mgt527- case yahoo
TRANSCRIPT
Case Study of Reorganizing Yahoo
By
Group Gamma
Peter, Ali, Wiriyaphochai, and Lin
MGT.527.001─Strategic Management
November 1, 2010
TABLE OF CONTENTS
INTORDUCTION...............................................................................................................1
MISSION STATEMENT....................................................................................................2
VISION STATEMENT.......................................................................................................2
CURRENT SITUATION.....................................................................................................2
Objectives........................................................................................................................2
Competition.....................................................................................................................3
Challenges........................................................................................................................3
YAHOO’S STRATEGY......................................................................................................4
Growth Strategy...............................................................................................................4
The Reorganization Program to its problems..................................................................5
SWOT ANALYSIS.............................................................................................................8
CONCLUSION AND RECOMMENDED STRATEGIES...............................................12
ii
Introduction
Yahoo! began as a student hobby and evolved into a global brand that has
changed the way people communicate with each other, find and access information and
purchase things. The two co-founders of Yahoo! Jerry Yang and David Filo began
exploring the internet as a hobby during their doctoral programs in Stanford University,
California. And in April 1994, they created a directory to keep track of their personal
interests on the internet. Gradually, they began to spend the more time on their
directory. Later, Yank and Filo started categorizing web site as a way to keep track of
the entire site they had visited. They posted this list on the web as “Jerry and David’s
Guide to the Worldwide Web.
Yahoo was formally incorporated in March 1995 and in mid-1995, it had
implemented a business plan modeled in traditional business broadcast media
companies and in it Initial Public Offer in 1996, the company sold 2.6 million shares
raising $38.8 million. The company generated most of its revenue from online
advertisement, primary banner ads and ad placement fees, promotion, sponsorship,
direct marketing and merchandising. It also generated revenue from monthly hosing
fees and commission on online sales from it merchant partners. These included
transaction fees generated from the sale of merchandise from the site.
The company reported more than growth in revenue within four years from
1997 to 2000, 85% of it revenue came from sales of banner and sponsorship advertising
while the rest came from business service and e-commerce transactions. By mid-2000,
Yahoo was drawing more than 180 million unique visitors which made the company the
leading internet brand.
1
Yahoo faced some challenges in the late-2000 which range from internal
problems and the fact that the company is not changing with the environment with the
sole dependent on revenue from a major source (dotcoms). This made the revenue of
the company to drop as dotcom was going out of business, the layoff of workers and
loss of key personnel were other challenges the company faced.
In order to get back on top, Yahoo went into some partnership and acquired
some other related business unit which improved it performance in terms of revenue
generation. The company had into restructuring it hopes the situation will improve
further.
Mission Statement
“To power and delight our community of united users, advertisers, and
publishers- by creating indispensable experiences that fueled by trust.”
Vision Statement
“To be the most essential global Internet service for consumers and businesses.”
Current Situation
Objective: Yahoo is operating in a very competitive and technical market, there
is need to re-align the organization to be more focused on some key important services
that are in vogue with the recent trends of online advertisement. The objective of Yahoo
is to ensure that it focus and integrated the several line of services it offers and make
sure that it get back on top of it major competitors by capturing future opportunities in
the market. In addition, Yahoo needs to specialize in a particular area to its target
2
markets.
Competition: The Company was facing competition from the search-related
advertising companies such as Overture Company, Inktomi Company which was later
acquired by Yahoo to assist the company dominating the market. In addition, Yahoo
encountered competition not only from existing rivals but also from new ones. For
example, Yahoo was said to be competing with established players like CNN in news,
ESPN in sports Microsoft in e-mail, AOL in instant messaging, MySpace and Facebook
in social networking, and Google in search. Thus, many competitors compete to be
number one in each particular area. On other hand, Yahoo was still on its position
losing more customers. At that time the market of online advertising was growing
rapidly which allow the advertiser to choose between alternatives channel to reach their
audience.
