Yahoo! saw a chapter in its history come to an end this week with the resignation of chief executive Terry Semel. The search engine has recently been slipping behind its chief rival Google, particularly in the internet marketing stakes. The past four months offer a compact snapshot of how optimism gave way to upheaval at the ailing internet company, ultimately costing Mr Semel his job.
It was, in fact, only in March that analysts were hailing the impact that Yahoo!’s heralded advertising program, Project Panama, was having in the early stages of its rollout. AQuantive calculated that the tool was boosting the rate of clicks on Yahoo! ads by ten per cent, while UBS AG forecast that the search engine would see its revenue growth boosted by 20 per cent in the latter half of 2007.
Nevertheless, when Yahoo! announced its first-quarter results in April, the impact of Panama had apparently not been felt, with net income falling year-on-year by 11 per cent to $142 million (£70.7 million). Susan Decker, then chief financial executive of the company, claimed that the advertising program would not make an impression on financial results until the next quarter.
In contrast, chief rival Google reported a year-on-year increase in reported revenues of 63 per cent, with research firm eMarketer predicting shortly after that the Mountain View-based firm would claim 75 per cent of all search engine marketing revenues in 2007.
Solomon Rothman of Social Media Systems then predicted on SearchNewz that Yahoo!’s share of the search engine market would slip further as Google pulls away from the competition over the next six months. Initial signs suggested he wasn’t wrong. For March, comScore gauged that Google was used for 48.3 per cent of all US searches, compared to Yahoo!’s 27.5 per cent. A month later, Nielsen//NetRatings claimed that that the ratio was 55 per cent to 21.9 per cent in favour of Google.
At the same time, the battle between the search engine giants was also being waged in the online marketing arena. Google kick-started weeks of consolidation in the internet marketing channel in April when it bought ads network DoubleClick. Yahoo!, like Microsoft, AOL and WPP, did not waste time in reacting. The Sunnyvale search firm bought advertising exchange Right Media for a sum of around $680 million, while setting in place new algorithms for its engine and launching its oneSearch service for mobile.
But more bad news was around the corner for Mr Semel and his company, when it emerged that law firm Lerach Coughlin had filed a lawsuit against it for allegedly misleading shareholders over the expected success of Panama. In the meantime, Microsoft – itself scrambling to make up ground on Google, which had in recent months been treading on to the software giant’s territory with its Google Apps packages – was reported to be preparing a takeover bid for the floundering internet company.
Reported talks came to nothing, though rumours have nevertheless persisted that an agreement might not be dead in the water. In June, Yahoo! announced that its Panama pay-per-click service would now be priced in relation to the quality of an ad’s audience. Yet, the previous month’s loss of ground behind their main search engine competitor had taken its toll with shareholders and, at the annual meeting, Eric Jackson gave voice to the discontent felt at the direction in which Yahoo! is heading, questioning Mr Semel as to whether he had the "fire in his belly" to lead the firm through this increasingly dark period.
A defiant Mr Semel answered in the affirmative. But in a letter to the board this week, he admitted that the time to give up the reins is "sooner rather than later" and stepped down to serve in a non-executive chairman capacity. Yahoo! co-founder Jerry Yang was named as his successor, while Susan Decker was appointed as president at the company. Talk now will turn to whether the younger pair can return to Yahoo! to form, or whether selling up may be the best option. Whatever occurs, Mr Yang and Ms Decker will have much work to do to repair the damage of the previous few months.