Yahoo Cuts 2,000 Jobs in Broad Restructure

Move Expected to Save $375 Million Annually

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In perhaps the first sign of a new day for Yahoo, the company announced Wednesday morning that it would lay off 2,000 of its 14,000 employees.

Scott Thompson
Scott Thompson

"Today's actions are an important next step toward a bold, new Yahoo -- smaller, nimbler, more profitable and better equipped to innovate as fast as our customers and our industry require," CEO Scott Thompson said in a statement. "We are intensifying our efforts on our core businesses and redeploying resources to our most urgent priorities. Our goal is to get back to our core purpose -- putting our users and advertisers first -- and we are moving aggressively to achieve that goal."

The announcement comes three months to the day that Yahoo introduced Mr. Thompson as CEO, eliciting calls of "Scott who?" from Madison Avenue execs who had never heard of the product- and tech-trained former PayPal president.

While the mass layoff marks Mr. Thompson's biggest decision to date, it's not his most controversial. Last month, he signed off on a lawsuit against Facebook in which Yahoo claimed that the social-media site has infringed on some of its patents. Facebook responded with a countersuit yesterday.

Yahoo has also come under fire from one of its largest shareholders -- the hedge fund Third Point, led by Dan Loeb. Mr. Loeb is spearheading a proxy battle to get himself and a slate of his handpicked candidates named to the Yahoo board. Mr. Loeb's proposed slate include candidates with big-media chops, including former NBC Universal CEO Jeff Zucker and Michael Wolf, former president of MTV Networks who now runs the consultancy Activate. Just this week, Third Point launched the website to outline the group's vision for reigniting growth at Yahoo.

In recent weeks, executives inside Yahoo have told Ad Age that 1,000 to 2,000 people could be cut without materially affecting day-to-day operations. Some said that the elimination of 4,000 to 5,000 people is what is really needed.

"We're just waiting to get pointed at the North Star," one executive said. "We do 1,000 things, and not all of them well."

Once the leader in online advertising, Yahoo has ceded significant ground to Google and Facebook in display ads in recent years. In a recent conversation with Ad Age , a Yahoo exec said that the company has accepted that Google and Facebook have "won" search and social, respectively. Yahoo's opportunity, this person said, lies in finding a way to grab a significant share of TV-ad dollars as they move online, specifically through original video programming.

In the fall, Yahoo announced an alliance with ABC News that has seen the two companies collaborate on online video-news series. Yahoo executives have said recently that the company is evaluating similar deals. Yahoo has also signed deals with big names such as Tom Hanks and Bill Maher to air some of their projects exclusively on Yahoo.

Early on, agency executives who met Mr. Thompson were not sure what to make of the media newbie, who admitted in his first conference call with reporters that he didn't have an informed opinion on what Yahoo needed to do to regain its advertising swagger. One agency executive said that Yahoo has tried to get Mr. Thompson in front of agency executives, after he seemed to ruffle some feathers in one of his first agency meetings with a comment about the need to get direct relationships with advertisers.

"There's been a pretty rapid course correction," the executive said. In social settings, Mr. Thompson is quick to defer to other Yahoo leaders when he doesn't have an answer to a media- or advertising-specific question. "He recognizes what he doesn't know about the space, which is considerable," another executive said.

Yahoo continues to evaluate what to do with its underperforming ad exchange Right Media, as well as its search-alliance with Microsoft, which is so far a colossal disappointment. An outright sale of Right Media with a complete severing of ties seems unlikely, considering that several hundred million dollars of Yahoo media run through the platform.

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