Google: Google is the major rival of yahoo. It is now dominating the search
engine web pages and became the leading search engine in a short period of time. It
also known for Simple home page makes it easy to users. The company came out with
the great idea of payment for adverting by clicks. Google was gaining double revenue
than Yahoo did, nonetheless, the average monthly number of visitors were less than
Yahoo.
Challenges: Yahoo was intended to use a new ranking model named “Panama”
which may assist the company redeems customers who had left them to the popular
search engine Google. This model rank the advertisements based on bid on search
keywords and the number of clicks, however; Yahoo delayed the implementation of this
new mode more than two quarter, which lead it stocks lose several dollars.
In addition, the challenge that Yahoo was not focusing on a specific segment,
3
instead it served different customers segments. This is due to the fact that the company
acquired some companies and, therefore, it failed to face its major competitor Google.
Google was gaining great revenue compared to Yahoo special search-related
advertising.
Other challenge is that Yahoo Company encountered an internally problem
which is a complexity in organization structure. The company was using top-down
method which did not encourage creativity and reduce cooperation among
employee .This complexity in structure leads directly to slow decision-making process
among an organization. Therefore, Yahoo believes that the new panama Model and
trends, along with reorganization, will increase the chance that Yahoo regains its
popularity.
One of Yahoo problem was mainly about being a one-stop portal. This position
enables Yahoo to offer various services on its website and brought cluttered as well.
Thus, Yahoo web page contains many links to external host compared to Google
simplicity web page. Besides that, Yahoo ambiguity about its identity is another
problem, whether it is portal, media organization, or search engine. The monthly
visitor’s average is other problem that faced Yahoo in 2006. Because the average
visitors was 500 million compared to Google 380 Million. However, Google generated
more revenue than Yahoo. Furthermore, the company acquisition strategy failed to
integrate those acquired companies. The reason for that may be that the company was
negotiating slowly with other companies which allow other rival to acquire them
instead.
Yahoo’s Strategies
Growth Strategy
4
Yahoo was putting right people in the right places to execute it focused growth
strategy. For this growth strategy, Yahoo had has an extraordinarily skilled and
experienced group of senior executives and was adding outside senior talent to that
strong team.
Concentration: Before Yahoo tried diversification, Yahoo used horizontal
growth strategy externally through strategic alliances with Google to gain competitive
advantage within its industry. Yahoo entered into a licensing agreement with Google to
use its search engine technology.
Diversification: In order to compete against their rivals, Yahoo followed a
diversification strategy by expanding its services, diversifying into different industries.
Yahoo employed concentric (related) diversification strategy to entering the more
related industries, such as an online careers site and a paid search services.
Furthermore, Yahoo employed the strategies of acquisitions to enter into several
partnership deals since 2002.
The Reorganization Program to its problems
The reorganization program included the reorganization of Yahoo and major
changes in it executive team. In addition, it showed that Yahoo had put people at the
center of their strategy. Yahoo was changing its focus to eliminate redundancies and
increase accountability and decision making and emerge as a customer-focused
organization.
Corporate Structure: Yahoo was reorganized around three groups as follows.
The first and second groups focus on the customers. The third group aimed at
strengthening the technology function in the company. The heads of the three groups
5
reported directly to Semel.
The Audience Group aimed to bring coherence to the wide array of services it
provided. Also, it was expected to transform Yahoo into a social media provider and
help it bring in the content that was relevant to the audience. The Advertising &
Publisher Group was organized around three functions, which were demand channels,
supply channels, and marketing products. The group was created to serve the customer
in major customer segments such as large advertisers, large adverting agencies and
businesses of small and medium size, resellers, and publishers. Finally, the Technology
Group aimed at achieving integration within produce development teams.
