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"Microsoft is no longer interested in buying the company, and we are talking about other things. We definitely have to understand what they're proposing...they clearly have an interest in Yahoo, and we need to understand more," Yang told delegates at the All Things Digital conference near San Diego.

"We did not walk away from that proposal. Microsoft did," Yang said before admitting a deal with Microsoft would have a "tremendous amount of power."

Last week, sources revealed Microsoft had proposed buying Yahoo's search business and taking a minority stake in the web company, but had stopped stopping short of reinitiating full merger negotiations.

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speaking at the conference, Microsoft chief executive Steve Ballmer repeated the line that "we are not rebidding for the company, [but] we reserve the right to do so."

Yang also argued that a competing deal between Yahoo and Google still made sense but that no deal had been reached. Last month, the companies conducted a two-week test in which Yahoo hired Google to run advertising sales alongside Yahoo search results.

"It makes a lot of sense, but if we do something, we will talk about it," Yang said, adding the "level at which Yahoo can fully partner with Google has not been fully appreciated by the marketplace."

Yang best person to lead Yahoo

In the wake of the breakdown of the Microsoft takeover talks, Yang defended his record as chief executive and said he believed he was the right person to lead Yahoo into a new era of growth, even if the company must invest heavily to do so.

Yang reiterated what the company has been saying over the past year: that it "has a lot of work to do" and needs to make investments to reach management's vision of a new Yahoo.

Its strategy involves tapping the underlying social connections of its roughly 500 million monthly visitors to become a "must buy" for advertisers.