Yang speaks on Yahoo's China policy

"It is more important for us to participate, not only for economic reasons, but to be able to" help shape where the industry is going, Yang said during a question-and-answer session at the Thomas Weisel Partners Internet and Telecom Conference in San Francisco.

"You have to balance the risk of not participating," he said. "And people don't realize that being in the market every day there, and being on the ground, we are seeing changes, on the whole, for the positive."

Yahoo and the other top U.S.-based search engines have come under fire for their practice of cooperating with the Chinese government in censoring information online. Yahoo has been accused of providing evidence to Chinese authorities that led to the imprisonment of two Chinese Internet users, including a journalist who was sentenced to 10 years in prison.

The arrests "are never things you go home and feel good about," Yang said. "We feel horrible about that...We have no way of preventing that beforehand....If you want to do business there you have to comply."

Later in the day, during a question-and-answer session at the JMP Securities Research Conference, he reiterated many of the same statements and added that Yahoo executives have raised the issue with the Chinese government. "We feel the government needs to work on it as a trade issue."

Internet companies have to deal with regulations that affect their business in other countries as well, even in the U.S., which has the Patriot Act, he said. "There is no 100 percent clean, no matter what country you're talking about."

The Internet search market in China is led by "the usual suspects"--Yahoo, Google and Baidu, followed by 30 to 40 start-ups, according to Yang. Yahoo also is the largest shareholder of Chinese e-commerce site Alibaba.com. "Microsoft is investing heavily in China," he said at the Thomas Weisel conference. "They're not in the market today yet, but I think they will be very soon."

"The search space in China...both in terms of traffic and advertising, is still very, very small compared to the rest of the world," he said.

It will be interesting to see how the Chinese authorities react when the 110 million Internet users there start building home pages and blogs as the social media phenomenon starts to take off, he said.

Asked to define what type of company Yahoo is--media or technology--Yang said it was both. We're "clearly positioning ourselves as a broader Internet services company," he said. "We are much more of a mediacentric model....We've always emphasized that Yahoo can be the more human driven Internet service. That has always been the goal."

In the U.S., Yahoo is moving into the area of social search--enabling users, experts and "influencers" to guide relevancy, he said.

However, the No. 1 priority remains advertising. "Fortune 1,000 marketers are realizing that the audience they want to reach is on the Internet," he said. "We need to be a lot better. (Yahoo) will push hard on improving functionality with our search advertising and network advertising on a performance basis."

Yahoo is also offering users the ability to get to the information they want, whether it be e-mail, instant messaging or photos, on the PC desktop, the TV set-top box or mobile phones, without using a browser, he said. The company announced Yahoo Go Mobile, Go TV and Go Desktop at the Consumer Electronics Show in January.

"It's a huge opportunity for Yahoo to be closer to our user base without them having to fire up a browser," Yang said.

Overall competition among the search and portal players has gotten more intense as the opportunity for online advertising revenues has grown, he said.

"When you have that much growth potential, you'll have competitive dynamics," Yang said. That is what "gets our juices going."