Product Development Strategy: According to Yahoo, the focus of Audience
Group was to enhance its existing products in search, media, communities and
communications. For example, the most important new product was Panama, which
was Yahoo’s new algorithm and ranking model. The product would rank the
advertisements based on the highest bid on search keywords by the advertiser and the
number of clicks. In addition, Yahoo launched video content in its news services. Also,
Yahoo entered into an agreement with a consortium of nine companies, representing
more than 170 newspapers in the U.S. to acquire a wide reach. Furthermore, Yahoo
released a mobile social networking service called Mixed with which customers could
coordinate outings and meetings with friends using text messages and photo messages.
The activities were simultaneously posted on the Web page.
The Advertising & Publisher Group concentrated on developing Yahoo’s
advertising content, building a large audience in association with Yahoo partner
publishers, and creating a global advertising network on and off Yahoo sites. Finally,
the Technology Group made efforts for integrated product development. It was
6
expected that users could access all the services provided by Yahoo products with a
single Yahoo e-mail account. Yahoo wanted to channel its investment toward global
platforms with high impact and scalability via the Technology Group. Leveraging on
the investments in the communities to create technology and advertising platforms,
Yahoo aimed at expanding the advertising network and remaining focused on product
development.
Market Development Strategy: The Audience Group focused on creating user
experiences and generating value for the advertisers. In addition, the group wants to
build social media environment across Yahoo. Moreover, it looks forward to opening
more opportunities for users to take advantage of Yahoo’s tools and services off
network and through mobile and digital devices. Furthermore, the group pursues
growth opportunities in emerging international markets. The Advertising & Publisher
Group was to transform the way in which the advertisers connected with their target
audience and provide them with more value. In addition, it aimed to build a global
advertising network.
Regarding market segmentation, the company planned to align its operations
with the key customer segments of audiences, advertisers, and publishers and capture
the emerging growth opportunities especially in the Internet, and become more
customer-focused with the support of technology.
Competitive Strategies: According to Porter’s competitive strategies, Yahoo’s
competitive strategy was differentiation focus concentrating on a particular customer
segments. Through reorganization program, Yahoo changed it strategy to use
differentiation focus and seeks differentiation of Yahoo services in its targeted market
segments which were audiences, advertisers, and publishers. As a result, Yahoo adopted
7
the “Brand Universe” strategy. It planned to develop sites dedicated to high-profile
entertainment brands, including television shows, video games, and movies.
The new mission: Yahoo’s reorganization program also brought a new mission
statement: “to connect people to their passions, their communities, and the world’s
knowledge.”
Objectives: Through the reorganization, Yahoo aims to adjust itself to changing
markets. Also, the reorganization aimed at making Yahoo leaner, more nimble, and
responsive to customers. Key objectives of reorganization were as follow.
1. Expand customer-centric culture and capabilities.
2. Create leading social media environments.
3. Lead in next-generation advertising platforms.
4. Drive organizational effectiveness and scale.
SWOT Analysis
Yahoo!’s SWOT analysis spans all the entire organization, its marketing plans,
and future engagements.
Yahoo!’s Strengths
1. New search algorithm
When Yahoo finally switches on the new search-advertising software code-
named Project Panama, users of its search engine will hardly notice a difference. Users
will see the text ads adjacent to the main search results, which is just a little more
interesting, tempting them to click on those ads a little more often. Those clicks should
8
bring a lot more revenue for Yahoo. That is a big impact from new software with the
complex art and science of running a search engine.
2. New ad campaign
Yahoo’s newest promotion strategy focuses on a new advertising campaign
aimed at younger and hipper users. One of Yahoo!'s top challenges is to keep young,
fickle eyeballs glued to its site. By doing this, it will strengthen the social base of the
company and boost additional revenue growth for years to come.
3 . Increased revenue from global markets
Yahoo!’s globally diversified revenue growth illustrates another strength. The
company earns 30% of its revenue outside of the U.S markets and leads it competitors
in global revenue growth.
