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Yahoo! lops off (another) five per cent of self

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After watching profits plummet nearly 80 per cent during the first three months of the year, Yahoo! will jettison five per cent of its worldwide workforce. But new chief executive Carol Bartz insists these staff cuts are nothing like the staff cuts made by the beleaguered web giant at the end of last year.

"To allow us to focus on our strategic priorities and provide flexibility to accelerate hiring in key areas, we have made the decision to reduce our current worldwide headcount by approximately five per cent," the former Autodesk boss said during a conference call less than six months after Yahoo! announced a 10 per cent workforce shrinkage. "I want to be clear this is not the kind of across-the-board cost reduction Yahoo! undertook in Q4 in response to the macro environment.

"It is a naturally outgrowth of the work we're doing to streamline our structure, globalize products, slim-down our portfolio, and eliminate duplication of efforts."

But a staff cut is a staff cut. About 700 people will lose their jobs. And lame duck chief financial officer Blake Jorgensen couldn't help but blame the "macro environment" for the company's, shall we say, lackluster first quarter. "A difficult economic environment," he said, "affected all aspects of our global business."

During the three months ending March 31, revenues dipped 13 per cent from a year ago, from $1.81bn to $1.58bn, and net income dropped 78 per cent, from $537 million in the first quarter of 2008 to $118 million in Q1 2009.

If you ignore certain one-time costs - including the sale of European price comparison site Kelkoo and an expected revenue drop from ISP partnerships - revenue declined only three per cent. But there's no denying the company's all-important ad revenues are on the wane.

In Q1, Yahoo! was thumped not only in the display ads but in the search ads as well.

Like Google, Yahoo! has argued that in response to the worldwide recession, companies are shifting their ad dollars away from display to search. "Large advertisers, across many vertical categories, are re-evaluating their marketing approach, spending less on brand advertising and directing more dollars into performance marketing," Jorgenson said just three months ago.

But he now says they're not shifting nearly as many dollars as he would have hoped. "Search volume is up from a queries are up 11 per cent. It's the economic intent issue where you're seeing the major impact of the economy. At the end of the day, people are spending their time online, and they're searching. But they're searching for a job, but not for a hotel in Las Vegas. And that's impacting ultimately the ROIs for our advertisers and what they're willing to pay for keywords in the business."

Worldwide search revenue declined 3 per cent to $399 million.

Bartz and company argue that the economy has put a drag on the search market as a whole. But although Google's biz slowed in Q1, it was still able to crank some solid revenue growth from its top-secret money machine.

To be sure, Yahoo!'s display biz is aching more than its search biz, with revenue dropping 13 per cent worldwide to $371 million. Some have argued that even when the economy rebounds, display will fail to recover. But Bartz disagrees.

"We believe the trend we are experiencing now is typical of a recession. When companies are forced to cut costs, marketing is generally among the first expenses to be reduced, and branded advertising in particular often gets hit disproportionately hard," she said. "But any CMO will tell you that brand value is not determined by 20 search keywords. They know that pulling back on brand spending is a short term solution that leads to long-term brand erosion."

In an effort to convince the world that the company's future is bright, she even resorted to the use of outdated American slang. "While the economy will clearly remain a challenge for us, I believe our job is to focus on what we can control and what will move the needle long-term and that is creating kick-ass experiences for our customers."

Yes, Bartz's "kick ass" promise applies to Yahoo!'s search business. She continues to insist that Yahoo! has no intention of selling search - to anyone. "I'm well versed enough in the search business at Yahoo! to say it's absolutely critical to Yahoo!," she said. "I haven't changed my position to that, and relative to anything else regarding Microsoft, I have no comment."

No one mentioned Microsoft. But it's no secret that Bartz and Ballmer are discussing some sort of online ad pact. ®

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