Update: Yahoo taps PayPal President Thompson as CEO

Scott Thompson will take over as Yahoo's new CEO on January 9, replacing Carol Bartz, who was fired in September

Yahoo's board has chosen as the company's CEO Scott Thompson, president of eBay's PayPal, ending a four-month search after Carol Bartz was fired in early September.

Tim Morse, Yahoo's interim CEO, will now go back full-time to his CFO role, the company said in a statement on Wednesday. Thompson starts on Jan. 9, at which time he will also take a seat on the company's board.

Under Thompson's leadership, PayPal has in recent years become a stellar business for eBay, driving much of the company's revenue growth, as the core eBay e-marketplace has hit a plateau. With Thompson at the helm, PayPal, eBay's e-payment unit, saw its annual revenue grow from $1.8 billion to more than $4 billion.

At Yahoo, Thompson will face a challenge that his three predecessors weren't able to solve: Getting Yahoo to recover its technology leadership in the consumer Internet services market and turning around the company's financial performance.

"I fundamentally believe that Yahoo's future depends on its ability to create great products and integrated, compelling customer experiences. How we do that will be a function of delivering both excellent technology and content, not one or the other," Thompson said during a conference call with media and analysts to discuss his appointment.

Thompson may have been echoing one of the criticisms of his predecessor -- that while she was focused on organizational efficiency and on site content, she didn't pay as much attention to technology. During her tenure, Yahoo was criticized for failing to deliver innovative products, instead often opting to belatedly latch on to hot trends established by others, such as Facebook, Twitter, Apple and Google.

Chief among his goals, Thompson said, is to "deliver Yahoo's next era of [financial] growth and return the company to a path of industry-leading innovation."

Yahoo's Board Chairman Roy Bostock said that Thompson proved at PayPal that he knows how to create "great" customer experiences, which is key for success in online advertising, Yahoo's core business.

Yahoo has in the past "treaded water," Bostock said, adding that what the company needs now is "to build on its very strong assets" and "start swimming at a very fast clip."

"Scott knows how to do that; he has done that," Bostock said.

When asked for his plans, Thompson repeatedly said that it's too early for him to provide specific details, but that he is confident that Yahoo has the talent, assets and brand to return to being "at the forefront of innovation," developing disruptive technology, and to jump-start its financial performance.

Industry analyst Greg Sterling from Sterling Market Intelligence said Thompson's appointment suggests a desire by the Yahoo board to renew the company's emphasis on technology and products, "which was lacking under previous CEO Carol Bartz."

At PayPal, Thompson led a business that focused mostly on one thing -- processing payments -- while at Yahoo he will be in charge of "a multi-headed animal" whose business is much more varied, Sterling said.

"Thompson has his work cut out for him and will be confronting internal and external challenges on numerous fronts. He'll need to make Yahoo a desirable place for people to work again; he'll have to make the Yahoo brand relevant again; and he'll have to find ways to grow ad revenue in an extremely competitive market," he said via email.

Altimeter Group analyst Rebecca Lieb also foresees a challenge for Thompson in moving from a one-trick pony to a company that in her opinion has had a difficult time defining its brand and identity.

"Yahoo is a brand octopus. It's long been struggling with its identity as a portal, search engine -- but no longer --, email provider, owner of Flickr. There's no real definition of the Yahoo brand. Thompson will be challenged to define it," she said via email.

Lieb also points out that while Thompson may be an expert on e-commerce, it remains to be seen if he can work his magic with online advertising.

"Yahoo has been foundering for a long time, both as a brand and a business. Thompson has a successful track record in tech, but not in media. Yahoo's top spot is a formidable challenge to any CEO, and the fact the job has been filled does not entirely rule out speculation the company may eventually be sold or at least significantly shed divisions and products," Lieb said.

Bartz took over as CEO in early 2009 from Yahoo Co-Founder Jerry Yang, who in turn had replaced Terry Semel in mid-2007.

After Bartz's firing, multiple rumors have emerged regarding the company's future, including the possibility that the board would sell it whole or in parts to reported suitors like AOL, Microsoft or Google, or that investors led by Yang could buy it and turn it into a privately held company.

For example, it was reported in recent weeks by various media outlets that Yahoo's board is actively seeking to divest the company of its businesses in Japan and China.

Bostock said that whatever the board ends up deciding, Thompson will be fully involved in the analysis process, and that he doesn't envision this being a distraction for the new CEO, because there is a team of people in charge of reviewing Yahoo's alternatives in this area.

Thompson joined PayPal in early 2005 and was its CTO, before becoming its president in January 2008. Prior to working at PayPal, Thompson was executive vice president of technology solutions at Innovant, a Visa subsidiary, and CIO at Barclays Global Investors.

His departure is clearly a major loss for eBay. In a statement, eBay said that its CEO John Donahoe will step in as PayPal's interim president. Donahoe called Thompson's decision "a shock" but said he is confident that it will not negatively impact PayPal's future.

A lot of what Thompson said during the conference call echoed what his predecessor Bartz said during her first conference call after being named CEO in January 2009 -- that Yahoo has tremendous untapped potential, a strong brand, a massive user base, a solid advertising customer roster.

Like Thompson, Bartz arrived with a gleaming resume, having served successfully in executive positions at Digital, Sun and Autodesk, where she was the CEO from 1992 to 2006.

Bartz oversaw a significant corporate realignment intended to make the company more agile. She spearheaded a big technology upgrade to revamp Yahoo's advertising and publishing systems. She also led a streamlining of the company's products and services.

Unfortunately, 2011 wasn't a good year for her or the company. Yahoo's stock and overall financial picture failed to improve in any significant way. The company continued to be perceived as a follower of technology trends, not as an innovator.

Specifically, the search engine partnership that she brokered with Microsoft hasn't yielded the expected financial benefits, and the company's relationship with its Chinese partner Alibaba Group deteriorated further.

What sealed her fate was probably the alarming news that Yahoo's U.S. display advertising business, historically a core strength, had stumbled in the second quarter due to a reorganization that generated higher-than-expected employee turnover.

Juan Carlos Perez covers search, social media, online advertising, e-commerce, web application development, enterprise cloud collaboration suites and general technology breaking news for The IDG News Service. Follow Juan on Twitter at @JuanCPerezIDG.

Copyright © 2012 IDG Communications, Inc.

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