Yahoo said Jerry Yang will step down as chief executive as soon as the board finds a replacement, while some investors hope his departure will clear the way for a deal with Microsoft.
Yang will return to his former role as Chief Yahoo, focusing on strategy and technology, Yahoo announced.
Yang tried to carve an independent strategy for Yahoo and was blamed when Microsoft walked away from an offer to buy the company earlier this year.
Google also abandoned a search advertising partnership amid regulatory concerns, and Yang faced a growing chorus of criticism from investors and analysts as Yahoo's shares nosedived.
"Over the past year and a half, despite extraordinary challenges and distractions, Jerry Yang has led the repositioning of Yahoo! on an open platform model as well as the improved alignment of costs and revenues," said Roy Bostock. "Jerry and the Board have had an ongoing dialogue about succession timing, and we all agree that now is the right time to make the transition to a new CEO who can take the company to the next level. We are deeply grateful to Jerry for his many contributions as CEO over the past 18 months, and we are pleased that he plans to stay actively involved at Yahoo! as a key executive and member of the Board."
Yang, a co-founder of Yahoo, took on the CEO role in June 2007, hoping to strengthen its position as an online consumer brand.
"From founding this company to guiding its growth into a trusted global brand that is indispensible to millions of people, I have always sought to do what is best for our franchise," said Jerry Yang. "When the Board asked me to become CEO and lead the transformation of the Company, I did so because it was important to re-envision the business for a different era to drive more effective growth. Having set Yahoo! on a new, more open path, the time is right for me to transition the CEO role and our global talent to a new leader. I will continue to focus on global strategy and to do everything I can to help Yahoo! realize its full potential and enhance its leading culture of technology and product excellence and innovation."
Yahoo Chairman Roy Bostock, working with the independent directors and in consultation with Jerry Yang, is leading the process of assessing potential candidates and determining finalists for consideration. The search will encompass both internal and external candidates, and the Board has retained Heidrick & Struggles, an international executive search firm, to assist in the process.