ManiIesto' ovember 8, zoo6, \all Street ]ournal An internal document by Brad Carlinghouse, a Yahoo senior vice president, says Yahoo is spreading its re- sources too thinly, like peanut butter on a slice oI bread. Full text oI the document is below. Three and halI years ago, I enthusiastically joined Ya- hoo! The magnitude oI the opportunity was only matched by the magnitude oI the assets. And an amaz- ing team has been responsible Ior rebuilding Yahoo! It has been a proIound experience. I am Iortunate to have been a part oI dramatic change Ior the Company. And our successes speak Ior themselves. More users than ever, more engaging than ever and more prontable than ever! I proudly bleed purple and yellow everyday! And like so many people here, I love this company But all is not well. Last Thursday's Y Times article was a blessing in the disguise oI a painIul public Bogging. \hile it lacked accurate details, its conclusions rang true, and thus was a much needed wake up call. But also a call to action. A clear statement with which I, and Iar too many Yahoo's, agreed. And thankIully a reminder. A reminder that the measure oI any person is not in how many times he or she Ialls down - but rather the spirit and resolve used to get back up. The same is now true oI our Company. It's time Ior us to get back up. I believe we must embrace our problems and challenges and that we must take decisive action. \e have the op- portunity - in Iact the invitation - to send a strong, clear and powerIul message to our shareholders and \all Street, to our advertisers and our partners, to our em- ployees (both current and Iuture), and to our users. They are all begging Ior a signal that we recognize and under- stand our problems, and that we are charting a course Ior Iundamental change. Our current course and speed simply will not get us there. Short-term band-aids will not get us there. It's time Ior us to get back up and seize this invitation. I imagine there's much discussion amongst the Com- pany's senior most leadership around the challenges we Iace. At the risk oI being redundant, I wanted to share my take on our current situation and oBer a recom- mended path Iorward, an attempt to be part oI the solu- tion rather than part oI the problem. Recognizing Our Problems \e lack a Iocused, cohesive vision Ior our company. \e want to do everything and be everything -- to everyone. \e've known this Ior years, talk about it incessantly, but do nothing to Iundamentally address it. \e are scared to be leIt out. \e are reactive instead oI charting an un- wavering course. \e are separated into silos that Iar too Irequently don't talk to each other. And when we do talk, it isn't to collaborate on a clearly Iocused strategy, but rather to argue and nght about ownership, strategies and tactics. Our inclination and proclivity to repeatedly hire leaders Irom outside the company results in disparate visions oI what winning looks like -- rather than a leadership team rallying around a single cohesive strategy. I've heard our strategy described as spreading peanut butter across the myriad opportunities that continue to evolve in the online world. The result: a thin layer oI investment spread across everything we do and thus we Iocus on nothing in particular. I hate peanut butter. \e all should. \e lack clarity oI ownership and accountability. The most painIul maniIestation oI this is the massive redun- dancy that exists throughout the organization. \e now operate in an organizational structure -- admittedly cre- ated with the best oI intentions -- that has become overly bureaucratic. For Iar too many employees, there is another person with dramatically similar and overlap- ping responsibilities. This slows us down and burdens the company with unnecessary costs. Lqually problematic, at what point in the organization does someone really O\ the success oI their product or service or Ieature: Product, marketing, engineering, corporate strategy, nnancial operations... there are so many people in charge (or believe that they are in charge) that it's not clear iI anyone is in charge. This Iorces decisions to be pushed up - rather than down. It Iorces decisions by committee or consensus and dis- courages the innovators Irom breaking the mold... thinking outside the box. There's a reason why a centernelder and a leIt nelder have clear areas oI ownership. Pursuing the same ball repeatedly results in either collisions or dropped balls. Knowing that someone else is pursuing the ball and hop- ing to avoid that collision - we have become timid in our pursuit. Again, the ball drops. \e lack decisiveness. Combine a lack oI Iocus with un- clear ownership, and the result is that decisions are ei- ther not made or are made when it is already too late.
