Yahoo Inc. Chief Executive Jerry Yang will step down after the company finds a replacement, closing a short, tumultuous tenure in which he tried to save the firm he co-founded only to see it lurch from disappointment to disappointment.

Yahoo Chairman Roy Bostock and Mr. Yang, who will stay on as a senior executive and board member, have been discussing the possibility the CEO might step aside for weeks, said people familiar with the matter. Yahoo directors hope to find Mr. Yang's successor by the first quarter of 2009, according to one person familiar with the matter.

His impending exit leaves much unresolved for the Internet company, which has been fighting a battle to remain independent for months. The move could pave the way for Yahoo to complete a deal with Microsoft Corp., which both had explored as a way to more effectively compete with Web-search giant Google Inc.

Microsoft had offered $31 a share for Yahoo on Jan. 31, which Yahoo's board rejected. On Monday, Yahoo shares closed at $10.63 a share, down 1.8% on the Nasdaq Stock Market. However, in after-hours trading, the shares jumped 4.4%.

Meanwhile, Mr. Yang's strategy of keeping Yahoo independent has faced a number of new roadblocks. Google abandoned a pending search deal with the company earlier this month amid regulatory concerns. And talks over a possible merger with Time Warner Inc.'s AOL -- which are ongoing -- failed to progress.

Mr. Yang has been taking a beating from investors for months as concerns from inside and outside the company that he wasn't the right person to make painful strategic choices continued to mount. Activist investor Carl Icahn said he would replace Mr. Yang as CEO if his proxy campaign succeeded. After Yahoo agreed to a truce with Mr. Icahn, allowing him to join the board, resentment lingered.

Mr. Yang received the support of only 66% of shareholder votes cast at the company's annual meeting. He stayed on, arguing that he was the best person to help Yahoo turn itself around. That became more difficult as the board was unwilling to abandon the notion that a deal with Microsoft could yet be struck, said people familiar with the matter. And while Mr. Yang is not opposed to a deal, and recently said publicly that he thought Microsoft should try to buy Yahoo, his relationship with Microsoft has been strained.

A person familiar with Microsoft Chief Executive Steve Ballmer's thinking said that Mr. Ballmer is still interested in buying Yahoo's search business, which could help the software company with the critical task of ratcheting up its market share against Google. But Mr. Ballmer is in no rush, this person said, and will likely wait until a new Yahoo chief executive is named before making any new entreaty.

The current economic turmoil might strengthen Microsoft's hand because Yahoo is dependent on advertising revenue, which has fallen. Microsoft has a broader range of businesses with which to weather rough economic waters.

Mr. Yang was one of the pioneers of the Web, founding Yahoo with his friend David Filo when both were graduate students at Stanford University. When the company went public in 1996, the mild-mannered Mr. Yang rode its success, becoming a Silicon Valley legend. When the Internet bubble burst earlier this decade, Yahoo endured with a home page and set of accessible features in mail, finance, chat and other services that hundreds of millions of people turn to each day. But he oversaw the Web giant from the sidelines as a key adviser to a series of seasoned managers. Then, in June 2007, he swooped in to take the helm amid fierce competition for online advertising.

News that the board had begun a search to replace Mr. Yang was previously reported Monday evening by AllThingsD, a Web site owned by Dow Jones & Co., publisher of The Wall Street Journal. Yahoo's board members have chosen executive-search firm Heidrick & Struggles International Inc. to find Mr. Yang's successor.

The board is likely to consider Susan Decker, Yahoo's president, said people familiar with the matter. Investor dissatisfaction with Ms. Decker and perception of her as part of the old guard means she's not likely to be Mr. Yang's replacement, according to one informed individual. Ms. Decker couldn't be reached for comment.

Microsoft's Mr. Ballmer has repeatedly said in public in recent weeks that his company has no interest in acquiring Yahoo and that the two aren't engaged in talks about a transaction. However, Mr. Ballmer did signal last month that a narrower deal between the companies, perhaps involving a Microsoft acquisition of Yahoo's search engine, could make sense.

People familiar with Microsoft's thinking have said support remains within the company for a Yahoo search deal, but that other factors, such as the souring economy and an expected change in the ranks of antitrust officials with the new presidential administration next year, could affect the timing of any Microsoft actions.

Mr. Yang's departure gives the two sides a chance for a fresh start. After Microsoft's initial bid, Mr. Yang responded a month later with a note to his shareholders that said the bid "substantially undervalues" the company. With that he left Microsoft to stew.

When those talks started in earnest weeks later, Mr. Yang told Mr. Ballmer that he wasn't authorized to cut a deal. In following weeks, Yahoo's board authorized Mr. Yang to sell the company, and in early May, he and his co-founder Mr. Filo met Mr. Ballmer in Seattle to discuss the details. Soon after Mr. Yang returned to California late that day, Mr. Ballmer called to say he was dropping Microsoft's offer. People familiar with the matter say Mr. Yang was stunned.

A Microsoft spokesman said the company had no comment on the change in Mr. Yang's role.

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Robert A. Guth, Nick Wingfield, and Matthew Karnitschnig contributed to this article.

Credit: By Jessica E. Vascellaro and Joann S. Lublin