Yahoo, triumphant over a host of other wannabe Web portals in the '90s, resurgent in the early part of this decade, has never really gotten used to not being No. 1. Apple, for all its arrogance, recognizes that the Mac is not the best-selling PC brand.

Yahoo's marketing department should spend all its time explaining to Internet users why they should use Yahoo instead of its competitors. That's what Apple does with its "Mac vs. PC" ads. Each commercial humorously sticks to its talking points comparing the advantages of Macs over PCs. Apple does this because it remains far behind in the PC market and needs to convince customers to switch from more popular products.

That's what Yahoo needs to do in search. But instead of saying why users should, it markets itself the way Apple markets the iPod — as a ubiquitous aspect of a certain way of life. Apple can do this because it already dominates a market full of similar digital music players. A better product helped sell the iPod to the masses. But an advertising campaign which keeps people associating themselves with the brand reinforces Apple's dominance.

Yahoo doesn't have that luxury. It still dominates, but in tiny niches. It needs to say why Yahoo News is better than Google News and the New York Times. It needs to say why Yahoo Fantasy Sports games are the most popular on the Web. It needs to say why anyone who owns a digital camera should upload their pictures to Flickr, not Facebook. But instead, Yahoo spends all it's time trying too hard to convince users how wonderfully wacky it is.

What's tragic about that is that the brand Yahoo is trying to create isn't particularly attractive. Look, it screams, we're so desperate to be seen as kooky kids, we're willing to hit our top executives in the face with rubber balls!

Perhaps the real target of the campaign is Yahoo's own employees. Morale is in the dumpster at its Sunnyvale headquarters. "Bleeding purple," Yahoo's longtime catchphrase for displaying loyalty to the company, has come to refer to the endless exodus of employees. Wearing purple may boost the mood of longtime Yahoos. But it will hurt recruiting for those outside the cult. What adult wants to work at the company which still hasn't figured out what it wants to be when it grows up?

Having turned down Microsoft at $40 a share, why would Yahoo then accept a bid at a price 23 percent lower than that? One has to weigh cofounders Jerry Yang and David Filo's resistance to Microsoft's overtures in light of that earlier offer; they can argue that they were trying to get Microsoft to better its earlier price, rather than rejecting its new, lowball offer.

Still, Yang and Filo don't come off well in the complaint. Yang is shown pushing for a $1.5 billion severance plan that even Yahoo's compensation consultant called "nuts"; Filo is an oddball figure who, lacking a board seat and a title other than "Chief Yahoo," never should have been involved in the negotiations in the first place. If the board needed an excuse to push Yang and Filo aside, the plaintiffs certainly made the case for them.

But after Yahoo cofounders Jerry Yang and David Filo showed it would take a messy proxy fight to push a merger through at Microsoft's price, Gates lost patience and quashed the whole enterprise, reminding Ballmer that Microsoft really just wanted Yahoo's search business. Now Yang and company — under pressure from activist shareholders — crave a full merger and believe it to be a "a strategic imperative for Microsoft," according to one source who also observes: "I think sometimes that their execs must be smoking something."

Previously:

• A is for Adelson, who cofounded Digg
• 
  
• B is for Botha, who sold YouTube big
• 
  

In every jest, there's a grain of truth. Later in the movie, Filo appears in a disorganized office, while Ash Patel, the executive ostensibly in charge of Yahoo's platforms and infrastructure, cleans up around him. Not a bad metaphor, except that insiders say they're surprised if Patel even does the clean-up work.

While Google's engineers are awash in a sea of computing power, and are challenged to come up with ideas to use it all, Yahoo's developers cope with an IT infrastructure that is at once too centralized and too disorganized. New CTO Ari Balogh has talked about fixing Yahoo's spaghetti code with new layers of APIs, or ways for independent developers to access Yahoo's websites and data. But making Yahoo more open to outside programmers won't fix the underlying problems with the company's code and infrastructure. Former Yahoo engineers talk about servers that its datacenter operators are afraid to unplug, because no one knows what they do.

It's no wonder, really, that Microsoft executives had talked about discarding Yahoo's technology and introducing their own if they bought the company. Microsoft may be no great shakes when it comes to Web technology, but having started later, there's less accumulated cruft to scrape off. Until Filo is pried away from his iron grip on Yahoo's servers, and do-nothing layabouts like Patel are fired, it's hard to imagine things improving at Yahoo.

Microsoft remains obsessed with Google's dominance in search. Its brightest minds are confounded by its inability to catch up; they saw acquiring Yahoo as a way to instantly bulk up, and apply their algorithms to a larger database of searches.

But that presumes that all we do, all day long, is search the Web. The truth is search is just one of many online activities. When Google got to it, early pioneers like Yahoo had neglected it, leaving much room to exploit and improve Web search.