\ithout a clear and Iocused vision, and without com- plete clarity oI ownership, we lack a macro perspective to guide our decisions and visibility into who should make those decisions. \e are repeatedly stymied by challenging and hairy decisions. \e are held hostage by our analysis paralysis. \e end up with competing (or redundant) initiatives and synergistic opportunities living in the diBerent silos oI our company. ! YML vs. Musicmatch ! Flickr vs. Photos ! YMC video vs. Search video ! Leli.cio.us vs. myweb ! Messenger and plug-ins vs. Sidebar and widgets ! Social media vs. 6o and Croups ! Front page vs. YMC ! Clobal strategy Irom B\'vs. Clobal strategy Irom Int'l \e have lost our passion to win. Far too many employ- ees are phoning" it in, lacking the passion and com- mitment to be a part oI the solution. \e sit idly by while -- at all levels -- employees are enabled to hang around". \here is the accountability: Moreover, our compensation systems don't align to our overall success. \eak perIormers that have been around Ior years are rewarded. And many oI our top perIormers aren't ade- quately recognized Ior their eBorts. As a result, the employees that we really need to stay (leaders, risk-takers, innovators, passionate) become dis- couraged and leave. \nIortunately many who opt to stay are not the ones who will lead us through the dramatic change that is needed. Solving our Problems \e have awesome assets. early every media and com- munications company is painIully jealous oI our posi- tion. \e have the largest audience, they are highly en- gaged and our brand is synonymous with the Internet. II we get back up, embrace dramatic change, we will win. I don't pretend there is only one path Iorward available to us. However, at a minimum, I want to be part oI the solution and thus have outlined a plan here that I be- lieve can work. It is my strong belieI that we need to act very quickly or risk going Iurther down a slippery slope, The plan here is not perIect, it is, however, FAR better than no action at all. There are three pillars to my plan: . Focus the vision. z. Restore accountability and clarity oI ownership. . Lxecute a radical reorganization. 1. Focus the vision a) \e need to boldly and dennitively declare what we are and what we are not. b) \e need to exit (sell:) non core businesses and eliminate duplicative projects and businesses. My belieI is that the smoothly spread peanut butter needs to turn into a deliberately sculpted strategy -- that is narrowly Iocused. \e can't simply ask each B\ to ngure out what they should stop doing. The result will continue to be a non- cohesive strategy. The direction needs to come deci- sively Irom the top. \e need to place our bets and not second guess. II we believe Media will maximize our ROI -- then let's not be bashIul about reducing our in- vestment in other areas. \e need to make the tough decisions, articulate them and stick with them -- ac- knowledging that some people (users / partners / em- ployees) will not like it. Change is hard. 2. Restore accountability and clarity of ownership a) Lxisting business owners must be held account- able Ior where we nnd ourselves today -- heads must roll, b) \e must thoughtIully create senior roles that have holistic accountability Ior a particular line oI business (a variant oI a CM structure that will work with Yahoo!'s new Iocus) c) \e must redesign our perIormance and incentive systems. I believe there are too many B\ leaders who have got- ten away with unacceptable results and worse -- unac- ceptable leadership. Too oIten they (we!) are the worst oBenders oI the problems outlined here. \e must signal to both the employees and to our shareholders that we will hold these leaders (ourselves) accountable and im- plement change. By building around a strong and unequivocal CM struc- ture, we will not only empower those leaders, we will eliminate signincant overhead throughout our multi- headed matrix. It must be very clear to everyone in the organization who is empowered to make a decision and ownership must be transparent. \ith that empower- ment comes increased accountability -- leaders make decisions, the rest oI the company supports those deci- sions, and the leaders ultimately live/die by the results oI those decisions. z My view is that Iar too oIten our compensation and re- wards are just spreading more peanut butter. \e need to be much more aggressive about perIormance based compensation. This will only help accelerate our ability to weed out our lowest perIormers and better reward our hungry, motivated and productive employees. 