In Peek at New Yahoo, Chief Offers an Outline

By Miguel Helft

Jerry Yang began his biggest public presentation since becoming chief executive of Yahoo with something of an apology.

"I’m guessing that a lot of you are here today to see what the new look and new face of Yahoo is all about," he told an audience of about 1,500 technology enthusiasts at the Consumer Electronics Show in Las Vegas last week. "Well, I’m sorry to disappoint you. It’s still the same old face. I’ve been around since the beginning."

Yang, a founder of Yahoo, was picked last summer to run the company in part to end a string of disappointments for Yahoo shareholders. Before his keynote speech was over, Yang had offered the audience and shareholders a glimpse of what might one day be the new face of Yahoo – a revamped set of online services that company executives hope will help turn around Yahoo’s fortunes.

But it was only a glimpse. Yang displayed a prototype version of Yahoo’s popular e-mail software that was transformed into a powerful communications hub. It could, for example, tap into social networks to give higher priority to messages coming from senders with close ties to their recipients. And it could use other companies’ programs to help organize a dinner for a group of people.

Yang said other Yahoo services would be similarly overhauled to open them to the rest of the Web and to run third-party applications. Such a strategy has successfully been embraced by Facebook and others. The ultimate goal, Yang said, is to turn Yahoo into an online "starting point" for consumers.

Analysts have been waiting for changes at Yahoo, and they have questioned whether Yang can lead Yahoo’s transformation quickly enough before competitors gain more ground and before investors become restless.

"Maybe it’s too generous, but I would give them six to nine months to prove that these initiatives are having an impact," said Mark Mahaney, an analyst with Citigroup.

Successfully transforming the Yahoo portal is only one of the challenges the company faces. It must also revitalize its advertising business and find a way to compete more effectively with Google in Internet searches, a vital source of revenue. But the portal changes are a critical element of the company’s strategy to hold on to its large audience.

"It would have been unimaginable five years ago to think that Yahoo’s total audience would decline," Mahaney said. "It is not unimaginable now."

Yahoo’s audience is still growing. But its lead in many important areas has eroded. With 136 million people in the United States visiting its sites in November, Yahoo remains the most popular property on the Web, according to comScore, a research firm. Yet Google surpasses Yahoo in search by an ever-growing margin. And in just a year, Google has managed to narrow Yahoo’s overall lead in Internet traffic from 22 million visitors to fewer than 5 million.

Google has also made inroads against MyYahoo with a rival personalized home page service called iGoogle. Sites like Facebook and MySpace, meanwhile, have amassed huge audiences.

Traditional portals like Yahoo, AOL and Microsoft have long sought to keep users captive by offering them an array of information, communications tools and online shopping. But lately, their grip on consumers has been loosened as Internet-savvy users who increasingly rely on search engines to find their way on the Web and spend more time on social networks. Yahoo said its transformation was all about remaining relevant in this new environment.

"We need to become more social, and we need to become more open," said Jeff Weiner, who as executive vice president for the network division is leading the effort to retool Yahoo’s sites and services. "There is a huge opportunity to become more relevant to people."

Weiner, a protege of Terry Semel, the Yahoo chairman and former chief executive, said that to be an effective starting point, Yahoo needed to offer all the basic tools, including e-mail and instant messaging, search, news and maps. But it also has to become a place that helps users discover and connect to interesting content and services from around the Web.

The company is also looking for ways to bring some of the personalized features of MyYahoo to the masses that visit the main Yahoo page.

Weiner said recent traffic gains suggested that the changes were working. Traffic to Yahoo’s front page rose by more than six million users in the last year, according to comScore.

Relying more on outside content and services, however, also means relying less on some of Yahoo’s own properties. The company has begun a process, which some insiders and analysts say was long overdue, of phasing out or consolidating services like Yahoo Photos, premium music, auctions and Yahoo 360, a largely unsuccessful social network.

Yahoo executives declined to comment on demands by some analysts for more aggressive consolidation and layoffs.