Yahoo's Semel Faces the Music

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Partly as a result, Yahoo has seen a steady stream of executive and employee departures. That has put a damper on morale since last year. What's more, the struggles have renewed persistent speculation about whether Semel will stay in the job he took in May, 2001 (see BusinessWeek.com, 5/28/07, "Even Yahoo! Gets the Blues").

Playing Offense and Defense

Semel didn't shed light on that, but his presentation at the meeting sought to reassure investors that Yahoo is on the right track. While "we have a lot more to do," he conceded, he said Yahoo still has a good competitive position. In particular, he implied that the investments in Panama and other initiatives will pay off soon and help it regain ground lost to Google. "Without any question in our mind, we are going to narrow that gap," he said. "We would have loved to do it a little sooner. [But] that's going to be a lot better business for Yahoo going forward."

Semel faced the sharpest criticism from Jackson, who told Semel, "I'm surprised that you didn't apologize to the Yahoo shareholders for the past three years' performance." He grilled Semel on how specifically he was going to execute Yahoo's strategy, concluding with this pointed question: "Do you still have the fire in the belly?"

Semel responded calmly: "Absolutely." He displayed annoyance only once, when Jackson asked whether Semel was admitting he was satisfied with Yahoo being No. 2 in search. "I think you're being a little cute about that," he said, denying any such admission. Afterward, Jackson said he's still waiting for more specifics. "We all want to know why we should stick around as shareholders," he said.

For their part, analysts also say they'll be paying close attention to what Semel has to say when Yahoo reports second-quarter earnings on July 17. "Management did draw a line in the sand," notes Rob Sanderson of American Technology Research. Yahoo will be expected to start reporting double-digit gains in the amount of revenue it gets per average search query, as executives have promised. Otherwise, he says, investors may clamor for more drastic changes at Yahoo.

Hof is BusinessWeek's Silicon Valley bureau chief.