3. Execute a radical reorganization a) The current business unit structure must go away. b) \e must dramatically decentralize and eliminate as much oI the matrix as possible. c) \e must reduce our headcount by ,-zo%. I emphatically believe we simply must eliminate the redundancies we have created and the nrst step in doing this is by restructuring our organization. \e can be more eBcient with Iewer people and we can get more done, more quickly. \e need to return more decision making to a new set oI business units and their leader- ship. But we can't achieve this with baby step changes, \e need to Iundamentally rethink how we organize to win. Independent oI specinc proposals oI what this reorgani- zation should look like, two key principles must be rep- resented: Blow up the matrix. Lmpower a new generation and model oI Ceneral Managers to be true general managers. Product, marketing, user experience & design, engineer- ing, business development & operations all report into a small number oI Iocused Ceneral Managers. Leave no doubt as to where accountability lies. Kill the redundancies. Align a set oI new B\'s so that they are not competing against each other. Search Io- cuses on search. Social media aligns with community and communications. o competing owners Ior Video, Pho- tos, etc. And Front Page becomes Switzerland. This will be a delicate exercise -- decentralization can create ineI- nciencies, but I believe we can nnd the right balance. I love Yahoo! I'm proud to admit that I bleed purple and yellow. I'm proud to admit that I shaved a Y in the back oI my head. My motivation Ior this memo is the adamant belieI that, as beIore, we have a tremendous opportunity ahead. I don't pretend that I have the only available answers, but we need to get the discussion going, change is needed and it is needed soon. \e can be a stronger and Iaster company - a company with a clearer vision and clearer ownership and clearer accountability. \e may have Iallen down, but the race is a marathon and not a sprint. I don't pretend that this will be easy. It will take courage, conviction, insight and tremendous commitment. I very much look Iorward to the chal- lenge. So let's get back up. Catch the balls. And stop eating peanut butter.
As Yahoo Falters, Lxecutive's Memo Calls Ior Overhaul 'Peanut Butter Manifesto' Seeking Focus and Cuts Makes Waves at Web Titan Can It \ring More From Ads: By KLVI ]. LLLALY. \all Street ]ournal, ovem- ber 8, zoo6, Page A It is called The Peanut Butter ManiIesto" -- a Iour-page call to arms Irom a senior executive oI Yahoo Inc., de- claring the Internet company is spreading itselI too thin and must denne priorities and radically reorganize its management structure. ow the maniIesto has attracted the attention oI Ya- hoo's top brass as they scramble to boost revenue and protect the company's status as the most popular stop- ping point on the \eb Ior \.S. users, amid heated com- petition Irom Coogle Inc. and others. Yahoo, which consumers use Ior email, news and a wide menu oI other services, is under increasing pressure to hold its top position. One analyst predicts Coogle will overtake Yahoo in users in zoo;. MicrosoIt Corp. has stepped up its Internet activities, and Time \arner Inc.'s America Online unit increased usage recently by opening up Iree, unrestricted access Ior its services. Sites including ews Corp.'s MySpace have rapidly gained visitors and attention Irom advertisers. This year, Yahoo has suBered Irom slumping shares, slowing revenue growth, staB deIections and a delay in a crucial project aimed at boosting online ad sales. As the memo shows, even some current executives have been Iretting that the Internet company's top management isn't prepared to take the strong medicine they Ieel is needed to right the ship. Some worry that Yahoo -- whose activities range Irom online dating to Iantasy sports -- has stretched itselI thin and lost track oI priorities. Recently, the company has been outmatched in key areas such as search advertising and social networking. Last month Brad