Yahoo is on the search for a new CEO after the company announced today Jerry Yang is stepping down as head of the company.

Yang, who co-founded Yahoo, will return to his former role as ‘Chief Yahoo’ once a successor is found, said the company in a statement.

Yang, 40, took on the CEO role in June 2007.

The company says the search will encompass both internal and external candidates.

He has been under intense pressure from shareholders in recent weeks for a string of perceived missteps that began in February with Microsoft's US$45 billion offer to buy Yahoo. Microsoft was offering US$33 per share for its Internet rival but Yang rejected that price as too low.

Eventually Microsoft withdrew its offer and Yang went on to talk with News Corp. about a venture with MySpace and with TimeWarner about a merger with AOL but they came to nothing. In June he struck an advertising deal with Google but that too fell apart in the face of opposition from the U.S. Department of Justice.

With Yahoo shares currently trading at less than $11 the Microsoft offer, with the benefit of hindsight, looks like a very attractive one thus the discontent from some shareholders.

Yang appears to recognize this and at an Internet conference in San Francisco two weeks ago made a thinly veiled initiation to Microsoft to come back to the negotiating table.

"To this day I would say that the best thing for Microsoft to do is to buy Yahoo," he said. And when quizzed on if he would stick to a higher price that he demanded back in May added, "Oh no. At the right price, whatever the price is."

But Microsoft CEO Steve Ballmer didn't bite and said a couple of days later, "We are not interested in going back and re-looking at an acquisition. I don't know why they would be either, frankly. They turned us down at $33 a share."

The move to appoint a new CEO is not surprising, said Greg Sterling, an analyst with Sterling Market Intelligence. “There had been public speculation about this for several months and as they went through several quarterly earnings calls and the condition of the company wasn’t improving, I think there was some sense that you needed new leadership,” he said.

While Sterling credits Yang with some good ideas for turning around the company, “there’s a way in which maybe his personality isn’t well suited for what the company needs, which is maybe a more forceful leader who can restore confidence,” he said.

While the drawn-out attempt by Microsoft to buy Yahoo probably in part led to the announcement about Yang stepping aside, other subsequent factors also likely played a role. “I think it’s not so much a Microsoft thing as it is the demise of the Google deal and a failure to find another alterative to the merger,” Sterling said.

It’s hard to say if a new leader at Yahoo will reignite a deal with Microsoft. The cynics view is that installing a new leader “saves face for everyone” and let’s someone new come in to make a deal with Microsoft, Sterling said.