Yahoo Case

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A. SUMMARY Mr. Carlo Bartz replaced Mr. Jerry Yang as Yahoo!'s new CEO. In the mean time Yahoo! and Microsoft resumed their discussions about a possible partnership regarding search and advertising because both the firms are struggling against Google. Yahoo has offices in more than 25 countries, provinces and territories. The revenues increased by 3.4% from 2007 to 2008 but the Net Income decreased by 35.7% to $424 million. Yet Yahoo! remains the most trafficked Internet destination and is the second leading global Internet brand. Yahoo!'s mission is to become the starting point for Internet users and to provide must-buy marketing solutions for the world's largest advertisers in the industry. Yahoo! eliminated 675 jobs or 5% of its workforce on top of 2,500 jobs cut in 2008 and for that quarter the revenues dropped 13% to 1.58 billion. Yahoo!'s online advertising business is also deteriorating which led to another 700 employees being laid off. Yahoo! has a further plan to close twenty video services including its social networking site Yahoo! 360 and Web hosting service GeoCities. A company like Yahoo! began as a student hobby and progressed into a global brand that changed the way communication used to occur. Both the founders of Yahoo! were students in the Stanford University when they started the company from a campus trailer. The name Yahoo! was an acronym for "Yet Another Hierarchical Officious Oracle". The company was incorporated in 1995 in Delaware and launched its IPO in April 1996. The company started off with 29 employees and its stock reached the height of $120 in the year 2000. Yahoo! has diversified segments that include Yahoo! Groups, Yahoo! Answers and Flickr. Revenues are primarily generated through display advertising and through its search offerings. The communications segment of Yahoo! includes Mail, Zimbra Mail and Yahoo! Messenger. Yahoo! has a very strict six values based code of ethics i.e. excellence, innovation, customer fixation, teamwork, community and fun. With such wide range of communication products, Yahoo! lost figures in quite some segments yet the revenues from search increased. Economic growth in the United States and around the world has been quite slow because of the crisis in housing and credit markets. Inflation has occurred and caused all the things like consumables, fuel and commodities have reached their highest and personal property like homes and other assets have fallen drastically. Still internet based businesses have managed to be better

2 than their counterparts in that time frame. Although in 2009 many interned based sites have reported very disappointing Financials even Google Inc. But with the time passing the internet based advertising revenues have continued to grow and the trend indicates more online usage. Yahoo! has reported a fifth consecutive year for record financial results. Yahoo! works in products, services and content markets that are characterized by very rapid changes and increasing competition. Microsoft and Google are the two biggest threats to Yahoo!'s smooth riding as Yahoo! only possessed 17% of the internet traffic. Although Microsoft could prove to be a friend or a foe with a possible negotiation for search engines that resulted in a rejection from Yahoo!. Google's pursuit of mobile internet opportunities has made it the main application provider for Apple Inc. From its first day of operation, Google has increased its operating profit. The industry looks quite lively with broadband prices falling and ISPs are pursuing business ideas such as combining internet access with voice and video services. The industry is with a low barrier to entry which makes it very difficult for existing companies to run smoothly. With changes occurring daily and with all the regulatory requirements of technology sharing, patent rights, information security and profitability the companies in the industry are hard to predict.

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B. STRENGTHS-WEAKNESSES-OPPORTUNITES-THREATS (SWOT) a) STRENGTHS  Offices in more than 25 countries, provinces & territories. 

3.4% increase in revenue from 07 to 08.



2nd positioned internet brand.



Most trafficked internet destination worldwide.



Yahoo is a global brand name.



Wide range of communication services to users.



Strong code of ethics.

b) WEAKNESSES 

A 35.7 % decrease in Net Income.



Massive employee layoffs.



Decreased share price up to $14.



Falling internet advertising revenue.

c) OPPORTUNITIES   

Possibility of a negotiation with Microsoft for a deal. Continuous growth in Internet Advertising. Decrease in Broadband prices leading to concrete opportunities towards expansion and VoIP services.

d) THREATS 

Unemployment and slow economic growth.



Deceleration in online spending.



Biggest competitor Google.



Rapidly changing industry.



Low barrier to entry in the industry

4 C. PROBLEM STATEMENT The problem currently for Yahoo! is to compete with Google and Microsoft in a very competitive industry. Other issues involve the major economic slowdown, changes in technology and high unemployment. The Major segment of the industry is all under Google's command. So, Yahoo! requires a clear strategic plan to tackle competitors, keep innovating and keep the record financials going high.

