Yahoo layoffs would indicate company direction

Affected departments would hint at where CEO Scott Thompson hopes to take the struggling company

Rumored layoffs at Yahoo could offer a clue as to how the company's new CEO, Scott Thompson, plans to redirect the stumbling Internet giant.

Yahoo declined to confirm a report in the Wall Street Journal's All Things Digital blog that the company is preparing to lay off thousands of workers.

"As we have indicated, our leadership is engaged in a process that will generate significant strategic change at Yahoo, but final decisions have not yet been made at this point. Beyond that, we will not comment," Yahoo said in a statement.

According to the Journal, layoffs are especially likely in the products, research and marketing departments.

If Yahoo does let workers go, its plans for boosting revenue should become clearer. "Layoffs will indicate very strongly what Yahoo believes are its best ways forward for the future," said Rebecca Lieb, an analyst with Altimeter Group. "Once they occur, there will be tea leaves that can be read." Based on which departments and products are cut and which are left intact, watchers may be able to deduce where Yahoo hopes to boost its revenue in the future, she said.

Regardless of where the layoffs may happen, they would signal "the end of Yahoo as we know it," according to Gartner analyst Karsten Weide, a former Yahoo employee. Because Yahoo has not found a way to increase its revenue, the company has to improve its fiscal performance by cutting costs, he said.

"The two big costs for a new media company," Weide said, "are headcount and IT. Yahoo can't simply throw away its computers, but it can fire people. I think Yahoo will survive but in a very different form than we used to know it. It will be quite a bit smaller and quite a bit leaner." Weide also pointed to the recent departure of Prabhakar Raghakan, who headed Yahoo Labs and will reportedly join Google, to justify his pessimistic view.

Yahoo had 14,100 employees at the end of 2011, up about 4 percent from the previous year. Its net earnings fell by 5 percent during the same period.

Cameron Scott covers search, web services and privacy for The IDG News Service. Follow Cameron on Twitter at CScott_IDG.

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