Bartz: Yahoo was too far behind in search

Carol Bartz has claimed that "Yahoo didn't invest enough in search" to compete with Google and Microsoft.

In an interview with The New York Times, Yahoo's chief executive tried to pacify investors angered by her decision to hive off Yahoo's search business to Microsoft without any upfront cash payment.

"My first reaction when I got here was that I wouldn't even do a search deal," Bartz revealed. "Until I looked at our expense structure and our actual options and looked at what our prime job was, which is to grow audience."

Bartz claimed the company had fallen so behind Google and Microsoft in its search technology, it would have been prohibitively expensive to catch up again. She also admitted the company was poised to lose "some of its most talented engineers to Microsoft" and potentially 400 employees through lay-offs.

Bartz also took the blame for investor reaction to the deal after her comments that Microsoft would require "boatloads of money" to take over its search business.

"I made a mistake. I was never interested in doing it for upfront money. That doesn't help me operate a business," she says.

Bartz's comments could still come back to haunt her. The deal has not yet received regulatory approval and if it falls through, her candidness could leave her in trouble with investors.