Yahoo layoffs the tip of the iceberg?

The struggling search giant announces the deepest round of layoffs in its history. Here, 5 reasons why things could get even uglier.

By Apr 5, 2012 5:43PM
Yahoo (YHOO) is firing 2,000 workers, or 14% of its workforce, in a drastic bid to turn around its ailing fortunes. It's the fourth time in six years that the search engine has conducted mass layoffs as it steadily loses online advertising revenue to Google (GOOG) and Facebook.

And this housecleaning "is just the tip of the proverbial iceberg" for Yahoo, says Kara Swisher at All Things D.

Here, five challenges Yahoo faces in its messy turnaround attempt:

1. More layoffs could be around the corner

Yahoo's latest round of pink slips "is not the end of the road" in cutting labor costs, says Swisher. The division for consumer and advertising products was hit hardest, but other units are on the chopping block, too, including advertising technology and search. Expect the company to "lop even more employees off its roster" in the coming months.

2. Yahoo still doesn't have a strategy
While the workforce cuts will result in annual savings of $375 million, Yahoo "has frustrated shareholders with its over-reliance on cost-cutting rather than identifying new areas for innovation and growth," says Nicole Perlroth at The New York Times. Scott Thompson, Yahoo's fourth CEO in five years, has failed to articulate a strategy to resolve the company's main problem: Keeping users on the site. Yahoo attracts some 700 million visitors a month, but "people have been spending less time there and dwelling longer on Google services and on Facebook," says Michael Liedtke at the Associated Press.

3. The company might go up for sale

Despite Thompson's promises to launch a "bold, new Yahoo," the cost-cutting makes it "possible -- more likely, probable -- that Yahoo is tightening its expenses and trimming head count in order to make it more attractive to a potential buyer," says Chris Preimesberger at eWeek. Microsoft (MSFT), which already uses Yahoo technology for its Bing search engine, is among the prospective patrons. (Microsoft owns and publishes Top Stocks, an MSN Money site.)

4. The shareholders are fighting back… 

In the midst of the company's overhaul, Thompson is fending off an aggressive challenge from Daniel Loeb, whose hedge fund Third Point is one of Yahoo's largest shareholders. Unhappy with Yahoo's direction, Loeb is hounding Yahoo executives to name himself and his allies to the company's board of directors. "If a truce isn't reached, the dispute will be resolved in a shareholder vote," says Liedtke.

5. …And Facebook is, too

Thompson recently launched a raft of patent-infringement lawsuits against Facebook, "with faint hopes to bring in more money," says Dave Smith at International Business Times. Now Facebook is firing back with a series of possibly crippling counter-suits, and it's suddenly dawning on Yahoo that it "picked a bigger fight than it was prepared for," says Tiffany Kaiser at DailyTech.

Sources: All Things D, The Associated Press, DailyTecheWeek, International Business TimesThe New York TimesThe Wall Street Journal

More from The Week:

Apr 5, 2012 6:10PM
"Microsoft uses Yahoo technology for its Bing search engine" - seriously? That discredits this article.
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