4. Global brand recognition
Yahoo!’s final strength is its globally recognized brand. From its entry to the
market, Yahoo! created a very successful brand image. The tagline, ‘Do you Yahoo?”
produced such a marketing buzz, it became a way of life not a question. Additionally all
of Yahoo!’s Global properties developed their own flavor of this tagline. That is a
significant strength.
Yahoo!’s weaknesses
1. Reliance on U.S. for revenue
Most of Yahoo!’s revenue came from advertising. They could not generate
much the revenue from marketing services.
2. Click fraud
9
What’s weakening Yahoo! even more is the ensuing battle with click fraud.
Click fraud represents a tremendous weakness to Yahoo! and its future financial growth
potential. This will cause the business who suffers by these click fraud select their
advertiser that protects their investments and sue those that do not.
Yahoo! Opportunities
Yahoo! has been investing in its future since the 2001 when the “dot com”
bubble burst.
1. Partnerships
Yahoo! has been partner-shipped with several big companies such as Hewlett-
Packard Co (HP). This might attract more consumers in Asia Pacific, Europe, North
America and South America. The number of new customers will grow and increase
Yahoo!’s global foothold and financial status.
2. Online video chatting
As social portals loose their luster, video portals have started to become one of
the new gems of the Internet. Yahoo!’s purchase of JumpCut in September 2006 should
leverage the company for the advancement.
Yahoo! Threats
1. A hinted acquisition by Microsoft
There have been a number of rumors floating around that Microsoft might
attempt to acquire Yahoo! One of Microsoft's major reasons for a possible acquisition is
that MSN lags behind both Yahoo! and Google in search.
10
2. Legal threats
The probable lawsuits from a number of Yahoo! properties can erode future
earnings and the company’s image. The 2006 acquisition of WebJay, a music-sharing
site, pending click fraud lawsuits, video copyright infringements from its video site,
and conflict of interest lawsuits in global markets all pose a significant threat to the
company and future growth potential.
Table 1
SWOT Analysis
STRENGTHS WEAKNESSES
1. Yahoo!’s new search logarithm
2. Yahoo!’s new ad campaign
3. Increased revenue from global markets
4. Global and strong brand recognition
5. Yahoo! Inc. has beaten Google in the
mobile market
6. Yahoo! Inc. has many more auxiliary
products compared to the competitors.
1. Reliance on U.S. for revenue
2. Click fraud
3. Yahoo! is ranked 5th in visitors among
video sites, while YouTube. Which is
owned by Google is ranked 1st.
4. Google search results generate twice
as much revenue as Yahoo!.
5. Advertising revenue is failing due to
Google and other competitors in the
market.
OPPORTUNITIES THREATS
1. Partnerships with several big
companies.
2. Online video editing and the Yahoo!’s
purchase of JumpCut.
1. A prospective acquisition by
Microsoft
2. Legal threats
3. Consumer attitudes towards online
advertising may become more
11
3. Yahoo!’s purchase of Flickr. negative.
4. Increasing strength of competitors.
5. Social websites such as MySpace and
FaceBook are now breaking into the
online advertising market.
Conclusion and Recommended Strategies
According to the analysis of Yahoo, Yahoo may focus on some key points as
follows.
1. Globalization: Yet with all strengths and opportunities, Yahoo! must remain
conscious of significant weaknesses and threats it faces in the current environment and
the future environment. Although many equate Yahoo! with only search, Yahoo! should
position themselves as a global, strong, surviving Internet information services
company and global advertising agency.
2. Customers Focus Strategy: Customer segmentation is absolutely essential for
many businesses to success around the world. After all, customers are the bread and
butter of any business. Yahoo! should design their marketing plan to focus on the
search, information services, and advertising, and also address the growing concern it
faces from its competitors. Also, Yahoo! should take another look and care of its
customers to the completest. Their satisfaction promises returns. For Yahoo Company
to capture the growth of the internet, it should become more customer-focused.
