Yahoo Inc. (Nasdaq: YHOO)'s new CEO, Carol Bartz, headed her first earning's call earlier this week, put in the unfortunate position of reporting a net loss of $303.4 million, or 22 cents a share, for the fourth quarter, during which time Jerry Yang was still at the helm.

During the call Bartz told listeners that she did not take the position as Yahoo's head with preconceived notions of selling or breaking up the company. Nor did she say explicitly whether she was considering a search deal with Microsoft Corp. (Nasdaq: MSFT).

Immediate speculation when Bartz was placed at the helm was that she'd get the proverbial ball rolling with Microsoft again on a search deal -- often deemed by the populace a saving grace for both companies. But one former Yahoo employee believes it's more likely Bartz was brought in as a much-needed technology expert.

"My immediate thought is Yahoo really needs a tech person," says Hongche Liu, former architect at Yahoo. "I think Yahoo had been lacking a tech person, and I believe hiring a tech person is the right thing."

Liu, currently the chief information architect at Spock, left Yahoo after six years, in 2005, as Yahoo began to witness hard times, due in part to Google (Nasdaq: GOOG)'s rise. Liu laments Yahoo's unwillingness to take the necessary steps to compete with Google as the reason it fell behind technology-wise.

"A company's mistakes can only be manifested from competition," says Liu. "I was in the optimization field. I know there were a lot of things that could be done, and the company -- you could say management or you could say culture -- was just not quick enough to respond to the need of changing paradigms and market conditions and competition.

"In order for this kind of company to succeed you need three elements: traffic, market, and technology. Yahoo has good traffic. After buying Overture, Yahoo has a good market... What Yahoo lacked and where it fell behind Google was technology."

But technology is just one of Yahoo's problems, says Liu, who believes the chief problem is that Yahoo has yet to figure out what sort of company it should be.

"Its first problem is identity. Its second problem is, anywhere they focus they're falling behind in terms of technology," says Liu. "They're in Silicon Valley and all these startups are eating their lunch. They just keep buying. They just forgot about innovation. They just keep buying small companies. Maybe that's the strategy, but they probably didn't buy good enough companies."

From here, says Liu, Bartz needs to first help define Yahoo as either a search company or a media company, something she recognized during her first meeting with employees.

But while employees (or, "yahoos," in Yang Slang) seem to like Bartz, says Liu, the mood at Yahoo has been less than elevated.

"The feeling is not great. Some of them, most of them actually, feel they have a lot of ideas, a lot of energies, but the organization is dragging them." For those employees who aren't laid off, he says, a retention bonus in the form of a stock grant is offered, which is keeping some from walking.

"When my friends say 'I prefer to wait until I get my retention bonus,' usually it's a bad sign," says Liu. "You want to stay for the passion for the work, for the people around you. When I hear the reason 'I prefer to stay another six months to collect my retention bonus' I know something is wrong."

— Nicole Ferraro, Site Editor, Internet Evolution