The move is seen as vital to catch up with search engine and community website rivals, most notably and , and to halt a profit slump, with quarterly results released in October showing a 38% drop in profits to $155m (£78.6m), compared with a 70% profit rise for Google.
A key part of the overhaul is to radically streamline 's business into: an advertising and publishing division, which aims to replicate the success of Google in creating innovative opportunities for advertisers; a consumer division; and a third group concentrating on technology.
The advertiser and publishing division will be headed by Sue Decker, Yahoo!'s chief financial officer, but no appointment has yet been made for the top consumer role. It is understood that Yahoo! is to look outside the firm to recruit for this role and also for a new chief financial officer.
This transformation for Yahoo! is also set to lead to the axing of a number of senior management roles, with a month-long review set to get underway looking at positions, as well as the possibility of bringing in experience from outside.
Dan Rosenweig, the chief operating officer, departs the digital media company next year. Rosenweig is leaving the company of his own accord in a move unrelated to the restructure. Another senior figure Lloyd Braun, head of content for Yahoo! Media Group, has quit.
The overhaul follows an internal review, which has been codenamed "Project Souffle", and the leak of a memo last month, written by Brad Garlinghouse, senior vice-president, that called for the axing of around a fifth of the workforce and the introduction of a streamlined structure.
This was also given a food-based nickname, being dubbed "The Peanut Butter Manifesto", after Garlinghouse's assertion that the company is spread too thinly.
Terry Semel, Yahoo! chairman and chief executive officer who is overseeing the review, said: "We're moving aggressively to deliver the most possible value to our key customers, audiences, advertisers and publishers, and seize the major new opportunities we see ahead for the internet."
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