Yahoo reorganizes to snap out of financial funk

Under fire from angry shareholders and rocked by a stream of high-profile executive departures, embattled Yahoo on Thursday announced another reorganization, its latest attempt to snap out of its years-long technology and financial funk.

Stressing its goals of being the “starting point” for most Web users and a “must buy” for most online advertisers, as well as the most attractive platform for developers, Yahoo will now centralize its product development operations.

It will also create a business region just for the U.S. and its end-users, advertisers and Web publishers. In addition, Yahoo will form what it calls an “insights strategy team” and enhance its technology infrastructure so that product designers and engineers will communicate and collaborate better.

“These moves accelerate the ability of our deep and talented team to build great products, grow our audiences and improve monetization globally,” said Jerry Yang, Yahoo’s CEO, in a statement.

Reporting to President Sue Decker will be three new teams:

— the Audience Products Division, which will oversee product strategy and product management and will be led by Ash Patel, former manager of Yahoo’s Platforms & Infrastructure group;

— the U.S. region, which will be led by Hilary Schneider, previously chief of the company’s Global Partner Solutions group; and

— Insights Strategy, which is in charge of centralizing and executing “a common strategy for the use of data and analysis across Yahoo,” and the chief of which will be named later.

The new organizational structure will improve Yahoo’s products and speed up decisions, the company said.

In technology and infrastructure, Chief Technology Officer Ari Balogh will be in charge of developing a “world class” cloud computing and storage infrastructure, unifying platforms and improving the communication between product developers and engineers.

As a result, Yahoo will create a Cloud Computing & Data Infrastructure Group, and move all the teams that work on end-user services and sites to the Audience Technology Group under the guidance of Venkat Panchapakesan.

On paper, the reorganization looks like it could help simplify and streamline key processes in order to help Yahoo achieve its key goals, said industry analyst Greg Sterling of Sterling Market Intelligence. However, it’s hard to predict whether the plan will have its intended effects, because there are a lot of internal elements and dynamics that drive reorganizations but remain shrouded to outsiders, Sterling said.

“Reorganizations are very hard to second-guess because you don’t necessarily know the people who are getting promoted or shifted around, and you don’t see a lot of the internal considerations driving the decisions,” Sterling said. “There’s a lot of opacity there.”

Based on their track records, the people being put in charge as part of the reorganization seem capable and respected, and it will be key for them to inspire confidence in the employees and generate enthusiasm among them, Sterling said. “You can reorganize and reorganize, but if you don’t have strong leaders and engaged employees, then you won’t get the desired results,” he said.

The announcement of the cloud computing and data infrastructure group left Gartner analyst Allen Weiner scratching his head and wondering if that means Yahoo plans to enter the market for hosted IT services like Google and Amazon have done.

Asked for clarification about this point, a Yahoo spokeswoman indicated that this is a possibility but didn’t offer more details.

This new group will consolidate and extend the company’s considerable resources and talent in cloud computing, including Yahoo’s ongoing support of the Hadoop open source grid computing project, she said in an e-mailed statement.

The resulting “next generation cloud computing and data infrastructure” at Yahoo will not only power the company’s existing and future sites and services, but also “any services ultimately extended to customers,” she said. “However we are not discussing any such details today.”

For Weiner, the most interesting piece of the reorganization is the creation of a centralized product development group. One of Yahoo’s main weaknesses in recent years has been its inability to create and release truly innovative products and services, having instead to rely on acquisitions to fill that internal gap, he said.

“They haven’t had a great, formal process for innovating and getting products out,” Weiner said. “Now that they have this (centralized) product group, they better start releasing some pretty damn good products, like the next Twitter or YouTube, products that will get people to say ‘Yahoo is back.'”

This problem has been evident in the apparent disconnect between Brickhouse — Yahoo’s internal innovation incubator unit — and the commercial product development teams, he said. Brickhouse has come out with some interesting, early stage prototypes that have gotten the thumbs-up from industry experts but that, for some reason, have gotten stuck on the way to a mass release, Weiner said. “There’s been no process to link Brickhouse into a product development and release cycle,” he said.

The reorganization also calls for Prabhakar Raghavan to direct search strategy and Tuoc Luong to act as interim chief of the search product team. David Ku will be in charge of the Advertising Technology Group for search.

The reorganization will not touch Yahoo’s Marketing Products Division, Connected Life and Corporate Marketing groups.

This reorganization is the latest of several major ones that the company has implemented in the past 18 months or so, and comes at a thorny time, as Yahoo deals with the aftermath of the failed attempt by Microsoft to acquire it.

The three-month pursuit, which ended in early May, has led shareholders to sue the company, saying its directors and managers failed in their fiduciary duty to shareholders by, allegedly, sabotaging Microsoft’s acquisition attempt. Investor Carl Icahn has nominated an alternate slate of candidates to oust Yahoo’s current board. In addition, Yahoo has seen many high-profile executives abandon the company in the past two months.

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