3. Merger and acquisition: Merger or acquisition could be an opportunity to the
12
company, possibly with one of the company’s competitors; the company must exercise
extreme caution and speed up negotiation. In addition, an extensive internal and
external assessment must be carried out at both companies. The results must be
carefully analyzed and only then the appropriate action taken. Any merger or
acquisition must be profitable and provide advantages for the company in the short and
long run.
4. Competition: Usually competition is a threat for the company but instead company
should look at it as opportunity. Competition should be used for Yahoo! as a strategic
opportunity to develop, expand, advance, and mature in this competitive market by
using modern technology. And Yahoo! should diversify its sources of revenue and
break away from the dominance of advertising. Competition always works as a motive
for the business, community, and society as a whole, as it help businesses to seek
continuous improvement in products, and services.
5. Strategic Organizational Structure: The Company’s structure should depend on
the company’s business strategy. The structure should not depend upon geography,
products or customers. It should depend upon what is best for the organization.
Furthermore, Yahoo! should implement "Open Door Policy" to allow an open line
between groups and top management instead of top-down approach which slow the
process of decision making. The structure of Yahoo! is divided into three groups:
audience group, advertising and publisher group, and technology group. This strategic
functional organizational structure provides Yahoo with a competitive advantage over
13
centralized organizational structures in the same industry.
Table 2
TOWS Matrix
Internal Factors Strengths (S)
1. New search algorithm
2. New Ad campaign
3. Increased revenue from global
markets
4. Global brand recognition
5. Yahoo! Inc. has beaten Google
in the mobile market
6. Yahoo! Inc. has many more
auxiliary products compared to the
competitors
Weakness (W)
1. Reliance on U.S for revenue
2. Click Fraud
3. Yahoo! is ranked 5th in visitors
among video sites.
4. Google search results generate
twice as much revenue as Yahoo!.
5. Advertising revenue is failing.
External Factors
Opportunities (O)
1. Partnerships
2. Online video
chatting
3. Possess Flickr
SO Strategies
1. Remodel the current video site
and encourage advertising on
the site by using the strong
brand strength and recognition
of Yahoo!
2. Use Flickr as a new means of
advertising for the partnerships
with VISA or NFL.
3. Use Yahoo!’s current expanded
market to target advertisers in
the foreign countries.
WO Strategies
1. Use internet video advertising
boom to strengthen Yahoo!
Video sites.
2. Use Flickr as a tool to
developing a better video site.
3. Increase Flickr’s capabilities in
order to reverse the decline in
image search on Yahoo!
4. Merge W1 with O1 to create new
market opportunities.
14
4. Use S1,S2,S3,S4 to develop
partnership and online gaming.
(O1&O2)
5. Develop partnership with
security software corporations to
combat this menace. (W2 vs. O1)
Threats (T)
1. Prospective
acquisition by
Microsoft
2. Legal threats
3. Consumer
attitudes
4. Increasing
competitors
5. Social websites
are breaking into the
online advertising
market.
ST Strategies
1. Use Yahoo!’s brand recognition
and its partnerships with NFL to
promote searches on Yahoo!
2. Use Yahoo! Brand recognition
to build a social website through
Yahoo! Inc.
3. Use S1, S2 to remain profitable
in order to avoid acquisition
tendencies.
4. Avoid violating set rules and
laws to prevent legal litigations.
WT Strategies
1. Increase advertising for Yahoo!
search engine to increase users.
2. Establish good working
partnership with other players in
the industry to avoid harsh
competitions.
After developing the SWOT matrix, it seems to be in the company’s best
interest to pursue a strategy that focuses on increasing their advertising revenues.
Yahoo!’s most predominant strength is their brand recognition. In developing a strategy
for Yahoo!, the company should use their strong brand recognition to entice more
advertisers for their site. They also must concentrate their efforts on upgrading and
advancing their target advertising capabilities.
15