Carlinghouse, a Yahoo senior vice president, wrote the memo, titled The Peanut Butter ManiIesto," Ior top executives. His contention: Change is needed and it is needed soon." Mr. Carlinghouse, who once shaved a Y" in the back oI his head, argued in his maniIesto that Yahoo is spreading its resources like peanut butter on bread, thinly and evenly across all its activities. Thus we Iocus on nothing in particular," he wrote, saying the Sunnyvale, CaliI., company needs to pick specinc areas to Iocus on and make bigger bets on them while dropping nonessential activities. The memo doesn't speciIy any areas to sell or eliminate. Some analysts say activities such as Yahoo's online dating site and services Ior small businesses such as \eb host- ing could be possible candidates. There are signs the Peanut Butter ManiIesto has reso- nated with Yahoo's top executives. ChieI Operating OI- ncer Lan Rosensweig has asked Mr. Carlinghouse to head a group oI Yahoo staB looking into the issues in the memo over two months, say people Iamiliar with the matter. In a statement, a Yahoo spokeswoman said the company is sharpening its Iocus on key areas recently identined by ChieI Lxecutive OBcer Terry Semel in order to bet- ter exploit its considerable strengths." She cited positive early Ieedback to a major ad system upgrade, a new mo- bile ad partnership with VodaIone Croup PLC and the acquisition this week oI the online contest start-up business Bix.com Inc. as prooI oI those eBorts. The memo itselI highlights that we have an open, collabora- tive culture and a senior management team that is in- tensely committed to helping Yahoo Iulnll its potential as an Internet leader," the spokeswoman added. Headings in the peanut-butter memo, which was re- viewed by The \all Street ]ournal, include \e lack a Iocused, cohesive vision Ior our company," and \e lack decisiveness." The recommendations include a deep re- organization oI the company, a ,% to zo% head-count reduction and holding executives accountable Ior poor perIormance. Heads must roll," it read.
Stop eating peanut butter," the memo said. Mr. Car- linghouse wrote that he hates peanut butter himselI. The latest criticism oI Yahoo doesn't appear to be a re- pudiation oI its general strategy: providing a broad range oI \eb services Irom email to news and weather, luring an audience it can sell to advertisers. Rival Coogle, oI Mountain View, CaliI., has moved closer to that model in recent years, as it released oBerings including a personal- ized home page and a nnance site. Lven Mr. Semel recently acknowledged problems. \e've got to get back to basics and again zero in on a Iew key priorities," he said in comments aIter last month's earnings' release. Mr. Semel cited several areas that Yahoo intended to prioritize: search and display advertising, video, social media and mobile Internet services. I am not satisned with our current nnancial perIormance," Mr. Semel told analysts, and we intend to improve it." Yahoo shares have Iallen about % since the start oI the year, compared with a roughly zo% rise Ior Coogle. LMarketer predicts Coogle will command z,% oI \.S. online-ad revenue this year, compared with 8% Ior Ya- hoo, when certain marketing expenses are Iactored out. Both had a roughly j% market share last year, accord- ing to the research nrm. Yahoo's quarterly revenue has essentially plateaued near $., billion Ior the past Iour quarters it reported. Yahoo last month said third-quarter net income dropped about 8% Irom a year earlier, largely because oI changes in accounting Ior stock options, and it low- ered its zoo6 revenue projections, citing competition Ior ad dollars. Rob orman, director oI interaction world-wide Ior \PP Croup PLC's CroupM media-investment unit, says Yahoo missed opportunities seized by the likes oI YouTube Inc., Facebook Inc. and MySpace. Yahoo had every single asset you would have needed to do those bigger, Iaster and sooner than anyone else," says Mr. orman, whose clients buy Yahoo advertising. Rumors oI changes at the top oI Yahoo are circulating within the company, according to people Iamiliar with the matter. One is that Mr. Rosensweig and ChieI Fi- nancial OBcer Susan Lecker will be elevated to jointly hold the title oI company president, a move seen as a prelude to the eventual retirement oI Mr. Semel, 6 years old. Another person Iamiliar with the matter says Mr. Semel has no intention oI leaving Yahoo anytime soon. A Yahoo spokeswoman declined to