yahoo! analysis

8/12/2019 Yahoo! Analysis

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Case StudyMarketing 2920

Professor Lutz

3/11/2011

Katie Burke

Louise Mercer

Rachael Roark

Becca Steinberg

Ivory Zhang


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I. Executive SummaryBackground and IntroductionWhy is it important to study Yahoo? Yahoo is a prime example of how in todays world ofrapidly evolving technology, a company must be looking ahead to the future for innovationopportunities; otherwise the company will be overtaken by competitors who capitalized on theopportunity to further explore the technology. As consumers, we reap the benefits of increases intechnology, and those firms who pose increasing technological conveniences will be rewarded interms of market share and customer loyalty.

Yahoo is an online media provider whose goal is to be the most necessary Internetservices provider for both businesses and consumers around the world.Since 2008, Yahoo has begun to lose its relevance allowing itself to be pushed to the side by themarket share leader--Google.

Success or FailureIf Yahoo continues on its current path it will fail. Its failure will be caused by a lack of

clear focus. Consequently, the firms core competencies have gotten lost in the process. TheYahoo brand is no longer clearly positioned, yielding little differentiation of the firms offerings.Yahoo is currently in the fourth stage of decline, grasping for salvation. Yahoo will progress intothe fifth and final stage, capitulation to death or irrelevance, if it does not develop a strategy anddefine its core competencies.

External AnalysisYahoos primary revenue comes from advertisements featured on its web pages. Since

these pages are free to access, Yahoo targets shoppers and its customers customers to increasethe traffic on the website. Yahoos main competitor is Google, with indirect competitorsincluding Facebook, AOL, and YouTube. There are three main segments for its services:advertising, business services, and personal services. Yahoo is a reactor, trying to catch up withcompetitors rather than anticipating their moves in advance. While Google practices its businessmore offensively, being proactive in its actions.

Internal AnalysisYahoos performance reflects low growth. Yahoo revenues come from products that are

low growth cash cows. The balance scorecard indicates that there could be troubles ahead for thecompany. The financial portion of this analysis is the least troublesome; although the trendssuggest that the financials will take a gradual decline once Yahoos cash cow products decline.Yahoos market orientation is below industry standards. Yahoo relies heavily on externalinnovation and strategic mergers. Yahoos core competencies have gotten lost in the mix while ithas been focused on providing a wide variety of services.

Final Recommendations and conclusionsIf the company continues on its current path Yahoo will fail. To prevent further decline

Yahoo must define its core competencies and excise those services that are not core

competencies from its business. What is causing Yahoo to decline is not its pursuit a multitude ofinternet services but Yahoo undisciplined growth and lack of strategic growthYahoo shouldreshape itself into a news service provider.


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II. Background and Introduction

The two founders of Yahoo, David Filo and Jerry Yang, Ph.D. candidates in Electrical

Engineering at Stanford University started the Yahoo in a campus trailer in February 1994. Filo

and Yang began listing links based on their personal interests, and then divided them into

categories. When the existing categories reached their maximum holding capacity, the two

engineers developed subcategories and the core concept behind Yahoo was born. Yahoos

mission is to be the most essential global Internet service for consumers and business. (Yahoos

Mission Statement, 2005)

Yahoos continuous decrease in both market share and revenue began in 2008, not only

putting Yahoo in a perilous position, but also pushing the company away from it core mission of

being the most essential global internet service (Los Angeles Times, 2009). At this unstable

point, a long-discussed internet search partnership between Microsoft Corp. and Yahoo Inc. was

established on Feb. 2010. Since then, Yahoo has embarked on its new journey to defend its

market position by cooperating with Microsoft, aiming to challenge the internet search engine

giant--Google Inc.

III. Success or Failure

Yahoos current market strategy and enterprise operation strategy will lead to its failure

in this internet and media communication industry. Starting with internet search as its core

service, Yahoo once was the successful leader in this online-media industry, but confronted

with its strong rival, Google, which occupied 72.6% in website search market in 2009,

Yahoos market share of internet service has started to noticeably decline since 2008 (see

Appendix A). Trends suggest that Yahoo will ultimately fail after a gradual and drawn out

decline. According to Collins, some indicators that do not bode well for Yahoos future


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include: Yahoo is losing share of overall internet usage, Yahoo has lost a number of key

executives, and Yahoo has begun grasping for emergency saviors.

