Tonight we’re announcing the acquisition of Right Media, which I believe has the potential to dramatically enhance Internet advertising. We hope to revolutionize the way ads are bought and sold on the Internet and, in turn, drive more value for advertisers, publishers, and partners.

As new forms of content continue to increase on the Web, so do the opportunities for advertisers to get their message across. This growing inventory is driving a significant transition in the online ad world, with third-party ad networks and exchanges gaining share of the total online ad dollars. This obviously represents a growth opportunity and it’s why we made a 20% investment in Right Media in October.

Right Media connects the various online ad players (advertisers, publishers, ad networks) in an open and efficient way. Its marketplace provides a world where non-guaranteed inventory is bought and sold without barriers — an entirely free flow of information. As a result, we believe advertisers gain great new users at the best prices, and publishers see the true value of their inventory and sell every impression for as much money as possible. Everyone wins.

We think supply and demand should be regulated by the marketplace, not a closed platform. Right Media provides a democratic model that empowers advertisers with all of these benefits. We think our open approach is a clear differentiator from others in the industry and will provide significant benefits to publishers and advertisers.

This acquisition will help Yahoo! build on its leadership in online advertising. We’ve been moving aggressively over a number of months to enhance our leading ad tools and capabilities, through initiatives like Panama and major partnerships like those with eBay and a consortium of more than 260 newspapers. Right Media builds on those efforts by helping us not only realize more value from our inventory, but also continue to transform how advertisers and publishers connect to their audiences.

We see this as a key step in executing our long-term vision to build the industry’s leading advertising and publishing ecosystem — both on and off Yahoo!’s network.

Right Media employees, welcome to the Yahoo! family. We’re excited by your deep industry, technical, advertising and publisher knowledge, and look forward to working with a team of such high caliber and expertise.

Terry Semel
Chairman & CEO

Panama: A country, a canal, or the next generation of Yahoo!’s search marketing?

Now that I’ve had a chance to catch my breath after announcing our quarterly earnings this week, I thought I’d reflect on something that I think is probably the most important news you’ve heard from us in a long time. As I said last quarter, we’re laser-focused on improving how well we monetize our search business. It’s important not only for our shareholders, but also for the vast number of advertisers that want to tap into this incredibly cost-effective and wildly popular marketing medium. By the way, the better we are at helping these marketers, the better Yahoo! Search becomes for the millions of consumers who rely on it. Let me explain why.

I’m extremely pleased that an important piece of our new search monetization system (a.k.a. “Project Panama”) will soon make its debut. In about two weeks, advertisers in the U.S. will experience a whole new way of ranking text ads on Yahoo! — and consumers should find that text ads are more relevant to what they’re searching for. Search ads will no longer appear alongside search results based solely on the bid price for a particular keyword. We’ve developed algorithms that also factor in the ad’s “quality,” which is based on historical performance (how often consumers click on it) and its relevance to what the user is searching for. Higher quality ads will generally receive better placement, and may even cost less in some cases. And the system will grow smarter over time.

What does all this mean? Advertisers will have more control over and visibility into their campaign performance, giving them greater confidence in (and potentially greater return on) their investment. It also means that the millions of consumers who come to Yahoo! to search for information on the Super Bowl, Lindsay Lohan or tax deductions will find text ads that are even more relevant to their searches. It’s a self-reinforcing cycle, a win-win for advertisers, publishers and consumers. And we hope for our shareholders, too.

We’re ahead of our own schedule for turning on this critical new feature (a Herculean effort by all involved) and are receiving tremendously positive feedback from customers on the system itself. We’re feeling fantastic about having this milestone under our belts.

Stepping back, I think we’re off to a great start in 2007. We’re hitting an important milestone in becoming more competitive in search. We’ve also made progress in sharpening our focus to address our challenges and opportunities. The pieces of our company realignment are moving into place. We ended 2006 outperforming the market as the largest display ad network in the world and intend to do so again in 2007. And we’re supporting our mission to connect people to their passions, their communities and the world’s knowledge with continued investment in our social media, video and mobile services.

