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New Yahoo CEO seeks to make Internet firm relevant again

Yahoo Inc.'s newly installed CEO faces a daunting challenge: to make a one-time Internet pioneer relevant again.

The company that revolutionized Web search more than 15 years ago has hired Scott Thompson, the head of eBay's PayPal business, as its new chief executive officer. Mr. Thompson joins Yahoo at a time when the company has largely lost the search engine wars to its rivals – primarily Google. Yahoo's share price is largely unchanged over the past three years, as the company struggles to reinvent itself – a process that may include anything from shedding media assets to selling part or all of the company to private investors.

As a result of the lack of progress over the past three years, Yahoo's board fired CEO Carol Bartz last September. The company's CFO acted as interim CEO until Mr. Thompson's hiring. Like Ms. Bartz, Mr. Thompson has little background in the media sector, where Yahoo largely operates – the company owns some of the most popular sites on the Internet, including Yahoo Sports and the photo-sharing service Flickr.

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"Scott has a demonstrated understanding of the importance of creating a great customer experience and a strong value proposition for partners and customers as a foundation of a successful Internet business," said Roy Bostock, chairman of the Yahoo board. "At the most basic level, that's what Yahoo needs to do."

Since launching one of the first search engines on the Web, Yahoo has largely fallen behind Google in the battle for search dominance. According to the research firm Hitwise Experian, Google controls about 60 per cent of the U.S. search market, with Yahoo a distant second with about 16 per cent. Worldwide, Google's market share is closer to 80 per cent.

Even though it lost the battle for control of the resulting search advertising market, Yahoo had the lead in the lucrative display advertising segment – which involves graphical, rather than text ads – as recently as last year. However Google soon overtook the company in that market, too. In addition, Facebook has also made huge gains in the segment.

It is unclear what Mr. Thompson's turnaround strategy entails. During a conference call with analysts on Wednesday, he offered little in the way of goals or benchmarks, beyond saying he plans to focus on "growing shareholder value."

Asked specifically about his strategy for improving Yahoo's position in the display advertising market, Mr. Thompson said, "It's just too early for me to have any informed opinion as it relates to the display space and what's happening there and what's going to happen next."

Mr. Thompson's hiring comes at a time when investor frustration with Yahoo's financial performance is palpable. The company has been the subject of numerous buyout reports, many of them relating to the possible sale of Yahoo's Asian assets. The company's roughly 40-per-cent stake in Chinese search firm Alibaba is considered among its most lucrative assets.

But Yahoo itself has also been the subject of numerous acquisition rumours. Indeed, Alibaba itself is considered one of the potential buyers, alongside some private equity and investment firms.

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On Wednesday, Mr. Bostock said Yahoo has no plans of becoming a private company.

Mr. Thompson officially takes over as CEO on Jan. 9. Although the company is still vague on details, it appears one of his first strategic challenges will be to figure out which assets Yahoo can sell at the best price, in the process possibly jolting the company's share price (Yahoo shares were down about 3 per cent in Wednesday trading).

But first, Mr. Thompson will have to orient himself with the workings of an Internet search and media company – areas that don't feature prominently in his business background.

"I wouldn't have come if I didn't believe the future of this fantastic brand and this business could be spectacular," Mr. Thompson said.

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