comment. Yahoo bulls say the company's position is Iundamentally strong. It reported more than 8 million visitors world- wide at the end oI the third quarter, a j% increase Irom a year ago, the number exceeds ,oo million when joint ventures in China and ]apan are included. Yahoo execu- tives say assets such as its Answers service, which has 6o million users, would be generating a lot oI buzz iI they were independent start-ups. Some people close to the company argue that its deci- sion not to buy high-Bying start-up businesses such as YouTube, which Coogle recently acquired, or Facebook is a sign oI discipline and might turn out to be a good thing. \hen Mr. Semel, the Iormer co-head oI the \arner Bros. studio, was recruited to Yahoo in zoo, its revenue was Ialling and it was posting losses. In a move that ech- oes the Peanut Butter ManiIesto, Mr. Semel identined a Iew major opportunities, such as overhauling its online- advertising-sales eBorts. Yahoo laid oB staB and allo- cated more people to core businesses. It shut down ac- tivities viewed as nonessential. \hat I kept saying is, 'let's Iocus on the things people use Yahoo the most Ior," Mr. Semel said in a zoo inter- view. I looked at the Yahoo Bowchart, and I saw it had business units and realized neither I nor anyone else could ever manage diBerent business units," he added. He eventually slashed that to Iour. The payoB was enormous, as online advertising recov- ered with a vengeance, broadband usage proliIerated and Yahoo led the charge. Yahoo's shares rose over z;o% Irom Mr. Semel's arrival in May zoo though the end oI zoo. , Yahoo added \eb search as a major Iocus and plunked down about $z billion on acquisitions to build its search and search-ad business. Still, Coogle's breakaway growth in that market outshone Yahoo's eBorts. Thanks to on- going tweaks to its system, which sells ads linked to keywords in \eb searches and sites, Coogle brings in roughly ,% more revenue per search query it handles than does Yahoo, according to estimates by Majestic Research Corp. in ew York. One reason is that Yahoo displays search ads in the or- der oI how much advertisers agree to pay Ior each click on them. So iI one advertiser oBered to pay $ each time a user searching Ior Hawaii hotel" clicked on his ad, the ad would be displayed above that oI an advertiser willing to pay jj cents. By contrast, Coogle uses a Iormula designed to elevate the ads more relevant to users. That strategy means con- sumers click on Coogle ads more Irequently, and since Coogle gets paid by the click, it gets more revenue. Yahoo's project to overhaul its search-ad system, code- name Panama," has suBered Irom delays, shiIts in scope, and turnover in the managers, say people Iamiliar with the matter. In ]uly it announced a delay in Panama that helped prompt a one-day drop oI zz% in its shares. Yahoo said it needed more time to test the upgraded system, citing the challenge oI moving hundreds oI thousands oI Yahoo advertisers to it without disruption. Last week Yahoo co-Iounder Lavid Filo said he was conndent the company would meet its schedule Ior Pan- ama. He also said he couldn't speciIy how quickly or how much Yahoo search ad revenue will improve. Overall, we are in a great position today both on the business side and on the product side," Mr. Filo said. And over the next nve years, iI we're going to continue to be successIul, it's really up to us to execute and deliver on that potential." He added, It remains to be seen whether we can pull it oB." Mr. Carlinghouse, a Harvard M.B.A. whose responsibili- ties include overseeing its core email service and Yahoo.com home page, began circulating his memo last month, say people Iamiliar with the matter. In the memo, Mr. Carlinghouse described it as an attempt to be part oI the solution rather than part oI the prob- lem." He wrote, II we get back up, embrace dramatic change, we will win." The Peanut Butter ManiIesto identines concerns that some current and Iormer executives say are generally on the mark. Among them: the absence oI a Iocused, cohe- sive vision" Ior Yahoo, which means it wants to do eve- rything and be everything -- to everyone." The result, Mr. Carlinghouse wrote, is a company that is reactive and scared to be leIt out." He cited bickering between business units and a proliIeration oI executive hires Irom outside as contributing to the problem. Another issue identined in the ManiIesto: a matrix" corporate structure where responsibility