An Interview With Yahoo's Jerry Yang, Part 1: The Econalypse's Impact and More

BoomTown was a squeaky enough wheel to get Yahoo CEO Jerry Yang to grant a long interview by phone yesterday–just a day after he had announced weak third-quarter earnings results for the Internet giant, caught as others are in the econalypse, as well as layoffs of at least 10 percent of its global workforce.

But instead of being glum, as you might expect, especially after a year of corporate turmoil that would have finally gotten to even Job–let’s review: management upheaval, a Microsoft (MSFT) takeover battle, an attack by billionaire activist Carl Icahn, tangling with the Justice Department over a pending Google (GOOG) search advertising partnership and more!–Yang sounded surprisingly confident that Yahoo (YHOO) would emerge a winner after all the wrenching change is wrought at the company he co-founded.

I split the interview into two parts. The second will appear later today at 4 p.m. Pacific time, talking about Icahn, the Google deal, Microsoft and why Yang thinks he is the right leader for Yahoo, so check back.

Here is the first part, in which he talks about Yahoo’s financial performance and the impact of the bad economy on Yahoo’s dominant display advertising business and gives more details of the layoffs and cost cuts.

BT: How do you look at the last quarter?:

Yang: What we said was that the quarter showed some strength in U.S. search and performance display, but more weakness in branded, especially at the end in the U.S., and more so internationally. The U.S. started softening in Q2 and that continued into Q3. International was hit much harder, although display still grew double-digits there in Q3. Softness started in the U.K. early, and we knew when the French came back from vacation in September and did not buy ads at the same levels that those were trends we had to watch.

Asia was more of a surprise, but the same trends were happening there too. Because we have such a big market share there, we are looking to every country for what is coming next.

BT: And what is your Q4 outlook?:

Yang: Like everyone else, we are pretty much forced to formulate our views in an unprecedented set of circumstances because things are changing so quickly and the world looks a lot different than just three or four weeks ago.

There has been some stability, and some business is being done still, but we don’t know how bad it is going to get, and neither does anyone.

Generally, of the spending that is done in the display advertising market online, we get our share.

It is a little like 2001, when online usage continued to go up, but revenue drivers declined. And, even in times like this, the Internet continues to show more engagement.

Obviously, no one knows when the market is going to bottom out, and I am certainly not an economist. You can talk yourself into a loop, but no one really knows where it is going yet.

But when it does turn, people are going to ask where the audience is, and we have to be able to move fast when it turns.

We also said that when advertisers are spending, they are spending with us, which is a good sign. Right now, we don’t hear we are losing deals to social sites, for example.

Of course, I can’t imagine advertisers are going to say we’re going to juice up spending soon, and so we’re assuming a lengthy period of weakness. I don’t think anyone is going to be immune, even though search performance ads are probably more able to withstand a downturn in spending. What was good for us was that our search and our performance display businesses were both up in the quarter.

BT: Any more details about the layoffs and other cuts?:

Yang: We want to do it before the holidays, which is why we wanted to let people know that it would affect 10 percent [of Yahoo’s work force]. But we also want to make sure that we are cutting to be more effective and not cutting for cutting’s sake.

We have been growing costs for the last few years while we were investing in new products and platforms, and we have also made a lot of acquisitions and additions. There have been redundancies and geo-consolidation that we had not addressed that we are doing now. I know that sounds generic, but doing this is really important.

I look at these cuts as both a short-term and long-term effort. In the short term, we have consolidation and organizational corrections to make. In the long term, we will look at our whole portfolio and are now asking ourselves in each case if we need to be in this business.

We’re asking ourselves–should we sell it or should we shut it down? That is the kind of comprehensive look we are doing across the company.