D. EXTERNAL FACTOR EVALUATION MATRIX (EFE) Key External Factors

Weight

Rating Weighted Score

1. Possibility of a negotiation with Microsoft for a deal.

0.18

3

0.54

2. Continuous growth in Internet Advertising.

0.14

3

0.42

3. Decrease in Broadband prices leading to concrete opportunities towards expansion and VoIP services.

0.12

4

0.48

1. Unemployment and slow economic growth.

0.16

1

0.16

2. Deceleration in online spending.

0.12

2

0.24

3. Biggest competitor Google.

0.11

3

0.33

4. Rapidly changing industry.

0.09

3

0.27

5. Low barrier to entry in the industry.

0.08

2

0.16

Total

1.00

Opportunities

Threats

2.60

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E. INTERNAL FACTOR EVALUATION MATRIX (IFE)

Key Internal Factors

Weight

Rating Weighted Score

4. Offices in more than 25 countries, provinces & territories.

0.09

3

0.27

5. 3.4% increase in revenue from 07 to 08.

0.05

3

0.15

6. 2nd positioned internet brand.

0.06

4

0.24

7. Most trafficked internet destination worldwide.

0.13

4

0.52

8. Yahoo is a global brand name.

0.08

4

0.24

9. Wide range of communication services to users.

0.08

3

0.24

10. Strong code of ethics.

0.04

3

0.12

1. A 35.7 % decrease in Net Income.

0.18

1

0.18

2. Massive employee layoffs.

0.13

1

0.13

3. Decreased share price up to $14.

0.08

2

0.16

4. Falling internet advertising revenue.

0.08

2

0.16

Total

1.00

Strengths

Weaknesses

2.41

6 F. COMPETITIVE PROFILE MATRIX (CPM) Yahoo Critical Success Factors Advertising Market Share Company Image Expansion Diversification Market Capital Revenues Total

Google

MSN

Weight

Rating

Score

Rating

Score

Rating

Score

0.15

3

0.45

4

0.6

2

0.3

0.2

3

0.6

4

0.8

2

0.4

0.17

3

0.51

4

0.68

3

0.51

0.11

4

0.44

4

0.44

3

0.33

0.13

3

0.39

3

0.39

2

0.26

0.1

3

0.3

4

0.4

2

0.2

0.14

3

0.42

4

0.56

2

0.280

1.00

3.11

3.87

2.28

7 G. STRENGTHS-WEAKNESSES-OPPORTUNITIES AND THREATS MATRIX (SWOT) SWOT MATRIX FOR STRENGTHS-S WEAKNESSES-W YAHOO! 1. Offices in more than 25 1. A 35.7 % decrease in Net 2. 3. 4. 5. 6.

7.

OPPORTUNITIES-O 1. Possibility of a negotiation with Microsoft for a deal. 2. Continuous growth in Internet Advertising. 3. Decrease in Broadband prices leading to concrete opportunities towards expansion and VoIP services.

THREATS-T 1. Unemployment and slow economic growth. 2. Deceleration in online spending. 3. Biggest competitor Google. 4. Rapidly changing industry. 5. Low barrier to entry in the industry.

countries, provinces & territories. 3.4% increase in revenue from 07 to 08. 2nd positioned internet brand. Most trafficked internet destination worldwide. Yahoo is a global brand name. Wide range of communication services to users. Strong code of ethics.

SO STRATEGY

Income. 2. Massive employee layoffs. 3. Decreased share price up to $14. 4. Falling internet advertising revenue.

WO STRATEGY

1. Launching a new social 1. Partnership with networking site using Yahoo Microsoft over search Inc. strong name. (S4,S2, engines. (W1,W3,W4,O1) S3,O2) 2. Launch a new VoIP application for mobile users. (S6, S5, O3)

ST STRATEGY 1. Form a partnership with other media brand names like Amazon or Apple to reduce competitors. (S4,S5,T2,T3,T5)

WT STRATEGY 1. Increase advertising about Yahoo Inc. products to welcome new users. (W5, T2)

8 H. STRATEGIC POSITION & ACTION EVALUATION MATRIX (SPACE) Financial Position

rating 1 (worst) to 6 (best)