Ior a product's perIormance is spread among multiple executives -- in engineering, product, marketing and corporate strategy. The memo cites competing oBerings, such as Yahoo's photo sharing site Flickr and Yahoo Photos, as well as Yahoo Media Croup's video activities and the search unit's video service. Mr. Carlinghouse suggested creating manager positions with responsibility Ior all aspects oI a particular busi- ness, Irom marketing to engineering and business devel- opment and including its bottom-line results. The memo also suggested the leaders ultimately live/die by the re- sults." Lliminating redundant activities means Yahoo must reduce staB by ,% to zo%, Mr. Carlinghouse wrote. \rite to Kevin ]. Lelaney at kevin.delaneyCwsj.com 6 Yahoo's Brad Carlinghouse Makes His Power Move TechCrunch, by Michael Arrington, ovember 8 zoo6 Brad Carlinghouse, the Yahoo SVP who owns massive pieces oI the overall organization (Iront page, mail, IM, etc.) wrote an email memo to senior staB about his views on the state oI Yahoo. The entire email, including typos, was reprinted by the \all Street ]ournal today and is copied below. The memo calls Ior a top-down overhaul oI Yahoo to eliminate redundancies and expedite deci- sion making. The document is a lighting rod, and Carlinghouse must have known oI the high risk oI it being made public. However, the document is so critical oI current leader- ship at Yahoo that it was clearly not written to be volun- tarily leaked. This is Yahoo's dirty laundry spread all over the world Ior everyone to see, and it voices a Irustration that suggests CLO Terry Semel's chieI lieutenants are restless and Irustrated. Yahoo PR isn't saying much, other than to point out that the very existence oI the memo shows that Yahoo has an open culture: The memo itselI highlights that we have an open, collaborative culture and a senior management team that is intensely committed to helping Yahoo Iulnll its potential as an Internet leader." My guess is that Yahoo senior management has been discussing these types oI changes Ior some time, and this may be a power move by Carlinghouse to get in Iront oI the parade. II changes are made, he looks like a hero. II they aren't, he can take credit Ior trying. Lither way, at this point, I don't see how Semel and Car- linghouse can both remain at Yahoo. From what I'm hearing, Semel may be the one to lose. The \S] reports that Yahoo COO Lan Rosensweig has put Carlinghouse in charge oI a working group to review how the points in the memo can be put into action. An open culture is a good thing - but when your lieuten- ants openly question your leadership and are then put in charge oI overseeing change, the writing is on the wall. ; Yahoo's Crowth Be- ing Lroded by ew Rivals By SA\L HASLLL, ew York Times, October , zoo6 As Coogle whips out its Iat wallet to buy the video site YouTube, it is making Yahoo look even more out oI step with the Iast-changing Internet advertising market. Jim Wilson/The New York Times Terry S. Semel is considered to have built a mature and disciplined team. Yahoo itselI tried to buy YouTube just a Iew weeks ago and got as close as negotiating price and terms, accord- ing to an executive brieIed on the discussions. But the talks broke down, and Coogle swooped in and closed the deal quickly, just as it has in several recent partner- ship negotiations. Indeed, many Internet executives are noting just how oIten Yahoo appears to be late and slow, both in its own business and in negotiations with other companies. Yahoo would seem to have a strong hand. It is the world's most popular \eb site, with more than oo mil- lion monthly users and a major seller oI advertising Ior its own and other sites. It has top \eb properties in areas like e-mail messaging and music. And its manage- ment team, led by Terry S. Semel, a Iormer Hollywood executive, is well regarded Ior its skill and nnancial rigor. But in recent months the company has suBered some embarrassing setbacks in its sales oI both display and \eb search advertising. Many advertising industry ex- ecutives say Yahoo's lead in working with big marketers has eroded as other companies have built up popular \eb sites, sales operations and advertising technology. Yahoo has lost the Iavor it enjoyed a year or two ago," said Lavid Cohen, a senior vice president oI \niversal McCann, a media buying agency oI the Interpublic Croup. He said his clients were reducing the share oI their budgets they allocate