SAN FRANCISCO – Yahoo Inc. (YHOO) will undergo its most extensive shake-up in more than five years, hoping to snap out of a malaise that has ravaged its stock and provoked one of its own top executives to bluntly question the Internet powerhouse's direction.
Under the overhaul announced late Tuesday, Yahoo vowed to rein in a sometimes-rambling product expansion that has bogged down its earnings growth and threatened its position as the Internet's most popular site as more buzz built up around upstarts like MySpace and YouTube.
The streamlining will bunch Yahoo's disparate operations into three core groups focused on its Web site's audience, advertising network and technology.
As part of the reorganization, Yahoo Chief Financial Officer Susan Decker will assume an even more prominent management role and Dan Rosensweig , the company's chief operating officer, will leave in March when the makeover is expected to be completed.
Farzad Nazem , Yahoo's chief technology officer, will remain in that position.
Sunnyvale-based Yahoo plans to hire a new executive to run the unit focused on satisfying Yahoo's 418 million registered users. Like Decker and Nazem, the new executive will report to Chairman Terry Semel , who will remain chief executive despite recent criticism of his performance.
But Decker's promotion appears to anoint her as the 63-year-old Semel's likely successor. Highly regarded by investors, Decker will remain CFO until a replacement is found.
"We're putting the right people in the right places to execute our focused growth strategy," Semel said in a prepared statement.
Yahoo's restructuring comes just a few weeks after a senior vice president blasted the company for losing its focus in an internal memo leaked to the media.
The memo, written by Brad Garlinghouse, was promptly nicknamed the "peanut butter manifesto" because it likened the company's recent strategy to "spreading peanut butter across the myriad opportunities that continue to evolve in the online world. The result: a thin layer of investment spread across everything we do and thus we focus on nothing in particular."
Garlinghouse envisioned a more radical reorganization that would have laid off 15 percent to 20 percent of Yahoo's roughly 11,000 employees as part of an effort to bring more accountability to the company. The overhaul announced Tuesday didn't mention any planned layoffs.
As it is, the changes mark Yahoo's most extensive housecleaning since co-founders Jerry Yang and David Filo recruited Semel — a former movie studio executive — to lift the company out of the dot-com doldrums in May 2001.
Semel melded dozens of Yahoo divisions into more cohesive units and jettisoned hundreds of jobs in a traumatic makeover that eventually paid off when advertisers began to flock back to the Internet in 2003 and 2004.
The turnaround lifted Yahoo's stock from a low of about $4 per share in 2001 to a high of $43.45 late last year — a run-up that Semel capitalized on by cashing in thousands of stock options to generate a windfall of more than $400 million.
But Yahoo has been struggling most of this year as Internet search leader Google Inc. (GOOG )proved far more proficient at delivering ads that captured the attention of Web surfers. Yahoo says it's in the process of introducing significant improvements to its system that will produce higher advertising commissions next year.
For now, Google's advantage has let it grow earnings much faster than Yahoo, a gap that has been underscored on Wall Street.
While Google's market value has climbed by 17 percent so far this year to $149 billion, Yahoo's has shrunk by 30 percent to $37 billion. Yahoo shares rose 54 cents Tuesday to close at $27.43 on the Nasdaq Stock Market, where Google shares gained $2.15 to finish at $487.
To add to Yahoo's misery, Google recently bought YouTube, the Internet's hottest video site, for $1.76 billion in a deal that many analysts expect to yield even more lucrative advertising opportunities.
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