Yahoo!'s (YHOO) Best Chance

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It is picking low-hanging fruit to say that Yahoo!’s (YHOO) new CEO, Carol Bartz, can’t fix the portal company. Yahoo!’s shares are down about 3% on the news of the selection. Bartz had a good reputation at the other firm she ran, Autodesk. But, Yahoo! is an Internet company and Bartz is not an Internet executive.

The fight over the future of Yahoo!, which has run from its struggle with a takeover offer from Microsoft (MSFT) to its falling earnings to its management changes, masks that great foundation the company still possesses.

Yahoo! remains the No.2 search company in the US with about 18% of the market. Google (GOOG), by most measures, is far ahead at 65%. Microsoft falls far behind at 10%. It is unlikely that Yahoo! will gain back market share on the PC but the wireless market has not been carved up. It may take years before it is clear who has the lead in search on handsets. It is also unclear which company will have the wireless lead in Europe, India, China, or Japan. Yahoo! still has a shot at a prominent position in the future of its core business beyond the personal computer.

Yahoo! is also one of the most important forces in online display advertising. There is a temptation to say that the display business is aging and it not as efficient at reaching consumers as search ads. But, display is still a relatively new way of helping marketers, barely a decade old. It still has a good chance of gaining on TV, radio, and print.

Yahoo! has some assets which it could sell to raise money. Alibaba, the Chinese-commerce company, and Yahoo! Japan could be worth in excess of $5 billion. Yahoo! may decide that it can buy businesses that do more to help its position as a portal and search company. It a poor economy even good assets will be cheap. Picking up strategic pieces will be easier with a vault full of cash.

Bartz knows all of this. She also knows that putting all of the piece together is a long shot. But, it is not impossible and strong management has fixed harder problems at other companies.

Douglas A. McIntyre