to Yahoo in Iavor oI newer sites, like MySpace, and sites developed by big media companies like Viacom. There are more players in town, and the others are clos- ing the gap relative to the things Yahoo is good at," Mr. Cohen said. But the problems at Yahoo go beyond advertising. From video programming to social networking - areas oI in- terest to users and advertisers alike - the company is losing its initiative. And each time a product Iails in the market or is late, Yahoo loses some ability to do more deals and hire more talented employees. The shares are down 8 percent this year, sending some employees out the door in search oI better shots at stock market wealth. Coogle, in the meantime, is taking advantage oI Yahoo's problems to cement crucial deals that could make its rival's recovery even more diBcult. BeIore Coogle agreed to buy YouTube Ior $.6, billion in stock, it paid $ billion Ior , percent oI AOL, locking in the right to sell text ads that appear next to its search results. And it agreed to pay $joo million over three and a halI years to sell ads on MySpace.com, giving it a huge number oI pages where it can place banner ads. (Yahoo Birted with AOL and bid actively Ior MySpace.) \ith these and other deals, Coogle has neutralized Ya- hoo's big competitive advantage on Madison Avenue: its ability to sell the Iull range oI advertising, Irom splashy video campaigns to text ads on search results. ]oanna Stevens, a spokeswoman Ior Yahoo, said that no Yahoo executive would comment Ior this article. \e Ieel our business is very strong, even iI we are not growing at the rates at which the nnancial community is expecting us to," Ms. Stevens said. OI course growth will slow when you already reach one out oI two people on the Internet." She said that Yahoo Irequently dis- cusses business arrangements with other Internet com- panies, but declined to discuss any potential negotia- tions with YouTube. 8 Yahoo has been stymied because its text advertising business has been largely Irozen until it completes a new soItware system. The upgrade is more than a year late and the delay has sucked up the company's engineering resources and prevented it Irom developing new adver- tising products. Yahoo's system produces much less money Irom every page than Coogle, a handicap in bid- ding Ior advertising deals. Moreover, Coogle has grown so much wealthier and has so much more stock market value, it can aBord to make deals that would be much more risky Ior Yahoo, said ]ordan Rohan, an analyst Ior RBC Capital Markets. Coogle has $ billion in cash and a market value oI $ billion, while Yahoo has $ billion in cash and is worth $ billion. In poker terms, Coogle is the dominating chip stack," Mr. Rohan said. Some analysts argue that Yahoo needs some bold moves to signal to investors, advertisers and customers its commitment to innovation. Its growth in users is slow- ing. The \nited States audience grew just 6., percent in September Irom a year earlier, to o6 million unique visitors, while Coogle's grew z, percent. Yahoo has made several overtures to buy Facebook, a social networking site popular among college students. This would help compensate Ior the Iailure oI Yahoo's own social network - Yahoo 6o - to nnd a place in the market. It could also expand Yahoo's appeal to young people, an area in which it has slipped. But Mr. Rohan said it would be a mistake to respond to the Coogle-YouTube deal with a big oBer Ior Facebook. Facebook is a nice small business," he said. I would preIer they spend less than $ billion Ior it." The company's stumbles are a puzzle, as Mr. Semel is widely considered to have built a mature and disciplined management team. He led the company out oI the col- lapse oI the Internet ad market and built a credible Internet search unit aIter it became clear that Coogle was more a rival than a partner. But in this market, what was once admirable discipline may now look like timid- ity. Yahoo may well be slipping because oI the sheer scope oI its ambitions. It competes in news with C, in sports with LSP, in e-mail with MicrosoIt, in instant messaging with AOL, in social networking with MyS- pace, and oI course in searching with Coogle. And it does so in dozens oI countries. It's hard to ngure out what they want to be when they grow up, even though they are grown up now," said Tim Hanlon, a senior vice president oI Lenuo, the media Iutures consulting arm oI the Publicis Croupe. Are they a content company: Are