observers believe even a search deal alone could take longer than investors might hope, if it happens at all. "Yahoo's concluding that there's strategic value in search, so they don't want to get rid of it," says Ted West, CEO of search ad network LookSmart (LOOK).

A joint effort in search could take some time. "All indications are this will not be a simple and easy-to-execute deal," says Scott Kessler, an analyst with Standard & Poor's, which like BusinessWeek is a unit of The McGraw-Hill Companies (). "And it's not forthcoming any time soon." Kessler on Apr. 17 downgraded his stock ratings on both Yahoo and Google to "hold," citing weak revenue growth in online advertising as well as recent rises in both companies' shares.

Bartz also offered few details on Yahoo's strategy for restoring growth besides asserting that the company would benefit from a turn in the economy by virtue of its size and presence online, and that it would focus on "creating kick-ass products." "I came away with no impression for what the company's going to do," says Jeffrey Lindsay of Sanford Bernstein & Co. "We couldn't see the strategy of how they're going to grow the business again."

Bringing In New Blood

Bartz, who has been shaking up the management ranks, announced one new appointment: Jeff Russakow from Symantec (SYMC) has joined as senior vice-president of customer advocacy, a new position Bartz had announced previously. In late February, she combined tech and product groups, appointed a chief marketing officer, Elisa Steele, and collapsed international sales regions.

The moves encourage some Yahoo watchers. Organizational design expert Jay Galbraith, founder and president of Galbraith Management Consultants, said Bartz is making the right changes so far. "Nobody had stepped up to make the hard decisions," he said. "She's got the stomach that Yahoo has lacked." But he said eventually she would have to make further changes in management and how it's organized to get Yahoo back on track.

While the first-quarter performance may have bought Bartz more time to work her magic, it's unclear how much more time she has to get Yahoo stabilized. "Her honeymoon days are numbered," says Kessler.

Hof is BusinessWeek's Silicon Valley bureau chief.

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