Jerry Yang and Sue Decker defend Yahoo's honor

Yahoo's top two executives came out of their serial and secretive negotiations with Microsoft and Google to shed light on the cloudy future of the company. In an interview Wednesday at D6 with Walt Mossberg, CEO Jerry Yang and President Sue Decker did little to shed light on the negotiations or possible outcomes.

Of course, it wasn't expected that the pair would say anything revealing about the negotiations with Microsoft other than the stock answers Microsoft's Bill Gates and Steve Ballmer gave during their D6 interview Tuesday night.

Yang mostly reiterated what has been said in the public letters going back and forth between Microsoft and Yahoo. On the current state of negotiations, Yang said, "As companies are positioned we have to understand more of what they are proposing to us. We are doing our best to understand Microsoft's interest."

Yang gave indications that he regretted Microsoft's decision to walk away from the negotiating table during the acquisition talks.

"It's like a high school breakup--he says, she says," Yang said. "It's not constructive to go back (over what happened)...I'm mixed about what happened. We all felt and understood a combination done right has a tremendous amount of power and leverage." He also said that there wasn't a single defining reason that caused the the two companies not to reach an agreement.

Decker was more straightforward: "We never got through the price door," she stated.

Yang: Yahoo is not under siege
Yang maintained that Yahoo is well positioned for the future as an independent company, and not getting weak and vulnerable. "The perception of us being a company under siege is just not accurate," he said. "The process has in many ways pulled together Yahoo as a company. It's a real life exercise of crisis management. What we do matters. I think in a way that's what the morale and culture at Yahoo is all about." He added that Yahoo can continue to build great products and move forward and is more ready for the challenges ahead than last year. "The essence of yahoo is being redefined today and making us stronger," he said.

Mossberg probed further, asking why Yahoo rejected the $33 per share offer from Microsoft.

"I understand the situation people are feeling, but at the same time we did not walk away from that proposal, Microsoft did," Yang said. "We are willing to do a deal under the right terms. It wasn't clear to me they wanted to finish the deal. I can't go revisit and take or not take it. I understand our obligation to stockholders from conversations with a number of them. The focus for us is how do we recognize more value for the company soon and position Yahoo to be much more successful in the long term. If there is a way to do it, we'll talk about other alternatives, but we aren't going to do something short term."

Decker added some color on how the business was valued by Yahoo's board. She said that Yahoo has a huge inventory created by 500 million to 600 million users per month. "We think the inventory is undervalued in search," she said, saying that Yahoo's Panama ad system is closing the price gap with Google and that 90 percent of inventory is not search-related.

What is Yahoo's business?
Mossberg asked Yang how he defined Yahoo's business. The Yahoo co-founder responded, "I think of Yahoo as we have to be incredibly relevant and useful to users. You have to start your day at Yahoo. We want people to come to Yahoo first thing in the day and multiple times a day. That is an incredibly powerful position, consistent with our roots and ripe for innovation."

Yang came up with a shorter elevator pitch after his more lengthy opening statement: "The starting point for people to get the most out of the Web is our dream and aspiration." He later said, "If (you) look at that base of people (500 million Yahoo users per month), we need to be relevant to those people as they grow up on the Web."

He noted that Yahoo can't be all things to all people, and has to be more focused on how it builds products going forward.

Yahoo's open social strategy
Then Decker chimed in to really get to the heart of what will make Yahoo tick. Yahoo doesn't have a problem in reaching users. It has over half a billion users per month, 250 e-mail users, and 10 billion social connections across mail, instant messaging, Flickr and other Yahoo properties.

She gave a pitch for Yahoo Open Strategy, which will ignite the social graph that is latent within Yahoo, and which is a key to the future of Yahoo.

The first fruits of Yahoo Open Strategy will appear later this year, and will include a development environment for several properties, a social "activator" and graph engine, an events engine, and a single profile for users, according to Yahoo CTO Ari Balogh. The activator engine handles the combining of different relationship groupings, such as the Yahoo Mail e-mail address book, Yahoo Messenger contacts, Flickr friends, Yahoo 360, and Yahoo Mash.

The Google question
Regarding the controversial deal in which Google would sell ads on Yahoo, Yang said, "In the last public statement we said we conducted a test with them and have an understanding of what they can do for us and what we can do for them. It could be a unique arrangement, but we haven't talked about it. Yahoo has the ability to remain very competitive in the advertising space and the flexibility to partner with Google, but that has not been understood in the marketplace. Until we get to something to talk about, it's all speculation."

Mossberg noted that Google is continuing to gain search share. The search game is pretty early, Yang said, especially the aspect of social search, people passing around and sharing search information. Yahoo will differentiate its search, Yang seemed to say, by leveraging its 500 million user base.

Yang: I am the best person to lead Yahoo
Kara Swisher asked why Yang and Decker should be in their respective positions given the performance of the company over the last few years. Decker responded, "As a company we have made a few mistakes, and Jerry and I are excited to try to address them." She admitted that Yahoo lost touch with users somewhat as it pursued more of an applications strategy. "We lost the core focus around the core ecosystem of users, advertisers and publishers."

Yang also responded: "I am a co-founder and involved in company the whole time and probably not CEO of another company unless I start another company. I do think I am the best person to lead Yahoo...not only because I bleed purple, bleed Yahoo...there is a big opportunity for Yahoo to fulfill. It's my time to take Yahoo to the next level, that allows our audience to do what they can't do anywhere else except on Yahoo." He concluded that he and Decker are starting to show that Yahoo can be on a "path to being a very different entity."

The summary
Yang and Decker have a strategy--the Yahoo open and social strategy--but they are still in crisis management mode and under stress to resolve uncertainty around the future of the company as it relates to Google, Yahoo, and shareholders. It could be a long and frustrating summer as the continuing saga unwinds. Most importantly, Yahoo has to execute on its rewiring of its services and new display advertising solution. Without those pieces, the value of Yahoo will be in decline, and the $33 per share Microsoft offer will be looked upon as a major error in judgment by Yahoo's board.

The Yahoo video
Prior to the interview, Yahoo showed a humorous video, following a tradition of Microsoft at industry events.

Legendary investor Warren Buffet let Decker in a on little secret. Buy low, sell high. Venture capitalist Mike Moritz said Yang and his co-founder David Filo should go back to Stanford. Charley Rose told Yang he should dress in earth tones and lose the glasses to close the deal, so to speak. Sony CEO Howard Stringer suggested that Yang get into electronics. Intel CEO Paul Otellini gave Decker ideas for marketing herself, such as a musical theme, and Michael Dell told Yang how best to deal with Mossberg in interviews. Cisco Systems chief John Chambers was selling Yang on his $300,000 Telepresence product. Mark Zuckerberg said he should sell 1.6 percent of his company to Microsoft. At the end, Microsoft was called...

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