After Bartz, What’s Next for Yahoo?

Shares climb 6% following CEO's dismissal

Fired Yahoo CEO Carol Bartz

No amount of tough talk is going to help Carol Bartz in this situation.

After a rocky two-and-a-half-year tenure as CEO of the Sunnyvale, Calif.-based tech giant Yahoo, the famously brash Bartz has been replaced by Yahoo CFO Tim Morse, who will serve as interim CEO. The Wall Street Journal blog All Things Digital broke the news late yesterday, and the company later confirmed that Bartz had been dismissed as CEO. A committee has been formed to oversee a search for a permanent chief executive.

"The Board sees enormous growth opportunities on which Yahoo! can capitalize, and our primary objective is to leverage the Company's leadership and current business assets and platforms to execute against these opportunities. We have talented teams and tremendous resources behind them and intend to return the Company to a path of robust growth and industry-leading innovation,” Roy Bostock, chairman of the Yahoo board, said in a statement. “We are committed to exploring and evaluating possibilities and opportunities that will put Yahoo! on a trajectory for growth and innovation and deliver value to shareholders."

In after-hours trading following the announcement, shares of Yahoo rose about 6.3 percent to $13.72.

Bartz joined Yahoo in 2009 and quickly made a name for herself as a brusque, no-nonsense kind of CEO. But when her hard style didn’t bring hard results, criticism started to mount. Under her watch, the once-dominant search site turned in consecutive quarters of sub-par returns, pushing the stock down and sparking ongoing speculation that the Yahoo board was on the hunt for a new CEO.

In the last quarter, Bartz not only reported that revenue fell 5 percent from the second quarter of 2010, but also said Yahoo took some hits in U.S. display ad revenue because of changes to the its sales leadership. “That was completely bad management,” said Sameet Sinha, an analyst with B. Riley and Co. The company’s performance in the last quarter was disappointing, and it looks as though this quarter is likely going to be more of the same, he said.

Yahoo in its statement said it had tapped a few key executives—including Michael Callahan, executive vice president, general counsel and secretary; Blake Irving, executive vice president and chief product officer; and Ross Levinsohn, executive vice president, Americas—to help find a permanent replacement. But some wonder if Irving or Levinsohn might be on that short list of potential chief executives themselves.

News Corp.’s chief digital officer Jonathan Miller as well as Yahoo board member David Kenny have also been mentioned in recent months as possible contenders for Yahoo’s top job.

Regardless of who follows Bartz, Sinha said the next CEO must focus on reinvigorating employee morale and updating technology. “[Yahoo] employees have been disheartened for the last four years,” he said. “There are so many fast-growing companies out there that tech employees can leave and get a job anywhere. They need to stop the exodus of people leaving Yahoo.”

But he emphasized that breathing new life into a tech company past its prime has not proven to be an easy path. Numerous CEOs have tried—and failed—to revive Yahoo. Meanwhile, at competitor AOL, CEO Tim Armstrong is struggling through his own company’s rehabilitation. EBay is the rare company with a turnaround success, which was largely thanks to PayPal, Sinha said.

“Whoever comes in will have to be up for the task,” he said. “It’s one of the most daunting tasks, turning around a tech company.”

Some industry observers say it’s time for the company to realize that its time as an independent has passed, and that the board and a new CEO should either break Yahoo up or consider a strategic partnership. In a blog post, former editor-in-chief Lance Ulanoff said Bartz’s departure opened the door for a Microsoft-Yahoo marriage: “MicroHoo.”

“It’s time. Time for Yahoo to stop gazing inward for answers that simply do not exist. Time for it to stop looking for the magic-bullet CEO. Time for it to realize that it lost the race long ago and is valuable mostly for its eyeballs,” he wrote. “It’s time for Yahoo and its next CEO to do everything possible to retain and shore up remaining products and lure Microsoft back to the deal-making table one more time. Only then can MicroHoo become a whole company, one that’s ready to compete with Google and Apple . . . maybe.”