Yahoo Update: My Talk With CEO Semel

When I sat down for a rare, exclusive interview with YahooCEO Terry Semel in mid-March, shares closed at $30.13 that day, down significantly from the $41 just a couple of months earlier. But Semel was thoughtful, optimistic, even excited about the future.

"In the last two years, two-and-a-half years, we've doubled in size from the standpoint of our employee base, which is quite phenomenal. And more importantly, we really, really tripled or quadrupled the major talent that we've brought to the company and scientists that we've brought to the company to help us see the future, and help us bring a real science to many of the things we talk about. For me, there's been a great transformation for our company in terms of our capabilities," said Semel.

But the transformation has been slow in coming, leading to news late yesterday of the

management reorganization. Semel stays. CFO Susan Decker takes on new responsibilities running the newly created Advertising and Publishing unit and essentially becoming Semel's heir apparent; Farzad Nazem continues as Chief Technology Officer running the Technology division, and an executive to be named later will run what the company is calling the Audience division.

COO Dan Rosensweig is out; so is Lloyd Braun, a TV exec who came to the company amid much fanfare to shepherd the entertainment unit; and John Marcom, SVP who ran International Business, also leaves. A reorg that planners say will streamline the company and make it more nimble as it tries to gain ground against Google . But it could be a reorg that detractors say merely replaces one corporate bureaucracy with a very similar one that won't lead to much change at all.

Scott Kessler for one at Standard & Poors tells CNBC this morning that this is a "positive first step."

However, turmoil at the top of Yahoo comes even as rival Google continues to innovate and explore so many new ways of making money. Google hasn't come up with any just yet, and doesn't really need to since it still derives 95% of its incredibly fast-growing revenue and profits from the single biggest area of growth on line: Search Advertising. Google's staggering control of that sector of the internet allows it to generate huge revenue growth and big profits, while exploring so many other ways to make new money. That's the luxury of a nimble, innovative company that has a tremendous focus on one particular sector but not closing itself off to the other opportunities that may be out there.

For Yahoo, a far different business model that some say is at the root of its 30% stock slide this year: trying to be all things to all people. What executive Brad Garlinghouse referred to in his now infamous "Peanut Butter Manifesto," the leaked memo that compared Yahoo's approach to the net as "spreading peanut butter across the myriad opportunities that continue to evolve in the online world. The result: a thin layer of investment spread across everything we do and thus we focus on nothing in particular."

That was his take. But it was a far different perspective that Semel provided me on the company's business strategy when we spoke. In my interview with him, he said: "Search, which is extremely important, represents about 5% of the page views on the internet and 40% of the revenue. So, highly monazited. But 5% of the page views. And when we look at the other 95%, Yahoo is a very large player in the other 95% as well, which to date, hasn't been monazited as well as Search. So, 40% of the balance of the page views come from communication products. We're the #1 Mail product in the world; we have an ever-growing (instant messaging) service which is really terrific and getting larger and larger around the world; big in voice-over IP and those products as well. That represents 40%. The other 40% is content.

Yahoo is all about content. Deep reservoirs of important content in many, many strong areas. The last 15% is commerce and Yahoo is also in commerce. So, I'm a believer that there will more effective ways to monetize content. We're already seeing better ways to monazite communications products. For us, it's all about providing deeper, richer experiences for our users."

That may be the case, and the user-numbers bear that out: 418 million registered users makes Yahoo the web's most popular destination. The trouble comes with how to make money from all those eyeballs. Yahoo's long-delayed monetization algorithm, code-named Panama, is finally getting online and that should help the company make more money from every click. But the delay has cost Yahoo, not just in money, but momentum.

Yahoo has gained the reputation of a lumbering giant, staggering its way through what most believe is the most exciting, robust, innovative and fast-growing market the tech world has ever seen. Not just with information online, but all things digital entertainment with Google and Yahoo trying to become the first stop for the newly empowered digital consumer.

With the number of people using Yahoo so significant, no one on the street is writing the company off. It now has a $37 billion marketcap and it is still THE name on the net. A company that built its fortune on swimming against the tide, and operating outside what had been traditional business norms.

So it's ironic that Yahoo's financial challenges are tarnishing the company's reputation now. Semel has always focused on the user, figuring the financial returns would follow the company's success online, despite stiffening competition. He told me, "Generally, competition has been great for us. And we're never going to be the best at everything. But in an overall experience for our users, I'd hope to think we're going to give them the best experience."

Still, analysts say you can have all the users in the world, but if you can't come up with a way to make money from them, you're not really in "business." And with an ever-increasingly impatient Wall Street, if Semel doesn't solve these issues quickly he may find himself out of a job sooner rather than later.

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