The Show Place

June 20, 2008
At Yahoo, the Exodus Continues
By MIGUEL HELFT
SAN FRANCISCO — For more than two years, executives and other senior employees have been leaving Yahoo at a steady, persistent trickle.

The trickle has turned into a flood. In a matter of days after Yahoo’s announcement last week that merger talks with Microsoft had ended and that the company had instead chosen to sign a search advertising partnership with its No. 1 rival, Google, three executive vice presidents, two senior vice presidents and handful of other well-regarded employees have announced their intention to leave.

The precipitous exodus is hollowing out Yahoo’s senior management ranks. It is also raising new questions about the future of the company and its top executives. Analysts say that the departures suggest that Jerry Yang, the chief executive, and Susan L. Decker, the president, are increasingly isolated.

“Wall Street has lost all confidence at this point,” said Ross Sandler, an analyst with RBC Capital Markets. “The senior managers have clearly lost confidence in the strategy and have lost confidence in Sue and Jerry, and that’s not a good thing.”

Scott Kessler, an equity analyst with Standard & Poor’s, said: “One of the reasons that Jerry was selected to be the C.E.O. is because he could get people excited about working for Yahoo again. Now people are taking a step back.”

Mr. Yang and Yahoo’s board are also under pressure from Carl C. Icahn, the activist investor, who is waging a fight for control of the company’s board. Although he has vowed to remove Mr. Yang if he succeeds, Mr. Icahn has said little about his plans since the Yahoo-Google deal was announced last week.

Yahoo insiders confirmed on Thursday that three more senior executives, Qi Lu, Brad Garlinghouse, and Vish Makhijani, are leaving the company. All were responsible for critical areas of Yahoo’s business.

Yahoo declined to confirm the departures. In a statement, the company said: “We have a deep and talented management team across all areas of the company.” It said that Yahoo is experiencing “the attrition that’s to be expected in the Internet industry.” Mr. Garlinghouse and Mr. Makhijani did not return calls or answer e-mail inquiries seeking comment. Mr. Lu could not be reached.

Among the newly departing executives, Mr. Garlinghouse is perhaps the best known outside of Yahoo. He is senior vice president for communications and communities, and is responsible for vital products like Yahoo’s e-mail and messaging services, Yahoo Groups and Flickr, the popular photo sharing site.

He gained wide notoriety when an internal memo he wrote was leaked to The Wall Street Journal in November 2006. The memo, which he named the Peanut Butter Manifesto, criticized Yahoo for spreading its resources too thinly across too many projects, as peanut butter is spread on toast.

Mr. Makhijani, who is senior vice president of Yahoo’s search group, is leaving to join Yandex, Russia’s leading search engine, the Yahoo insiders said.

On Monday, Jeff Weiner, who is executive vice president of Yahoo’s network division and Mr. Garlinghouse’s and Mr. Makhijani’s boss, announced that he was leaving to divide his time between two venture capital firms. Usama Fayyad, who is chief data officer and the executive vice president in charge of Yahoo’s research organization, also announced his departure this week.

The spate of departures leaves Yahoo’s network division, which is responsible for almost all of the Yahoo portal, without its top leader and two of his four deputies. Mr. Lu is executive vice president for the search and advertising technology group. He oversaw engineering efforts for the company’s search engine and search advertising technology.

The departures have also affected the ranks of senior engineers and managers. Last week, Jeremy D. Zawodny, who joined the company in 1999 and helped start its developer network, said he was leaving. This week, Caterina Fake and Stewart Butterfield, the husband-and-wife team who founded Flickr and sold it to Yahoo in 2005, also announced their departures.

“These were all talented, good people,” said Christa Quarles, an analyst with Thomas Weisel Partners.

The exodus comes as plans for a major reorganization are taking shape and could be announced as early as next week, according to the people with knowledge of the management departures. The reorganization is being pushed by Ms. Decker.

While the exact outline of the organizational changes is unclear, Hilary Schneider, a protégé of Ms. Decker who is executive vice president for global partner solutions, is expected to assume greater responsibilities, these people said.

A senior Yahoo executive said a reorganization “is the worse possible thing they would do at the moment. In a time of total instability, the last thing you want to do is make people nervous about their jobs.” He spoke on condition of anonymity because, although he was also considering options outside of Yahoo, speaking out could jeopardize his employment.

The departure of Mr. Lu was reported Thursday in the Web site AllThingsD. The departures of Mr. Garlinghouse and Mr. Makhijani were reported Thursday in the blog TechCrunch.

Meanwhile, Microsoft is making no secret that it sees the apparent disarray as an opportunity. In February, Microsoft’s chairman, Bill Gates, said that Yahoo’s talented engineers were among the reasons Microsoft was seeking to acquire the company. Now Microsoft is making new overtures to those engineers.

On Wednesday, the company took out a full-page ad in the San Jose Mercury News, whose distribution area includes Sunnyvale, where Yahoo is based, and other Silicon Valley cities, to recruit Internet search specialists at its valley campus.