Grasping for a leader-as-savior

Yahoo is currently mired in the fourth stage of decline. One of the primary markers for

the fourth stage of decline, as described by Collins, is grasping for salvation, which can take

the form of a charismatic new leader.The cumulative peril and/or risks-gone-bad of Stage 3

assert themselves, throwing the enterprise into a sharp decline visible to all. Those who grasp

for salvation have fallen into Stage 4. On March 23th, 2009, Yahoo hired Silicon Valley

marketing veteran Elisa Steele as its new chief marketing officer. Steele spent nearly five

years at Sun Microsystems, leading its marketing group. Her prior experience includes

management roles at iPlanet, eCommerce Solutions, JavaSoft, and AT&T. The same year,

Carol Bartz became the new CEO of Yahoo. Yahoo is treating Bartz like a silver bullet,

placing all of its trust in her in the hope that she will solve the companys problems. Yahoo

appears to have chosen wisely in naming Bartz as the new CEO. Yahoos stock price closed at

$12.41 per share the day Carol Bartz stepped in, today Yahoos stock price has risen to $16.46

per share. Bartz aslo displays the character trait of humility, giving herself a grade of B- for

her first years performance at Yahoo and only a passing grade for the past year. In his book

How the Mighty Fall, Collins provides numerous examples in which a celebrity CEO who is

more focused on sizzle rather than substance is detrimental to the companys health and

further contributes to its decline, while the sublter, more data oriented CEOs were able to

reverse their respective companys decline. Bartz appears to fall into the latter category and

lends some hope to Yahoos future. Even though Yahoo faces further decline, with

experienced and humble saviors, Yahoo may yet survive and reverse this downward spiral.


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Confusion and cynicism

In Jim Collinss five stages of decline, stage four indicates People cannot easily

articulate what the organization stands for. Instead of passionately believing in the

organizations core values and purpose, people become distrustful (Collins, 2009). Yahoo

stands on its fourth stage of decline at this point since consumers are unsure of what Yahoo is

as a company and the extent of the services that it provides (Shields, 2010). Therefore,

Yahoos multi-products strategy is likely to result in Yahoos forging ahead from its fourth

stage to the fifth stage of decline. However, the failing of Yahoo is not inevitable and this

process of decline is reversible if Yahoo adds structure to its sporadic market and product

strategy and clarifies the company vision and strategy.

IV. Strategic Analysis

A. External AnalysisMarket size and growth

In 2009, Yahoo and Microsoft entered into a partnership in order to better compete

against the market leader-- Google. Google currently has 72.6% of the market share in the US

and Yahoo has 14.2% (see Appendix A). Analysts predict that by 2014 Yahoos revenue growth

will equal only 4% and the operating margin is expected to be 13% (Barlas, 2011). One possible

reason for Yahoos fluctuation in revenue is due to the lack of consistent leadership. Yahoos

original CEO, Jerry Yang, was asked to resign after complaints regarding his management of

Microsofts offer to buy Yahoo and termination of thepartnership with Google (Arnoldy, 2008).

Since Yang, Yahoo has gone through numerous CEOs, with the current CEO being Carol Bartz.

Yahoo remains one of most trafficked sites in the world, with its revenues are generated from


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online advertising. However, the company is challenged by low market share, audience

fragmentation, and pricing power (Morningstar, 2011).

In order to provide effective online advertising services, Yahoo collects data from

websites consumers visit and purchase from, then sells this information to other businesses.

Yahoo is best known for its behavioral ad matching in which individuals searches and web

purchases are tracked. Yahoos search engine however, is aimed at tech-savvy young

professionals and students (Papadopoulos, 2006). Yahoo has broadened its target audience by

introducing a new product called Shine. Shine provides females with the latest diet tips,

fashion arrivals, and Celebrity gossip. This new service started in Canada, since Yahoos

Canadian audience consists of a base of more than 6.5 million women aged 25-54 who visit

Yahoo every month (LexisNexis, 2011). This age group is important demographic for

advertisers, as women in this age range tend to be the buyers for households and make

purchasing decisions (LexisNexis, 2011). Advertisers see great opportunity in this product

because these women have limited time and a tool that allows them to search for what they need

more efficiently is in high demand (LexisNexis, 2011).

