Yahoo betrays grand ambitions with real estate plans

Yahoo Inc. has been slashing costs and narrowing its focus recently, as it retrenches from a bruising Internet search rivalry with Google Inc. and grapples with the sluggish online advertising market.

But the Sunnyvale, Calif.-based Internet pioneer is betraying considerable expectations for future growth with its proposal to build a massive, new campus in nearby Santa Clara. The sprawling set of 13 buildings on 3 million square feet of space would rank among the largest corporate headquarters in Silicon Valley.

The Yahoo campus would also compare in size to headquarters at Google, which now has roughly 7,000 more employees worldwide. In addition, it could easily accommodate twice the number of employees as Yahoo’s current Sunnyvale headquarters, built during the Internet bubble roughly a decade ago.

Santa Clara City Planner Carol Anne Painter said the city’s planning division is reviewing a draft environmental impact report for the Yahoo project, which should soon be made available to the public. The Santa Clara City Council could theoretically approve the development by next spring, Painter said.

According to images presented to the city council earlier this year, Yahoo’s proposed campus is made up of sleek, six-story buildings set amid landscaped grounds and expansive plazas. It bears a resemblance to Google’s Mountain View headquarters, dubbed the “Googleplex,” which is situated less than 10 miles to the northwest.

Google has roughly 3 million square feet of office space in the San Francisco Bay Area, with the majority at its headquarters, according to a spokesman. The company, which employs nearly 20,000 people worldwide, said last year that it plans to add about 1 million square feet on the grounds of NASA’s Ames Research Center.

While Google has largely managed to weather the recession, Yahoo’s business has flagged. In April, it announced plans to cut roughly 5 percent of its workforce, and revenue has been flat.

But the company aims to revive growth under Chief Executive Carol Bartz, as spending on online advertising recovers. “We have fallen, and we really want to get back up,” Bartz said during a meeting with analysts on Wednesday.

According to Santa Clara city officials, Yahoo’s proposed campus would include nearly 2.9 million square feet of office space, recreational facilities and below-ground parking.

A Yahoo spokeswoman said it is too early to discuss potential costs associated with the project, or “specific usage” of its Santa Clara properties. Yahoo acquired the properties ? which are currently home to deserted, single-story buildings beached on empty parking lots ? as part of a $112 million purchase in 2006.

Google’s growing domination of the Internet search market was starting to take a serious toll on Yahoo at that time, setting off alarm bells on Wall Street. And then, last year, Microsoft Corp. made a $44.6 billion acquisition offer, raising doubts about Yahoo’s future as an independent entity.

Following a torturous back-and-forth, Yahoo agreed in July to an Internet search and advertising tie-up with Microsoft, which will have both companies relying on Microsoft’s technology and splitting the resulting revenue. Yahoo and Microsoft together hold a roughly 30 percent share of U.S. search market, compared to Google’s 65 percent.

The planned partnership with Microsoft, which has been steadily gaining favor among Wall Street analysts thanks to potential cost savings for Yahoo, is currently being reviewed by antitrust regulators.

While its recovery remains uncertain, Yahoo’s proposed corporate campus has nonetheless stirred some excitement among city officials and property brokers.

Among current, prospective Silicon Valley building projects, the Yahoo campus “has got to be the biggest one cooking,” said Jim Beeger, a commercial real estate broker with Colliers International in San Jose.

Beeger said he wasn’t necessarily surprised to hear that Yahoo, a company known lately for cutting back, was pondering an ambitious new development. “The Valley is so cyclical, just because someone’s down once doesn’t mean they’re down forever,” he said.

As a general rule of thumb, Beeger said, companies strive for a ratio of one employee per 250 square feet of office space.

Yahoo’s proposed Santa Clara campus, with 2.9 million square feet of office space, could therefore accommodate over 11,000 employees ? a large chunk of the company’s current worldwide total of approximately 13,200.

By way of comparison, Microsoft maintains roughly 32,000 employees at its 10 million-square-foot campus in Redmond, Wash. ? where it established its headquarters in 1986. Microsoft now has some 91,000 employees worldwide.

Yahoo said last week that it added 200 employees in the third quarter ended in September. While its revenue dropped in the period, Yahoo also managed to report a profit that topped Wall Street estimates, thanks to deep cost cuts.

The company maintains that following a period of cutting expenses and refocusing, it will benefit from growing sales of online display advertising, and from cost reductions related to the Microsoft pact. The companies say they hope to begin their search and advertising partnership early next year.

(c) 2009, Inc. Source: McClatchy-Tribune Information Services.