Yahoo and Microsoft both might do well to take as a given that Google will dominate search for the foreseeable future. Consumer inertia will dictate that, if nothing else; trying to make search ever fancier is a sure way to keep Google as the search engine of choice. Feature-obsessed Microsoft engineers will likely lard up Windows Live Search with more virtual gewgaws; Yahoo would do well to simply ape Google's simplicity.

The mooted plan to have Google serve some of the ads on Yahoo's search results, but only if they make more money for Yahoo is wise, and not just because it may pass antitrust scrutiny. Yahoo should not abandon the business of contextual advertising, as the art of matching ads to search keywords is known.

Yahoo, in theory, should know more about its users than Google; if it is ever able to apply that data to advertisements, it may well be able to make some searches more profitable than Google can. And Google, with its larger corpus of search queries, may squeeze more dollars out of some searches than Yahoo ever can. Cooperating cleverly doesn't mean giving in; it means maximizing one's profits. Suggestions that Yahoo fire the 2,000 or so employees of its search marketing business and throw all of its text-advertising sales to Google seem to go too far; but perhaps Yahoo should abandon all its algorithmic research and concentrate instead on analyzing its users' online behavior.

Downplaying search, too, seems wise. Jerry Yang says he wants to make Yahoo a set of "starting points" for Web users; but of all the possible ones, an empty search box seems like the least interesting place to start. What can Yahoo add to that blank space? Since Yang and Filo first started picking websites for Yahoo's online directory 15 years ago, they've created experiences for users — "programmed" in the media sense, not the software sense. Even user-generated sites like Flickr have relied on community managers to set the tone and show users what's possible. That has always struck me as Yahoo's strength, and they should build on it.

The biggest criticism of Yang is that he hasn't seemed to found Yahoo's purpose on the Web today. If he just stops searching, perhaps he'll find it.

Skip to 2:30 for a startling confession from Orchard. At 6:00, Allspaw explains why Googlers might not have the proper equipment to play.

CEO Jerry Yang gets a ball to the face.

CFO Blake Jorgensen waits patiently for the blow.

Network Division chief Jeff Weiner can take your balls like a man.

(Photos by Yodel Anecdotal)

• Bill Gates is out $6 billion since the beginning of the year and $3 billion since Microsoft bid on Yahoo
• Steve Ballmer's net worth is down $3 billion since 2007
• Apple CEO Steve Jobs has lost $400 million in six weeks.
• Google cofounders Sergey Brin and Larry Page are both down $5 billion so far this year.
• Google CEO Eric Schmidt lost $2 billion this year.

(Photo by AP/Paul Sakuma)

Jerry Yang, CEO He'll be a large Microsoft shareholder after the deal goes through, so it's likely he'll get a board seat. And perhaps he'll get to keep the "Chief Yahoo" title.

David Filo, cofounder Might be named a Microsoft Fellow, working in datacenter operations — as he prefers.

Sue Decker, President Gone. There's no position Microsoft can give her that will suit her ambitions. Not to mention the hash she's made of things at Yahoo.

Blake Jorgensen. CFO Gone. Microsoft doesn't need another CFO, and he's a close Decker ally.

Ari Balogh, CTO Bad timing: Balogh just left VeriSign for Yahoo this week. If he'll settle for a title below CTO, Microsoft might grudgingly make room for him.

Marco Boerries, EVP, Connected Life Gone. He's widely disliked within Yahoo, and Microsoft already has plenty of mobile dealmakers.

Michael Callahan, General Counsel Gone. First, we fire all the lawyers.

Gregory Coleman, EVP, Global Sales Already announced his "retirement." Even more gone than he already was.

Usama Fayyad, Chief Data Officer A keeper. Microsoft needs better data analysis.

Qi Lu, EVP, Engineering Search A keeper.

Michael Murray, Chief Accounting Officer Gone.

Jill Nash, Chief Communications Officer Could stay. Microsoft desperately needs better PR in the Valley.

Ash Patel, EVP, Platforms and Infrastructure Division Gone. He's already checked out, insiders say, but it will take a takeout to dislodge him from his desk.

Libby Sartain, Chief People Yahoo Already rumored to be out.

Hilary Schneider, EVP, Global Partner Solutions Could stay, though she's a Decker ally. Microsoft lacks credibility with newspapers, Schneider's strong suit.

Jeff Weiner, EVP, Network Division Gone. Weiner, a Semel guy, has managed to hold onto his job against the odds. But he's not respected in Redmond.

Update on President Organization — CONFIDENTIAL and PLEASE DO NOT FORWARD.

Fellow Yahoo!s,

Over the past two months, Jerry and I and the rest of the management team have been taking a close look at our business - from top to bottom - and have been working hard to refine Yahoo!'s strategy and longer-term objectives. With that in mind, today I would like to tell you about a number of organizational changes that will help us achieve our goals to better serve our customers, accelerate the speed of making fast, smart decisions, and create cleaner lines of accountability across key leaders.