Wants and needs

Yahoo sells its services primarily to businesses rather than directly to consumers. Yahoo

earns a substantial amount of revenue from the sale of advertisements or sponsored data search

results. In terms of Yahoos search engine, users want a fast and reliable search with a large

variety of results, while businesses want online advertising services that will provide both high

reach and frequency. In order to create customer loyalty, Yahoo must differentiate itself from

competition by providing unique and superior services. Given the companys current broad

product portfolio, specific needs and wants are not met with superior performance. By spreading


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itself thinly among diverse product lines, Yahoo is not able to focus on being the best at

satisfying a certain need.

Segmentation

Yahoo has three main product platforms: advertising, business services and personal

services. Advertising is where Yahoo generates its largest revenue (10-K, 2010). The biggest

contributors to advertising revenue include Japanese banner and text ad sales, U.S. paid search

services, and advertisement planning services (10-K, 2010). The business service includes non-

advertising related services for corporations. A substantial amount of Yahoos revenue in this

segment comes from fees such as information listings fees, data center service fees, incentive

fees for acquiring new subscribers, and broadband service. Within the personal services, fees are

associated with auction system usage fees, premium membership fees, and other sales of various

content (10K, 2010). Therefore, Yahoo serves business and consumer segments. From the

consumer segment, Yahoo specifically targets young, tech-savvy professionals (Papadopulos,

2009).

Porters Five Forces

The industry in which Yahoo operates is unattractive, as demonstrated by the Porters

Five Forces Analysis described below. The competition firms in this industry face is fierce and

are constantly vulnerable to creative destruction (Collins, 2009). This means only firms with

significant intellectual and technological resources will attempt to enter the industry. For Yahoo,

this is a benefit because there is promise of maintaining market share due to the difficulties

incurred by other companies when trying to enter this industry.


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numbers of people who are capable of creating complex online web-services are small. While

Yahoo does not depend on component parts from suppliers, the success of its business directly

relates to the quality of people in the company. Within an extremely dynamic industry, Yahoo

must acquire the best people in order to gain a competitive edge. Due to this, the power of

suppliers will continue to remain high for Yahoo, giving the company less control over the terms

of supply from the people which fuel Yahoos business.

Threat of Substitutes

Threat of substitutes is high due to the fact that online media consumption takes a variety

of forms. Yahoo competes for internet views and online time with diverse companies, such as

YouTube, Facebook, and Hulu. Since switching costs among these free-to-access websites are

minimal or nonexistent for end users, substitute products pose a great threat for Yahoo. From the

perspective of Yahoos buyers, switching costs are also low due to Yahoos undifferentiated

position. Advertising is viewed by many businesses as an extra activity that is less important than

the creation of a product. Therefore, companies are not reliant on Yahoo to be the sole provider

of their advertising business. In order to gain power over substitute products, Yahoo must make

its services so effective that businesses and end users see Yahoo as an essential component of

their everyday processes and business success.

Threat of Potential Entrants

Potential entrants are a significant threat to Yahoo. Although generally it takes a

substantial investment in technology to start up a company in this industry, there have been those

companies like Facebook that started in a college dorm room that circumvented this particular

barrier to becoming a social media giant (see Appendix C for details). In entering the industry,

the most significant investment is arguably the intellectual capital and vision of those individuals


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who have the ability to create innovative online platforms. For Yahoo, this means the company

must provide a differentiated service to end users that continues to satisfy the changing needs of

the population. If Yahoo fails to do this, innovative new entrants that better attract customers

could detract from Yahoos advertising revenue.

Direct and Indirect competitors

Google, with a market share of 72.6%, is Yahoos main competitor (see Appendix A).

Google was established in 1996 and had a partnership with Yahoo until 2003, when Yahoo

decided to go independent. This cost Google a percentage of its market share, but had a more

drastic effect on Yahoo. Yahoos ultimate goal is to be the top ranked search engine, but Google

is currently entrenched in a high position of power. Google also launched the WAC- Wave,

Android, and Chrome in retaliation against Yahoo and Microsoft. The Wave is a personal

communication and collaboration tool as part of one of Googles online software applications.

