Terry Semel Out; What Now for Yahoo?

A few weeks ago, I was speaking with a friend about Yahoo! This is a company with so much potential, but they just seem like a rudderless ship, floating nowhere as Google continues to increase their lead and MSN continues to catch up. There were more and more grumblings from investors and more people calling for Semel's head. It was obvious to me that Semel had to go.

In my opinion, Yahoo is about to undergo a massive transformation. I really don't believe that Yang stepped back into the role of CEO to guide the company out of the doldrums and help it recapture its previous glory. I think that he wants to maximize the value of his still large stake in Yahoo (he still has 43 million shares of the company according to his latest filing). Yahoo has a number of very valuable pieces, and I believe that these pieces are about to be auctioned off to the highest bidders in order to unlock value for shareholders.

I would favor a bold move by the company to engage Google in a partnership similar to the partnership that they have with MySpace. In my opinion, Yahoo Search is lightyears behind Google, and I think that Yahoo outsourcing their search to Google would make sense for both companies. The two companies could work out an annual deal that would be extremely lucrative for both sides, that would see Google handle the Yahoo search engine and make money from the sale of paid ads on Yahoo's site, plus all of Yahoo's partner sites. Yahoo would get a tremendous amount of fixed income and not have to worry about spending endless dollars on search engine engineers, and Google would expand their reach and generate even more revenue dollars. The deal would be expensive for Google, but they would have an absolute headlock on the search engine game. I am not sure if a deal like this would raise any antitrust issues though.

Yahoo could then sell its Yahoo Search Marketing / Panama business to a company like MSN, which is currently building up its own solution. Yahoo would completely exit the paid ad game, and instead settle for a fixed percentage of revenues from Google. This would leave Yahoo more resources to monetize some of their other properties, such as their online dating services, etc. would have proven to be very lucrative for the company.

Where does Yang come in? Yang has an incredible amount of contacts in the industry, as he was one of the pioneers of the Internet. Yang is the type of guy that can get a deal with Google done, and I believe that is exactly what is going to happen now. A deal with Google would make sense for both sides, and the companies have worked together before in terms of Yahoo search. It makes sense.

It was clearly time for Semel to go. He had a good first couple of years, but from then on, it went completely downhill. Don't feel bad for him though; he's made an absolute fortune since taking over as Yahoo CEO.


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