Yahoo’s New CEO Preps Major Restructuring, Including Significant Layoffs

According to multiple sources both inside and outside the Silicon Valley Internet giant, Yahoo’s CEO Scott Thompson is preparing a massive restructuring of the company, including layoffs that are likely to number in the thousands.

Much of the change — which could be announced as soon as the end of this month — is being aimed at Yahoo’s large products organization, as well as other arenas in which the company has lagged.

Also among those being considered for targeting: Public relations and marketing, research, marginal businesses and weaker regional efforts.

After interviewing a number of outside firms, Thompson has recently hired Boston Consulting Group to help focus the company on “growth” initiatives and to help determine the best path for Yahoo going forward.

But much of the push for quick change, sources said, is being led by Thompson, who has aggressively taken up the reins of power at the company since he got the job in the beginning of the year.

His first — and very controversial — act has been to threaten patent litigation against Facebook. The move was widely decried in Silicon Valley and also has been unpopular with some of Yahoo’s own engineers, who think intellectual property should be used defensively and not offensively.

Thompson also played a role in reevaluating how Yahoo should approach the sale of its Asian assets back to partners there. The talks among Yahoo, China’s Alibaba Group and Japan’s SoftBank over that stake are now paused, although they certainly could reengage at any time.

In Yahoo’s core business, Thompson appears to be looking widely across Yahoo in order to jumpstart what has largely been a failed turnaround for the company under previous leadership.

That is likely to include a much deeper and significant paring of its many businesses, while also seeking out new ones to move into.

“Some parts will be cut away, leaving resources to go to better efforts,” said one person close to the situation, who noted specific announcements could take longer than this month. “But this has to be a true change to get this company back on track.”

Such changes are likely to spur executive turnover. Already, as I reported yesterday, Yahoo Labs head Prabhavar Raghavan is leaving for Google, which sources said was spurred by the likelihood of major job cuts in his research unit.

And, indeed, the most dramatic move by Thompson will be to chop staff. While Yahoo has been subject to numerous layoffs over the years, none has been as large as what is now being contemplated to slash costs.

Yahoo’s employee base numbered 14,100 employees at the end of its last quarterly report, up over four percent from the previous year. But, sources said, the company also has a large contingent of software contractors who work on product and whose cost is masked in its capital expenditures.

“It is going to be deep,” said one manager who has not yet been given specific numbers to cut, but that it appears as if each unit will be required to show either substantive savings or a clear path to great growth in revenue.

Such moves by Thompson are likely to hearten Wall Street, boost its stock and perhaps temporarily assuage its noisy activist shareholder Daniel Loeb.

Loeb has been pushing for change on Yahoo’s board, which will be taking place now that five members of it — including co-founder Jerry Yang — will be changing out. He has put his own slate up, which includes former NBC exec Jeff Zucker.

Yahoo has also added new board members and has been trying to attract more, even as it engages with Loeb over his choices.

A settlement with Loeb — with whom Thompson has been talking with recently — would take the pressure off Yahoo going forward.

While it has disengaged formally with private equity players it was discussing investment with, for example, there might be other scenarios for a leaner and meaner Yahoo, especially given its huge audience.

Thompson certainly signaled big change in his first conference call with Wall Street analysts, although he declined to provide specifics.

“We will do more than protect our current revenue streams,” he said. “We will consider new business models and revenue sources.”

In an emailed statement to me, a Yahoo spokesman underscored that point without being specific (or even slightly riveting, Eric!):

“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.”

In other words, get ready for some big shoes to start dropping and very soon.