The Android is a mobile operating system and the Chrome is a web browser that was introduced

after Microsoft Windows (Google definitions, 2011). After Yahoo and Microsoft partnered, the

two companies had a created Windows 7 in order to create an innovative advantage over Google.

Also, Bing.com powers Yahoos search engine and Microsoft gained access to Yahoos

advertising platform. As a result, Google began to feel the repercussions of these changes

(Arnold, 2010).

AOL, another competitor, was founded in 1983 originally as a media corporation but

developed into a global search engine. In 2005, Google purchased a 5% share of AOL for $1

billion dollars (Arnold, 2010). Currently, AOL is not a direct threat because the company is not

in a financially stable position in which it can spend the millions of dollars necessary to gain a


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larger market share. With emerging websites such as YouTube and Facebook, AOL was unable

to maintain its position as one of the top websites (Mintel, 2010).

Yahoos indirect competitors include Facebook, which is the largest social networking

site in the world. Facebook had an increase of 93% of new unique viewers from January to

December 2009 amounting to 132 million users (Mintel, 2010). Even though Facebook is not a

search engine, it still occupies time users could potentially be spending on Yahoo, harming the

companys market share and audience capacity. Facebook is ranked second for the most popular

website on the Internet with Google as the leader, YouTube in third and Yahoo in fourth (Mintel,

2010). Indirectly these competitors are harming Yahoos performance by occupying a portion of

the consumers total available time on the Internet, and therefore appealing to those companies

looking to advertise online.

Yet another indirect competitor consists of those companies and individuals that develop

mobile applications for smart phones and tablet computers, such as the iPad. Yahoo could gain

significant income through advertising if it had a strong mobile platform. Research shows that

one in four respondents go online via cell phone. This is a key statistic that indicates the direction

online media providers must follow in order to remain relevant (Mintel, 2010). Another indirect

competitor is other online advertising companies. The majority of Yahoos revenue comes from

advertising, and competing online advertising coordinators such as InterActiveCorp could draw

customers from Yahoos services.

Yahoo currently lacks a strong competitive advantage. Yahoos search statistics are very

low, so businesses are less attracted to Yahoos advertising services when compared to

competitors that effectively draw end users to their sites. Yahoos search market share declined

by 2.3% from June 2010 to December 2010. (ImpactMedia 2011) However, the company has the


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potential to create a strong competitive edge. Now that Yahoo has joined forces with Microsoft,

the company has the potential to take market share from Google. However, in order to do this,

Yahoo needs to condense its products and segments. Yahoo has a variety different products on

the market, many of which consumers are unaware of. Instead of trying to broaden its market,

Yahoo needs to concentrate on more specific areas such as Yahoo!Finance and Yahoo!News.

The top competitors in the internet industry (Google, Facebook and YouTube) have very specific

segments in which these businesses concentrate all of their resources and intellectual capital,

while Yahoo occupies a shallow position in each of these markets.

Types of competitors

Yahoo is in a reactive position. In the past, Yahoo has been overshadowed by Googles

innovation. Even with the new partnership, Microsoft and Yahoo are still trying to create new

products and segments in order to keep their market share. Yahoo is reacting to Googles new

innovations. Yahoo is not the industry leader, but it continues to develop products. Yahoo is not

a first mover, but it is usually in a stable position that allows the company to test new ideas.

However, in some cases Yahoo can be seen as an analyzer. These instances are more the

exception rather than the rule. For example, Microsoft introduced Windows Version 7 recently, a

risky move after the successful introduction of XP into the market. Yahoo has not introduced any

radically different segments or products that could be detrimental to the firms financial position

or market share. Yet, Yahoo is continuing to make smaller innovations and develop new ideas

that are mildly successful but not disruptive, such as the development of Prime Time in No

Time which is further discussed below.

