What’s next at Yahoo? Layoffs

December 7, 2010, 12:48 AM UTC

by Patricia Sellers

Credit: Asa Mathat

While rumors keep swirling about Yahoo merging with AOL in a deal that would include private equity, don’t hold your breath. A source close to Yahoo told me today that neither AOL nor private equity buyers have contacted the company to discuss a potential deal.

Meanwhile, Yahoo news that should transpire sooner: layoffs. Sources tell me that Yahoo next week plans to announce 10% cuts in the product area. That group includes engineers and product managers, and it comprises some 6,000 of Yahoo’s total 14,100-person workforce. So we’re talking about 600 Yahoos getting lumps of coal for Christmas.

Given that CEO Carol Bartz has reduced costs since she joined the company as CEO in January 2008, it’s surprising that Yahoo’s workforce today is bigger today than it was back then. Yahoo had 13,600 employees when she arrived.

The coming layoffs are about getting the stock price up, obviously. Yahoo shares have been stuck around $16 — half the price that Microsoft offered to acquire the company in 2007. Bartz ended up forging a search partnership with Microsoft, which has helped reduce costs and offload capital spending. Meanwhile, she’s seriously struggling for revenue growth.

“Struggling is not a word I would use,” Bartz countered in an on-stage interview that I did with her last Tuesday at a Fortune Most Powerful Women dinner in Palo Alto. Typically feisty, she reminded us that “we are in the middle of a big recession.” Okay, but that doesn’t excuse the things that Bartz needs to fix: For instance, Yahoo visitors are spending less time on the site (“because of mail,” she said) and Facebook is gaining major market share in display advertising.

“We don’t necessarily have to add people and page views,” Bartz said, noting that Yahoo already has 630 million users. “We have to deliver a better experience for them.” One way could be via acquisition. Before Google went after Groupon — which reportedly spurned Google’s bid that approached $6 billion — Yahoo was known to be interested in Groupon for a price in the $2 billion range.

The pressure is on Bartz to deliver more than cost-cutting. Last week on Postcards, I shared a short video clip, where she assesses her CEO job performance. If you’d like to view the full 30-minute interview — where she is funny and brash, if not revelatory — click here.