Building on the success that we have had in aligning our sales and distribution organizations around customers, rather than around advertising products like search and display, the two major changes we are announcing today are designed to take this to a higher level. They will also better align our resources and priorities focused on building key audiences.

First, we are placing responsibility for all of our "partners" - advertisers, agencies, resellers, publishers, ad networks, developers, or others — in a new division called, Global Partner Solutions (GPS), under the leadership of Hilary Schneider. This new group will be charged with creating, delivering and coordinating global best practices for solutions to all of our partners. Furthermore, this unit will have direct responsibility for our U.S. go-to-market efforts (i.e., sales, marketing and business development) across:

all ad formats, including search, display, video, mobile, listings, etc.
all online marketing objectives, including brand, performance, promotional, and
all customer types and sizes, including large enterprises, small online businesses, and local brick and mortar companies

Business development deals for Mobile and content the will continue to be led by Connected Life and the Yahoo! Network Division, respectively, and will work in close coordination with GPS.

Global Partner Solutions will be responsible for segmenting the business needs of our partners into actionable groups, understanding the needs of these segments and our ability to meet these needs, developing holistic business strategies to delight and surprise these segments, and executing on these strategies.

This approach will help us achieve faster, smarter decision-making and improved execution in support of better serving our customers. For example, we will be able to much more quickly identify and secure the ad inventory that best meets our advertisers' objectives and partner with advertisers that best meet our publishing partners' objectives as well as provide the most compelling experience to the vast audiences we reach.

Hilary is a strong executive with a tremendous track record of success - most recently in building the Yahoo! Publishing Network and spearheading the Newspaper Consortium deal - and I believe she is ideally suited to lead this effort.

The organizational changes that will accompany this change are to move Global Sales, the Online Channel, the Yahoo! Publisher Network, Corporate Partnerships and Hot Jobs under the single umbrella of Global Partner Solutions. Reporting to Hilary will be David Karnstedt - SVP, North American Sales; Jacki Kelley - VP, Sales Strategy; Dan Foehner - VP, Worldwide Sales Operations; Mark Rabe - VP, Cross Border Sales; Rich Riley - SVP, Online Channel Division; Todd Teresi - SVP, Yahoo! Publisher Network; Jim Schinella - SVP, Corporate Partnerships; and Jeff Kinder - SVP/GM, Hot Jobs.

As many of you know, Greg Coleman has been actively engaged in leading the integration of Yahoo!'s search and display ad sales teams and communicating the benefits of our more integrated capabilities to our major clients, who have been very receptive to this holistic approach. This integration is now well underway, and his leadership and expertise have helped enormously to effect a smooth transition. He and I have discussed for some time the need to further integrate Yahoo!'s capabilities in order to better support the needs of our key customer groups.

Therefore, with the decision to create this new Global Partner Solutions unit under Hilary's leadership, we mutually agreed that Greg would leave Yahoo! to pursue other opportunities. We are fortunate that he will continue to assist us in this transition through February, closely advising the team. We deeply appreciate Greg's contributions to Yahoo! over the past six and a half years, a period in which our advertising revenues have increased from $600 million a year to more than $6 billion, with substantial growth not only in the U.S. but in Europe, Asia and key emerging markets around the world. We wish him the best of luck in the years ahead.

The second major organizational change we are announcing today is that we are moving the properties in the Local Markets and Commerce Division (LMC), excluding HotJobs, from Hilary's organization into the Yahoo! Network Division under Jeff Weiner's strong leadership."As a key member of the executive team, Jeff has held a number of pivotal roles at Yahoo! including SVP of Search and Marketplaces where he oversaw a number of these properties. As a result, the transition to Network should be seamless. Jen Dulski will continue to lead Shopping, Travel, Auto, Real Estate and Local under Jeff and Anna Zornosa will continue to lead Personals. This move will drive further organizational alignment around our key audience properties and result in clearer accountability and faster, smarter decision-making and better integration overall. In addition, the engineering function will also moved to align with the product team and will report into Venkat Panchapakesan.

Also, in an effort to create better alignment with the core business units, we are moving Cammie Dunaway, CMO, and her Customer Experience organization to report to me.

As a result of these changes, my direct reports now include Hilary Schneider — EVP of Global Partner Solutions; Jeff Weiner - EVP of the Yahoo! Network Division; Marco Boerries - EVP, Connected Life; Toby Coppel - Head of Yahoo! Europe; Keith Nilsson - Head of Emerging Markets; Rose Tsou - Head of the Asia Region; a soon to be hired EVP — Marketing Products Division; Cammie Dunaway — CMO; Jeff McCombs - my Chief of Staff and VP, Business Management; and Greg Coleman (through February 2008).

I know there have been many changes at Yahoo! over the last few months, and I know that change is not always easy. But I greatly appreciate all of your patience, dedication and hard work. As we look to make Yahoo! the partner of choice for our customers and partners. I am confident that we are putting the right people in the right positions to focus on the right opportunities.

Congratulations to all.

Sue