Yahoo Sharpens the Ax

"We had a lot of people running around but nobody fucking doing anything!"

That's how Yahoo (YHOO) CEO Carol Bartz summed up some of the company's problems, as the company reported dismal new numbers for the first quarter. Yahoo's net income fell from $536.8 million in the first quarter of 2008 to $117.6 million in the period that ended in March. Wall Street analysts expected as much, so no one was particularly shocked. Bartz did, however, get attention when she announced the company would lay off 5 percent of its work force, or some 675 employees.

One of Yahoo's biggest challenges is clearly display advertising, which is considerably more expensive than text-based search ads and is among the first expenses cut by companies in a downturn; CNet reports that display-ad sales fell 13 percent. But Yahoo faces a long-term, uphill battle if it's going to reassert itself as a credible challenger to Google (GOOG). Although Yahoo's share of searches in the United States has been leveling out in the last few months, Silicon Alley Insider's Nicholas Carlson reports that its share of search advertising revenue has continued to drop; now, Google rakes in 74.1 percent of revenue, compared with Yahoo's 19.7 percent share.

Still, everyone remains encouraged by Bartz's determination to put Yahoo on more stable footing. Since the beginning of the year, the company's stock has risen 18 percent, as Yahoo moves away from former CEO Jerry Yang's scattershot leadership and focuses attention on its most popular offerings: news, sports, finances, search, mail, and entertainment. CNet reporter Stephen Shankland has a little more detail on the layoffs and restructuring; for example, Bartz intends to consolidate Yahoo's international engineering arms into a single, global unit to more quickly adapt to changing patterns of use on the Internet.

And what about Microsoft (MSFT)? Will Yahoo finally go through with the long-rumored alliance and forge a deal that could stand up to Google? According to ZDNet's Larry Dignan, Bartz was frustratingly coy. "Relative to anything else with Microsoft I actually have no comment."

But hey, that's not a no. Yahoo's problems will take a long time to fix, and Wall Street seemed able to tamp down its jitters and give Bartz enough room to turn this ship around. If 2008 was Yahoo's annus horribilis, 2009 is looking just a bit better.