they a services company: Or are they a portal to other things: You ask three people and you may get three diBerent answers." Current and Iormer Yahoo employees say the company has been bogged down by bureaucracy and internal squabbling. For example, the media group, which han- dles video programming, and the search group, which has a system to nnd videos on the \eb, both wanted to oBer a service Ior users to upload their own video clips. The search group won, but the delay allowed YouTube, a start-up, to dominate the market. \hen you become Yahoo's size, you become a little complacent, a little Iat and happy," said YousseI H. Squali, an analyst Ior ]eBeries & Company. Companies that try to do deals with Yahoo also say they nnd it to be slow, demanding and inconsistent in nego- tiations. The discussions with YouTube Boundered, in part, over Yahoo's demands Ior assurances over how YouTube would handle copyrighted material, concerns that were not so important to Coogle, the executive brieIed on the negotiations said. They can't close a deal," said a top executive oI a large media company who said he was Irustrated because ne- gotiations over a partnership with Yahoo had bogged down. They are smart guys, but they are having real problems," said the executive, who declined to be iden- tined because his company has other dealings with Ya- hoo. Yahoo's Ialtering image and plunging stock price may also be hurting its ability to recruit talented people. A lot oI entrepreneurs I talk to would rather work Ior a hypergrowth technology company than what they con- sider - and this is Iunny - a stodgy old Internet com- pany," Mr. Squali said. Yahoo's existing employees are grumbling that with the stock price so low, many oI their options have become worthless. Some Yahoo veterans have bolted Ior trendier start-ups. For example, Mike Murphy, a longtime ad salesman, is now the chieI revenue oBcer oI Facebook, and Cideon Yu, Yahoo's treasurer, quit last month to become chieI nnancial oBcer oI YouTube. They woke up and realized they had an attrition prob- lem," said one executive who quit Ior a start-up this year. Yahoo has responded by giving substantial raises to Ia- vored executives it wants to keep, according to one cur- rent executive who spoke on the condition oI anonymity because he did not want to jeopardize the raise he re- ceived. Yahoo has also had trouble developing many new oBer- ings that capitalize on the latest trends on the \eb and oBer innovative Iormats Ior advertisers. Many market- ers, Ior example, have become intrigued by the possibili- ties oI weaving their products into the Iabric oI social networking sites. Lven more, they are sponsoring origi- nal Internet content, especially video programs. j Two years ago, Yahoo made an expansion in Hollywood in an attempt to produce new video-Iocused \eb sites, but it later backed oB Irom the plan amid internal bick- ering. Perhaps the biggest area oI strategic conIusion Ior Ya- hoo is its advertising network, which sells ads on other sites. Its Yahoo Search Marketing division has been Ial- ling Iurther and Iurther behind Coogle in selling text ads on other search sites. Yahoo lost a major source oI at- tractive search pages when MS began selling its own ads this year. And the Yahoo Publisher etwork, which is meant to sell ads on blogs, news sites and other con- tent pages, has languished. Low ]ones, Ior example, withdrew The \all Street ]ournal and other sites out oI the Yahoo network this spring, hiring Seevast, a small ew York nrm, instead. Moreover, Yahoo has made Iew moves to expand its ad network to sell other types oI advertisements like ban- ners and video commercials, even though it is a leader in selling such ads on its own site. \ith a plethora oI blogs and \eb publishers looking to earn money Irom their eBorts, there is a booming business in selling ads Ior these sites. AOL has made a major play in this neld, buy- ing the leading banner network, Advertising.com, and Lightningcast, a video network. Coogle has moved to expand its network Irom text ads to selling banners and video ads, and the YouTube pur- chase will no doubt accelerate its push into video. Moreover, Coogle wants to sell ads in print, radio and soon traditional television as well. Coogle is so much ahead," said Peter Hershberg, a managing partner oI Reprise Media, a search advertising agency. Coogle is going into new channels like video and Yahoo is still trying to nx their core channel." o