We have plenty of hard work ahead of us, but I feel good about where we stand today and about the opportunities around the corner and down the road. Til next time…

Terry Semel
Chairman & CEO

When I joined Yahoo! five years ago, I found a company with incredible assets (huge audience, strong brand, healthy balance sheet), great potential, and a team filled with determination and a fighting spirit. But the company faced challenging economic conditions that pummeled the Internet sector and was itself losing money. Yahoo!’s original strategy of “get big fast” (building audience and brand) needed to change. Yahoo! was ready to enter its second phase. We reshaped our sales organization, beefed up our bench, simplified our management operations, and, over the course of several years, executed several transformational initiatives in areas like broadband, search monetization and algorithmic search. Our changes paid off as we later posted quarter after quarter of record growth in audience and revenues.

Yahoo! is now entering what I call its third phase — one focused on customers. We’re seeing the competitive and advertising landscapes evolve yet again and today we announced a realignment that we believe will let Yahoo! capture the major growth opportunities ahead. Simply put, we’re aligning our business around two key customer groups — our audience and our advertisers and publishers — supported by innovative technology. We’re creating three operating groups — Audience, Advertiser & Publisher, and Technology — to increase our strategic focus and accountability, speed decision-making, emphasize scalable platforms and improve resource allocation. Here’s the press release.

By having our Audience Group 100% focused on creating great user experiences, we’ll also be able to create the greatest amount of value for advertisers, both on and off the Yahoo! network. What does that mean? We intend to expand our global advertising network, creating marketplaces on both Yahoo!’s network as well as across the entire Internet. We’ve already begun demonstrating our value as an ad network for search affiliates and through announced arrangements with eBay, the newspaper consortium and Vodafone. We’ll be able to connect customers with advertisers on valuable properties elsewhere on the web.

As far as our leadership team, I’ve asked our chief financial officer, Sue Decker, to head our new Advertiser & Publisher Group. She already recently expanded her role to take on our current Marketplaces business unit (which will become part of her new group), tapping into her deep expertise in media, publishing and advertising. An expert on far more than financials, Sue has been a terrific contributor to our business strategy. She’s one of the best executives around and the ideal person to fill this critical new role. We’re currently recruiting the leader for our Audience Group.

Zod Nazem, our CTO and a key executive team member, will lead our Technology Group. We intend to focus our engineering investments and move towards more integrated product development teams. We’ve also created a new Platform & Infrastructure sub-group, which will build high-impact, global platforms for everything from advertising to social media.

Missing from this lineup is Chief Operating Officer Dan Rosensweig, who will leave Yahoo! in March… leaving behind a strong legacy. When we recruited Dan five years ago, we brought him on to help revitalize the company. Since then, he’s helped grow our global audience to one in every two Internet users, introduce social media to our users, create a leading mobile infrastructure, attract record numbers of advertisers, and position Yahoo! for its next phase of growth. He’s been one of the key architects of our new structure and he’s leaving Yahoo! with a deep bench of talent that he helped hire — the right people to set us on our course. We’re grateful for all of Dan’s sleepless nights, missed elementary school soccer games and endless Blackberry exchanges. We couldn’t have gotten here without him.

Now, I know what you’re thinking — this is all about peanut butter. Actually, we’ve been orchestrating this plan for a number of months as we envisioned the next phase of growth for the Internet. Following our third quarter results, I very openly discussed that we were going to become more focused and bring about change. But let me stress that we’re organizing the company for growth and are continuing to hire great talent.

Change is never easy. We need a revitalized structure to heighten accountability and streamline decision-making while allowing us to better focus on serving our key customers. This one gets us there. I believe Yahoo!’s opportunity is better than it ever has been. We have the largest and most engaged audience in the world. Thirty billion in advertising dollars will come online globally over the next five years. No one is better positioned than we are to take advantage of that. I believe we now have the right strategy, the right structure and the right people to provide the best experiences and results possible to our users, advertisers and publishers.

Terry Semel
Chairman and CEO