Google and Facebook would fall into the prospectors category since these companies are

generally early movers. For example, MySpace, Tagged and Bebo preceded Facebook. However,


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Facebook entered the market with a bold and risky strategy that helped to catapult the company

to top market shareholder in the social networking industry. Google also has considerable market

share so it can afford to try risky new innovations and need not to be so conscious of stability.

Googles introduction of the WAC includes the Wave, Android, and Chrome, all of which

offer new products to the market. AOL fits into the defender category; the company is not at the

forefront of technology and it is struggling to keep abreast with the top leading competitors.

AOL tries to keep pace by offering lower prices while still attempting to provide high quality and

good service. Yahoo offers a wide range of products and lacks the innovation that sets Google

and Facebook apart. AOL is still one of the main search engines, but the company cannot afford

to take huge risks that would put the company in financial jeopardy.

Macro-environmental analysis

Demographics

Forty percent of Yahoos users come from its Japanese market. Japan has a total

population of 126,804,433 people and 64.3% of the population is aged between 15-64 (Index

Mundi, 2010). In Japan, there are slightly more males than females, with a ratio of 1.02 (Index

Mundi, 2010). Yahoos primary target audience is tech savvy, young professionals and with a

slight emphasis on males over females. Given the Japanese demographics, Yahoos target

audience aligns well with the population trends in Japan. The United States total population is

310,232,863, with 67% of this population in the 15-64 age range. In contrast to this young

percentage of the population, America has a significant ageing population of Baby Boomers.

There are 77million Baby Boomers entering the age of retirement that are not currently included

in Yahoos primary target audience (Trandgressional, 2011). Although this demographic of

young, tech savvy people has the potential to be profitable, larger demographic trends highlight


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other segments of the population that on that maybe more effective to target. Baby Boomers tend

to pay a lot of attention to the stock market, so a good way for Yahoo to create a new target

audience could be to cater towards the needs of this demographic. Americas fastest growing

ethnic group is the Hispanic population. Currently, this demographic accounts for 15% of the

total population and it is continuing to grow at a fast rate (Transgenerational, 2011). Yahoo could

create a new Spanish product line, in which current services are offered in Spanish in order to

cater to the needs of this demographic.

Economic

After the 2008 economic recession, the United States and Japanese economies show

promise for growth in 2011. According to a recent Wall Street Journalpublication, economists

predict 3.2 % growth each quarter in the United States (Izzo, 2011). Additionally, United States

inflation rates are expected to be 1.9%, which is within the Feds comfort zone of 0.5% to 2%,

and unemployment is predicted to decrease to 8.8 percent (Izzo, 2011). The Japanese economy

contracted in the first quarter after a year of 3.9%, but growth is still predicted for the Japanese

2011 fiscal year due to increasing exports (BBC, 2011). The economic growth, low inflation

rates, and reduced unemployment mean more purchasing power and potentially greater

disposable income for consumers. This affects Yahoo because businesses may have an increased

interest in advertising as consumers spend more in order to capture a share of wallet.

The global recovery from the financial crisis has a direct effect on Yahoos business. During the

recession, firms used more online advertising than print ads due to cheaper prices. At the end of

December 2010, online advertising increased 13.9% to $25.8 billion, whereas Print ad sales

decreased 8.2% to $22.8 billion (Schweizer, 2010). However, once the recession is over,

businesses may return back to print ads and alternatives to online advertising as the economy


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recovers and cost cutting is less important. If Yahoo can keep its costs of online advertising low,

it should be able to keep and even increase its user base. The majority of businesses have turned

to online advertising purely because of the mass amount of growing online traffic. There is a

constant need for access to information, so end users are likely to continue using online search

and media despite economic downturns. This makes online advertisements an effective solution

for business promotions throughout the market cycle.

Natural environment

Due to the recession, gas prices are increasing, ultimately influencing some consumers to

shop online. Since January 2010, gas prices have increased from $2 to $3.10, which is an

increase of 67% (Hemingway, 2011). These prices may provide Yahoo with an advantage since

the company provides an online shopping platform. There is also a need for raw materials in the

production of technology hardware that Yahoo uses, such as the use of gold in computer chips.

However, these materials are finite, so technology manufactures and buyers must monitor usage

rates of these materials in order to continue production. Another major natural risk Yahoo is

subject to is natural disasters, which could interrupt the fibre optics and strip users of internet

connections.