Market capitalisation of Yahoo Inc. is $18.29 Billion 1 Gross Profit Margin for Yahoo Inc. is 58.06% 2 Revenues of $7.21 Billion 3 Earnings per share of 0.295 4 rating 1 (worst) to 6 (best) Industry Position Continuous growth 1 Increase in Internet advertising 2 Barrier to new entry is low 3 Stability in industry due to excessive use of Internet 4 rating -1 (best) to -6 (worst) Stability Position Recession & unemployment 1 Competitive Pressure between Google & Yahoo 2 Increased inflation lowering spending 3 Rapidly changing technology & industry 4 rating -1 (best) to -6 (worst) Competitive Position 1 2 3 4

Ratings

FP Total

5 5 4 2 16

IP Total

5 5 3 3 16

EP Total

-5 -4 -3 -2 -14

CP Total

-2 -2 -2 -4 -12

Global market share Technological Know-How Website excellence and ease of access to users Low customer loyalty

SP Average = -3.5, IP Average = +4.0 CP Average = -3.0, FP Average = +4.0 Directional Vector Coordinates: x-axis: -3.0+(+4.0) = +1 y-axis: -3.5+(+4.0) = +0.5

9 I. INTERNAL-EXTERNAL (IE) MATRIX Total IFE Weighted Score

The interaction point lies in the V Quadrant Cell in Average category and the best strategies for this quadrant are "hold and maintain strategies" i.e. market penetration & product development. So, Yahoo! in the future should hold and maintain their position using Market Penetration and Product Development strategies. Although these estimations are based on approximation, but are not far from what the case is indicating to the reader in a very clear concise manner.

10 J. QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM) Key Internal Factors Weight Strengths

Alternative Strategies Launching a new social Partnership with networking site using Microsoft over Yahoo Inc. strong name search engines AS

TAS

AS

TAS

8. Offices in more than 25 countries, provinces & territories. 9. 3.4% increase in revenue from 07 to 08.

0.09

-

-

2

0.18

0.05

3

0.15

2

0.10

10. 2nd positioned internet brand.

0.06

4

0.24

3

0.18

11. Most trafficked internet destination worldwide.

0.13

3

0.39

3

0.39

0.08

4

0.32

4

0.32

0.08

2

0.16

-

-

0.04

-

-

-

-

5. A 35.7 % decrease in Net Income.

0.18

1

0.18

-

-

6. Massive employee layoffs.

0.13

1

0.13

-

-

7. Decreased share price up to $14.

0.08

2

0.16

1

0.08

8. Falling internet advertising revenue.

0.08

2

0.16

-

-

12. Yahoo is a global brand name. 13. Wide range of communication services to users. 7. Strong code of ethics. Weaknesses

1.00

11

Key External Factors Weight Opportunities 4. Possibility of a negotiation with Microsoft for a deal.

Alternative Strategies Launching a new social Partnership with networking site using Microsoft over Yahoo Inc. strong name search engines AS

TAS

AS

TAS

0.18

-

-

4

0.72

5. Continuous growth in Internet Advertising.

0.14

3

0.42

3

0.42

6. Decrease in Broadband prices leading to concrete opportunities towards expansion and VoIP services.

0.12

4

0.48

2

0.24

6. Unemployment and slow economic growth.

0.16

1

0.16

1

0.16

7. Deceleration in online spending.

0.12

-

-

-

-

8. Biggest competitor Google.

0.11

2

0.22

2

0.33

9. Rapidly changing industry.

0.09

3

0.27

-

-

10. Low barrier to entry in the industry.

0.08

2

0.16

3

0.24

Threats

TOTAL

1.00

3.60

3.36

QSPM indicates that the first alternative strategy is the comparatively more viable to execute as determined by the total scores. The strategy is to Launch a social networking site using Yahoo!'s strong brand name. As this industry is growing day by day and the internet trends report that the users are spending more time on the internet.

12 K. CONCLUSION It is quite clear from the above analysis of the Yahoo! company that they require a new strategic course of action to counter competitors. Adapting to changing trends and continuously meeting expectations of their consumers in various parts globally with different cultures is not a piece of cake for any large organization of such magnitude. The suggested strategy in the QSPM could work if properly implemented and evaluated. It was apparent from the results of the above analyses that Yahoo! has to come up with another change in strategy to retain the global market.

L. ANNEXURE

PRO-FORMA INCOME STATEMENT:

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ASSUMPTIONS: The above is a pro-forma income statement projection for the year 2009. A 10 % increase in sales is assumed to cost of goods sold to be 42% of revenues and 42% tax rate. Retained earnings and dividend ratio has not been used because no such sort of policy was discussed in the case. Simple financial terms have been used to elucidate that increasing net income figure. All the above figures used are in thousands.