Exits May Hurt Yahoo's Recovery

This Jan. 7, 2008 file photo shows the Yahoo tent at the Consumer Electronics Show (CES) in Las Vegas. Yahoo Inc. is offering free e-mail accounts Thursday under two new designations in an effort to attract Web surfers unhappy with their current addresses. (AP Photo/Paul Sakuma, file) (Paul Sakuma - Associated Press)

But as the Internet has evolved, Yahoo's growth appears to have stalled, and many analysts said the portal has been left behind and seems directionless.

Kay compared the company's slide to that of AOL, the once-dominant Internet company that has similarly been marginalized by changes in Internet use.

"Their strength is now their weakness," he said of Yahoo. "They've got a real good franchise, and it will maintain for a while. But they're not well-positioned for the future, and that's the whole problem here."

As far back as two years ago, many believed that the company was adrift. In a famously leaked memo, Garlinghouse, one of the departing executives who oversaw e-mail, instant messaging and other services, said Yahoo was spreading itself too thinly over various offerings, like peanut butter on bread.

"The result: a thin layer of investment spread across everything we do and thus we focus on nothing in particular," he wrote. "I hate peanut butter. We all should."

As Wall Street became disenchanted and the stock price sank to $19, Microsoft saw an opportunity. It offered in January to purchase the company for $31 a share.

Yahoo chief executive Jerry Yang and his board called the offer too low and rejected it. Eventually, after offering $33 a share, Microsoft walked away from the deal.

The failure to close a deal with Microsoft left some shareholders furious, and last month, Icahn announced that he had acquired a stake in Yahoo and would put up his own slate of company directors at the Aug. 1 annual meeting.

Jeremy D. Zawodny, a prominent Yahoo developer and longtime blogger for the company, said there were a lot of different reasons for the departures, among them a pending reorganization.

Zawodny, who joined the company in 1999, is leaving too for what he said was a "compelling opportunity" at Craigslist.

"People may just be frustrated with what they're doing or they've fallen into the trap that they're starting to believe all the negative press -- that can be pretty dangerous," he said.

So what does he see next for Yahoo?

"The next moment of clarity for the company may be the shareholders meeting," he said.