Yahoo tries going on the offensive

Yahoo is trying to show that it's taking hold of its own destiny again.

Phase 1 was the ad deal, under which Yahoo expects more cash by showing Google's more lucrative ads next to Yahoo search results. Phase 2 came Thursday with a "="">Yahoo management makeover, supposedly under way for months.

But two big factors make it clear Chief Executive Jerry Yang and his allies have a long way to go before Yahoo achieves independence.

First on the agenda is the possibility of some partnership with another rival, Microsoft. Despite proclamations on two occasions that its interest in Yahoo was over, it appears Microsoft is still interested, and investors are agitating for a deal.

Second is the pressure by activist investor Carl Icahn, who disclosed Thursday he controls a 5 percent stake in the company. Icahn has proposed a dissident slate of directors and made clear his recommendations should they be elected Aug. 1: move Yang back to his chief Yahoo role and hire a new CEO, open the door to a Microsoft acquisition or partnership, and scrap an expensive severance plan that would kick in if somebody acquired Yahoo.

It looks like Yahoo is showing a bit more of its fighting spirit with the Google deal and reorganization. The moves are somewhat reactive, to be sure, but they also show the company trying to let someone inside the company determine its fate.

Fixes through a reorg?
The reorganization has the potential to clean up some of the company's overlapping structure.

The move creates some new groups reporting to President Sue Decker--notably a business and advertising group for the U.S. region under Hilary Schneider and a group for products such as Mail, Flickr, and My Yahoo under Ash Patel. Also new is the audience technology group, led by Venkat Panchapakesan, which reports to Chief Technology Officer Ari Balogh.

Panchapakesan's engineers at the audience technology group will work closely with their counterparts in Patel's audience products group.

"Together we shape the product," said Scott Dietzsen, the new leader of Yahoo Mail and Messaging. "We're in different organizations, but we ultimately function like a single team. I'm so committed to tightly integrated product management and engineering. That's how you do great work."

But it better be tight integration with high interdepartmental communication bandwidth. For Internet companies, technological constraints and possibilities are central to product management.

Monetization will be the responsibility of Schneider and her three regional peers, which raises another potential problem. We've heard of Yahoo tensions before between product groups and monetization groups, with Decker mediating the disputes, and the new Yahoo structures at least at first glance does nothing to change that.

"Monetization and product have always been at odds," said one source familiar with Yahoo's inner workings. "Product people by nature don't like ads. Monetization people think Yahoo needs more of them."

But there are a lot of new faces running the show, including in product management, where Patel largely replaces now-departed Jeff Weiner and Dietzen is taking over much of soon-to-be-departed Brad Garlinghouse's job.

Some responsibilities at Yahoo still seem fuzzy. One is the Yahoo Open Strategy transformation--important work that could help Yahoo recover lost ground lost to rivals in the fast-changing vanguard of Internet businesses.

On the flip side, Yahoo set up a specific group to try to get a handle on the important area of cloud computing, in which applications run on central servers. "We have bits and pieces everywhere. This brings it together into one organization," said Balogh, who oversees the group.

Reclaiming the initiative?
Even if the management changes are effective and Yahoo brings its various strategies to fruition--and those are big ifs--there's a problem: time.

The outside pressures on Yahoo, from Icahn and Microsoft, along with potential internal pressures from Yahoo's own board, will come to a boil in the next month as the annual shareholder meeting draws closer.

A good quarter could give Yang and Decker more breathing room. It wouldn't make Icahn go away, but it could make it harder for him to enlist support among other shareholders.

But even with a good quarter, Yahoo's new structure won't change the company overnight, and the Google ad deal won't begin generating revenue for another three months or so even if Yahoo vaults cleanly over the antitrust hurdles.

So at least for now, Yang and Decker don't get to keep the Yahoo reins to themselves.