The time had come for Terry Semel to step down as Yahoo's CEO. Despite being given enough time to fix its advertising engine-- the key to Yahoo's success-, Semel couldn't make it competitive with Google and profits and growth suffered as a result.

But, that doesn't mean Yahoo isn't in much better shape than it was when Semel arrived. The former Hollywood executive was responsible for recognizing the opportunity that search held for Yahoo and oversaw smart deals for HotJobs, Inktomi and Overture. If you can remember back to April 2001, the company was drifting. Tim Koogle, who got the company off to a great start was unable to take the company to the next level. Similarly, Semel couldn't build upon his early success and adapt the Inktomi and Overture technologies to challenge Google's algorithmic search and AdWords technology.

Yahoo seems to think its future lies in social media. Maybe, it's right. But, I remain convinced that the future success of the company depends on its ability to produce an advertising platform that is competitive with Google's. For all the benefits of the social web, the spoils now go to the company that can best monetize all of that activity and that remains Google. For example, on Yahoo Search Marketing (the renamed Overture unit), users still can't black list sites that they don't want their advertisements to appear on. I don't know if this is a strategic decision or a technological limitation at Yahoo, but it repels users who want complete control over their ad spend.

I'm skeptical that Yahoo can figure this out by itself. I'm more skeptical that a combination with Microsoft or eBay will be a panacea. Microsoft's advertising platform is even worse than Yahoo's and eBay has shown no ability to distribute its auction listings across the web. Yahoo's Web 2.0 acquisitions are useful but nothing more than an educational sideshow.

In the end, Semel's pay package will be forgotten. The failed Panama project won't be. But, his smart deals --from Overture to Right Media-- that returned the Internet pioneer to its position as one of the profitable leaders on the web will be his lasting legacy.

For more on Yahoo's CEO switch, see:
Dealscape
New York Times

Tags: yahoo, yhoo, google, goog, msft, ebay.