Back then, Yahoo was facing a key problem: It was losing users. The company had been focused on the desktop Web -- where its market share in search was shrinking. Today, it is still well behind its rivals. In October, comScore reported Yahoo had a 12.6. percent share of the desktop search market, placing it behind Google's 63.9 percent and Microsoft's 20.7 percent for Bing.
Meanwhile, even as Yahoo has struggled to stem the losses on desktop, consumers have started shifting the bulk of their searches to the mobile platform, where Google and Facebook are even more dominant. Mayer's initial strategy was to acquire several mobile-focused startups while striking deals to increase Yahoo's search footprint. She also built up the company's focus on producing its own content, hiring Katie Couric to anchor a news team. Yet while Mayer has managed to stabilize Yahoo's business - and even making some money off of mobile ads - she hasn't managed to kickstart another period of growth.
Investors have clearly been running out of patience, with some suggesting Yahoo consider a merger with AOL. Calls for change grew louder after another lackluster earnings report in October. Last month, investors from Starboard Value called on Yahoo to stop a planned spin-off of its high-value stake in Alibaba, the Chinese Internet firm, as part of an effort to avoid heavy taxes. The value of those Alibaba shares are estimated to be worth as much as $32 billion. Meanwhile, Yahoo's total market value is around $34 billion.
If you stay on the current path, we believe the potential penalty for being wrong is just too great, and the potential reward for being right is not materially better than the alternative.
In many ways, Yahoo's future depends on finding the best way to lower its tax bill as it considers what to do with such a valuable stake.
The tech giant would face capital gains taxes if it simply sold its shares in Alibaba. And while Yahoo has said it would like to spin off its 15 percent stake in the Chinese retailer into a new company, it is also unclear whether that would draw a hefty tax bill.
The Internal Revenue Service has not ruled on the issue, and Yahoo could be hit with a $9 billion tax bill, said Robert Willens, an independent tax consultant. "I think the spinoff would qualify for tax-free treatment, it meets all the requirements," he said.
But the risk of a multi-billion tax hit has some Yahoo shareholders asking the company to abandon its plans.
"If you stay on the current path, we believe the potential penalty for being wrong is just too great, and the potential reward for being right is not materially better than the alternative," Starboard Value, a New York-based investment firm, said in a November letter to the company.
The big question is whether anyone would actually show up with a meaningful bid.
Instead, Starboard says Yahoo should sell its core Internet search and advertising business. The remaining company would include the stake in Alibaba and Yahoo Japan, which is worth as much as $8.5 billion. The proposal would also not be as costly.
All of that leaves Mayer in a particularly difficult position, as she tries to live up to the hype that surrounded her hiring. According to a report from Recode's Kara Swisher, Mayer still has the support of the board, even if she's taken a beating in the press.
"She has not lost support of the board," one source with "knowledge of the situation" told Swisher.
In a note to investors Tuesday night, analyst Brian Wieser said that Yahoo's in a tough position, in the face of Google. "As it stands, Yahoo can remain a large player in search without external acquisitions, but anything other than #1 may be a weak position," he said. When advertisers, particularly smaller advertisers, look at how they should spend their budgets, he said, they're inevitably going to focus their money on where the most people are.
So is an acquisition in Yahoo's best interest?
"The big question is whether anyone would actually show up with a meaningful bid," Wieser wrote. "We can understand why a buyer looking to attach their existing assets to a large media property might look at Yahoo only reluctantly vs. alternative strategies. We can also imagine that there would be private equity buyers - or individuals with private equity backing and different ideas as to how to turn the business around (or different executional capabilities) - who would come up with realistic bids if strategic buyers did not."
Still, he said, Yahoo's core business, particularly its email service, still has a large-enough user base that can help it buy some time as it considers its next moves - whether that's a new strategy or an acquisition.
