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BURLINGAME, Calif. -- Beleaguered Internet portal Yahoo! reported first-quarter earnings of $118 million, or 8 cents per share, a decrease of 78% from the year-ago period.

In an effort to cut costs further, the portal expects to lay off 600 to 700 people, 5% of global employees, in the next two weeks.

On a conference call with analysts, Yahoo! ( YHOO - news - people ) CEO Carol Bartz said the company would invest in businesses "that generate the majority of our traffic" and discontinue less-popular offerings, rather than simply making across-the-board staff cuts. Candidates for more investment include the Yahoo! home page and functions like e-mail and Web search, she said, as well as mobile-phone programming and specific Web-content areas like news, sports and entertainment.

Bartz said that "brand advertising is not going to go away," and Yahoo! wants to position itself to take advantage of the economic recovery when it eventually arrives. The recession has walloped most companies' ad budgets, which has hurt Yahoo!'s bottom line.

The company generated revenues of $1.58 million, a decrease of 13% from the first quarter of 2008. Without currency losses, revenue would have declined 8%. Marketing revenues declined to $872 million from $966 million, and were driven by a 3% decline in search-advertising revenue.

Revenues based on fees from online services, partnerships and music downloads decreased 20%. Net income per share was in line with Wall Street estimates, compared with 37 cents in the first quarter of 2008. Earnings in the year-ago quarter, however, were bolstered by a one-time, $401 million gain.

On the conference call, Bartz didn't shed light on whether she is actively pursuing a Web-search deal with Microsoft ( MSFT - news - people ), an alliance many analysts think would benefit both companies. She reiterated, however, that search is "absolutely critical to Yahoo! It's critical to our customers and partners."

Ten years from now Steve Jobs' iPhone will be just another obsolete gadget. Rob Bailey's vitamin vodka, however, will still refresh.

It never would have happened if Bailey hadn't left his business-development job at Yahoo! (nasdaq: YHOO - news - people ) in 2006 to pursue alcoholic immortality.

Two years later, Bailey has won awards from the San Francisco Wine and Spirits Festival and the Beverage Tasting Institute and signed deals that will put his Lotus vodka in outlets such as Safeway (nyse: SWY - news - people ) and Beverages and More. "Who would have thought," Bailey says. "I've scaled up from two people to eight and Citigroup has just laid off 55,000."

Or that Yahoo!, once king of the Web, would be cutting its workforce too. Insiders say the struggling Sunnyvale, Calif., Internet portal will layoff 1,500 employees Wednesday in an effort to become a leaner, more aggressive company that can compete with Google (nasdaq: GOOG - news - people ). Word is Yahoo!'s sales force will be chopped by roughly 30%. Even Yahoo!'s vaunted engineers will face cuts, with more than 5% losing their jobs.

All newly unemployed Yahoo's, however, will find plenty of support. "I'd like to tell them that this layoff probably has more to do with management mistakes," says Hongche Liu, chief information architect at people-search engine Spock and a Yahoo! veteran.

But while troubled Wall Street firms, car companies, and media companies may crank out products nobody wants, demand for the online services Yahoo! employees create remains high. Liu even urges Yahoo! workers to master the monetization skills that so often seemed to elude the company. "A downturn is the best time to latch onto the next big wave," Liu says.

Recruiters are already scouring Yahoo!'s ranks for engineers who are skilled at moving video around the Web, building big, stable Web services and making sites friendlier to search engines. Sales people who can drum up new business online while exploiting the contacts they developed at Yahoo! will also be highly sought after, recruiters say.