Yahoo! tries to fix its organizational problems through a radical reorganization.

We have known for some time that Yahoo! considers itself to be in big trouble, even if yahoo.com remains the most popular site on the web.

In a recent internal Yahoo! memo Brad Garlinghouse, a Yahoo senior vice president, argued that Yahoo! is spreading its resources too thinly, like peanut butter on a slice of bread:

“We lack a focused, cohesive vision for our company. We want to do everything and be everything — to everyone. (…) We are reactive instead of charting an unwavering course. We are separated into silos that far too frequently don’t talk to each other. And when we do talk, it isn’t to collaborate on a clearly focused strategy, but rather to argue and fight about ownership, strategies and tactics.”

Whoops, this does not sound good at all! However, Yahoo! has clearly determined it is better to be proactive and calm the nerves of investors by showing the world that they are doing something about these problems.

Reorganizing Yahoo!

On December 5 Yahoo! released a press release presenting a new organization. The press release is full of the usual meaningless corporate yada yada, but it does outline four key objectives:

1. “Expand customer-centric culture and capabilities” – well, this could mean anything, but the following sentence gives you a clue: “Yahoo! will organize its services around audience segments and advertising customers, rather than around products.” This may help them fight the silo tendencies and lack of internal collaboration mentioned above.

2. “Create leading social media environments” — Yahoo! is already much better than Google on community building, and unlike Google, Yahoo! has a strong focus on content production. The trick is to seduce visitors to use as many of Yahoo! services as possible. There’s nothing new here, but useful all the same.

3. “Lead in next-generation advertising platforms” — Yahoo! Search Marketing (previously known as Overture) is too beat Google in the advertising arena. A new pay-per-click ad system is rolled out right now, and Yahoo! has to succeed in this area to generate the revenue asked for by stock holders. Whether they will be able to get ahead of Google is another matter entirely. It should be noted, though, that Yahoo! is already a leader in the graphic “display advertising” arena.

4. “Drive organizational effectiveness and scale” – Running huge corporations like Yahoo! will always be a challenge. It is interesting to note that the press release focuses on one remedy — namely talent: “Yahoo! will recruit and retain the best industry talent…” This is a wise move, indeed. Without competent, creative and motivated people companies like Yahoo! will fail in the knowledge based economy. We guess that salaries will continue to rise in Silicon Valley.

The new structure

Under the new structure, Yahoo! will have three groups, with executives reporting directly to Terry Semel. These groups are:

• Audience Group (developing online services)
• Advertiser & Publisher Group (for advertising and marketing solutions)
• Technology Group (for engineering)

There are also a few changes in the management team. See the press release for more.