Back to the Future at Yahoo!

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Those possibilities all appear to be long shots, at least for now. But the very fact that they are even raised underscores how Yahoo's future is on the line. Indeed, some analysts and people close to the company fear that Yang and Decker may not make substantial changes to the company's direction. "People who look at [Semel's departure] as some kind of watershed event that is going to result in fundamental change at the company are going to be disappointed," says Standard & Poor's (MHP) analyst Scott Kessler. He has a hold rating on the stock, which fell 2%, to 27.63, the day after the announcement.

YouTube Steal

Most of all, the Yahoo chiefs must somehow find a way to stop losing ground to Google's search engine and the lucrative little text ads that run next to its results. Yahoo has yet to demonstrate the gains in revenue-per-search that were supposed to follow the February release of Panama, a new ad system. With Google's searches bringing in 40% more revenue on average than Yahoo's, Panama is intended to better match search ads to what users are looking for so advertisers will pay more for them.

Even Yahoo's mainstay display ad business, the banner and video ads that make up more than half its ad revenues, is under pressure. Decker says declining growth in display advertising could drop second-quarter results below the midpoint of Yahoo's previous forecasts. And Google and Microsoft have each squarely targeted display ads—Google with a $3.1 billion deal in April to buy online ad firm DoubleClick Inc. and Microsoft with its $6 billion purchase of aQuantive (AQNT).

Yahoo has also failed to make a big splash in social-networking services, like MySpace.com and Facebook, that dominate much of the new online activity today. Yahoo took a run at Facebook last year but didn't close a proposed $1 billion deal. Now Facebook's popularity is soaring. In another miss last year, as it struggled to consolidate 16 different video services, Yahoo watched Google swoop in to buy leading video-sharing site YouTube for $1.6 billion.

Warm Fuzzies

People who know Yang well are hopeful. They say he makes firm decisions and champions innovation initiatives, such as an internal idea incubator called Brickhouse that Yahoo opened in March. Says one executive: "You always come out very energized after every meeting with him."

For all the challenges, Yang and Decker probably have some running room. Everyone from Madison Avenue ad agencies to Hollywood moguls craves a foil to increasingly powerful Google. Yahoo is their best hope. "None of the advertisers wants a monopoly," says Kevin Lee, executive chairman of Did-It Search Marketing.

And many people in the Valley retain a soft spot in their hearts for Yahoo. Michael Tanne, chief of Web-search startup Wink Technologies, notes that nearly half of his 17-person staff hails from Yahoo, and they still harbor warm fuzzies about it. Of course, departures like those are a big part of Yahoo's problem. If Yang can somehow reverse the flow of talent and get that well of goodwill working in his favor, Yahoo may yet score with its "Hail Jerry" pass.

Hof is BusinessWeek's Silicon Valley bureau chief. With Catherine Holahan in New York.