Mgt527- Case Yahoo

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

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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.

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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

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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,

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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

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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

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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

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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

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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 codenamed 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

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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

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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 HewlettPackard 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.

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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

1. Reliance on U.S. for revenue

2. Yahoo!’s new ad campaign

2. Click fraud

3. Increased revenue from global markets

3. Yahoo! is ranked 5th in visitors among video sites, while YouTube. Which is

4. Global and strong brand recognition

owned by Google is ranked 1st.

5. Yahoo! Inc. has beaten Google in the

4. Google search results generate twice

mobile market

as much revenue as Yahoo!.

6. Yahoo! Inc. has many more auxiliary

5. Advertising revenue is failing due to

products compared to the competitors.

Google and other competitors in the market.

OPPORTUNITIES

THREATS

1. Partnerships with several big

1. A prospective acquisition by

companies.

Microsoft

2. Online video editing and the Yahoo!’s

2. Legal threats

purchase of JumpCut.

3. Consumer attitudes towards online

3. Yahoo!’s purchase of Flickr.

advertising may become more negative.

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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 company, possibly with one of the company’s competitors; the company must exercise

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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 centralized organizational structures in the same industry.

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Table 2 TOWS Matrix 　 External Factors

Internal Factors

　

Strengths (S)

Weakness (W)

1. New search algorithm

1. Reliance on U.S for revenue

2. New Ad campaign

2. Click Fraud

3. Increased revenue from global

3. Yahoo! is ranked 5th in visitors

markets

among video sites.

4. Global brand recognition

4. Google search results generate

5. Yahoo! Inc. has beaten Google in the mobile market

twice as much revenue as Yahoo!. 5. Advertising revenue is failing.

6. Yahoo! Inc. has many more auxiliary products compared to the competitors Opportunities (O) 1. Partnerships 2. Online video chatting 3. Possess Flickr

SO Strategies 1. Remodel the current video site

WO Strategies 1. Use internet video advertising

and encourage advertising on

boom to strengthen Yahoo! Video

the site by using the strong

sites.

brand strength and recognition of Yahoo!

2. Use Flickr as a tool to developing a better video site.

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. 4. Use S1,S2,S3,S4 to develop partnership and online gaming. 14

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. 5. Develop partnership with security software corporations to

(O1&O2)

Threats (T) 1. Prospective acquisition by Microsoft 2. Legal threats 3. Consumer attitudes

combat this menace. (W2 vs. O1)

ST Strategies

1. Use Yahoo!’s brand recognition 1. Increase advertising for Yahoo! and its partnerships with NFL to promote searches on Yahoo! 2. Use Yahoo! Brand recognition

2. Establish good working partnership with other players in the industry to avoid harsh

Yahoo! Inc.

competitions.

3. Use S1, S2 to remain profitable in order to avoid acquisition

competitors

tendencies.

are breaking into the

search engine to increase users.

to build a social website through

4. Increasing

5. Social websites

WT Strategies

4. Avoid violating set rules and laws to prevent legal litigations.

online advertising market. 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.

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