Bleeding market share, managerial talent and investor confidence, Internet giant Yahoo Inc. on Monday replaced Chief Executive Terry Semel with company co-founder Jerry Yang, who now faces the task of trying to catch up to dominant Google Inc.
When Semel, 64, arrived at Yahoo in 2001 after decades in Hollywood, he was seen as the mature, disciplined manager the company needed to survive the bursting of the Internet bubble. The Beverly Hills resident commuted to Yahoo's Silicon Valley headquarters in his private jet and reaped hundreds of millions of dollars for stabilizing the company at a delicate time.
But in recent years, Semel and other Yahoo executives found themselves overmatched by the juggernaut they helped create. Yahoo promoted Google's search engine until it realized how profitable the younger company had become. With Yahoo facing constant attack in areas of the business that didn't exist or much matter when he arrived, Semel confided to friends that the job was taking a toll.
"The last couple of years have been tough," said Bob Daly, who ran the Warner Bros. movie studio with Semel for 20 years. "The atmosphere is very competitive because of Google, and all of it was just wearing him down."
Wall Street welcomed Semel's departure. Yahoo shares jumped nearly 5% in after-hours trading following Monday's announcement. They had risen 3% to $28.12 in regular trading on rumors that he might leave.
But some analysts questioned whether Yahoo could get back on track without an infusion of new talent and ideas in the top ranks. The "new" management team looks much like the old one.
Semel was named non-executive chairman of the company. The new CEO, Yang, who had held the whimsical title of chief Yahoo, has remained closely involved in the day-to-day operations of the company he founded with David Filo in 1995, while they were Stanford University graduate students.
And Susan L. Decker was promoted from executive vice president to president, in charge of winning more advertisers and Web surfers. Decker, Yahoo's 44-year-old former chief financial officer, is widely expected to assume the CEO job after acquiring more experience.
The moves don't excite Derek Brown, an analyst with Cantor Fitzgerald. Decker and Yang, he said, "were significant players in getting Yahoo in the position it's in today."
That position is a sticky one. An early innovator in e-mail and online advertising, Yahoo has been shouldered aside in recent years by Google, which is now the top player by far in Web advertising and has expanded into fast-growing businesses, including video sharing through its 2006 acquisition of YouTube.
Sunnyvale-based Yahoo also faces pressure from smaller rivals such as Facebook and MySpace, which have siphoned off traffic and advertisers into the youth-oriented sector known as social networking.
"From 1998 to around 2003, Yahoo was the gold standard for online advertising," Brown said. "Since then, consumers and advertisers have found other outlets."
The shake-up followed an annual meeting last week in which shareholders voiced their frustration in a contentious question-and-answer session. They also underlined their discontent in the proxy voting, where up to one-third of the ballots were cast against the company-nominated slate of directors. The directors ran unopposed and last year received 97% of the vote.
"This is the time for new executive leadership, with different skills and strengths, to step in and drive the company to realize its full potential," Semel said in a lengthy news release Monday. "It is the right thing to do, and the right time is now."
Yang and director Ed Kozel, speaking for the board, praised Semel's leadership and highlighted the company's growth in revenue and Web traffic during his tenure.
The Internet pie is growing ever larger, but Yahoo's piece is not. Google has pulled away from its rival, in both the proportion of total Internet ad revenue it collects and the largest category, search-engine ads.
Mountain View, Calif.-based Google's share of ad revenue has grown from about 25% last year to a projected 30% this year, while Yahoo's is expected to remain at 18%, according to EMarketer Inc., a New York-based research firm.
In search-engine ads, Google's share is expected to grow from 60% to 68%, compared with a decline for Yahoo from 12% to 9.5%.
Investors began publicly questioning Semel's leadership in 2006, when Yahoo delayed the release of its improved search-advertising technology and its stock fell 35%, even as Google's soared. A stock recovery earlier this year quieted the critics but they returned in April, when Yahoo reported disappointing first-quarter earnings.
When asked at last week's shareholder meeting whether he had the "fire in his belly" to continue as CEO, Semel shot back: "Absolutely."
But Daly, who had been urging his friend to "consider lessening the pace," said he believed that after Monday's changes, Semel would be "very relieved not to spend his life on a plane."