Technological

There is a huge development in technology right now, as electronic and online services

are evolving at a rapid rate. It is predicted that the technology growth in the 21st Century will be

equivalent to 2,000 years of growth at past rates (Kurzweil,2007). If Yahoo cannot keep up to

date with the latest innovations, then the company could quickly lose market share. However,

this rapid growth provides huge opportunity to for a learning organization to continually flourish.


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Socio-cultural

Social networking is a growing trend that has gained momentum in the last 5-10 years.

Facebook and Twitter have evolved enormously and Facebook currently outranks Yahoo in on a

list of the worlds top sites. Facebook is ranked second most visited website on the internet

where Yahoo is ranked fourth (mostpopularwebsites, 2011). Facebooks active users are

doubling every 6 months, with an average of 3% weekly growth since January 2007 (Hazlett,

2009). Facebook and has more than 60 million active users (Hazlett, 2009). Since Yahoo

competes for internet time and online advertising space with social networking sites, the

popularity of these websites could potentially detract from Yahoos business.

Government

Yahoo has an advantage in the Japanese market since legal restrictions were placed on

Google. Yahoo has capitalized on this opportunity, as the Japanaese market currently accounts

for 40% of Yahoos audience. Recently, Google faced major political problems with in Japan

and China. Google violated privacy restriction laws with the Google Maps application,

ultimately tarnishing a relationship with the governments of these countries (Thomas, 2009).

This gave Yahoo the perfect opportunity to expand to its market, but the company must

remember its competitor's mistakes as it move forward in the international marketplace.

Conclusions

In conclusion, the macro environment provides a positive opportunity for Yahoo. There

are significant emerging demographic groups that Yahoo could lucratively target, including Baby

Boomers and Hispanic population. The market is continuing to grow and continual innovation

within the industry is bringing consumers online for new reasons. One challenge of this

environment relates to the difficulty of beating the innovation curve in order to establish new


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socio-cultural trends which highly affect the business of key players in the online media

category. Another major obstacle is the volatility of sales throughout the business cycle. Despite

these drawbacks, overall the macro environment shows promise of being a positive contributor to

Yahoos future growth, as long as the company leverages its strengths to meet these conditions.

Summary of External Analysis including Opportunities & Threats

Since Yahoo and Microsofts partnership,display Ad revenue rose 14%; however, Yahoo

is still struggling with its search revenue which fell by 27%. Yahoos main focus is advertising.

Therefore, its main customers are other companies, although due to derived demand, consumers

are at the core of Yahoos advertising business. Yahoo also generates revenue from business

services and personal services. Falling behind the innovation curve is Yahoos main threat, but

other competitors include AOL, YouTube, Facebook, and individual app companies/developers.

Another major threat to Yahoo is the possibility of a new technology platform being developed

that renders Yahoos services irrelevant and obsolete (see Appendix F for details). Google can

afford to try risky, new, and innovative ideas, while Yahoo is much more cautious about testing

bold new ideas and technologies. Yahoo has the opportunity to gain a substantial amount of

income through advertising if it creates a strong mobile platform. Yahoo has the opportunity to

become bolder and more innovative by leveraging the advantages offered by new technology

platforms, like the iPad, which would decrease the risk of being overcome by movers like

Google (See Appendix F for details). Yahoo has a large international presence, which allows the

company the opportunity to develop and expand in the international market. Yahoo already is the

top search engine in Japan, however, the volatility of the international market poses a threat to

the company, with the current turmoil in the Middle East providing a prime example. After


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conducting a thorough external analysis, external conditions are such that if Yahoo leverages it

strengths effectively, the company can play the market to its benefit.

B. Internal/Self Analysis

Marketing Performance Analysis

The overall marketplace performance of Yahoo, Inc appears to be low growth. Yahoo has

a relatively high contribution margin of 58% (Schein, 2011). Despite the recent recession, the

company is still managing to generate profit relatively efficiently. In analyzing the companys

product portfolio, much of the Yahoos revenue comes from the cash cow products such as

Yahoo! Mail, Yahoo! Search, and Yahoo! News (10-K, 2009). The majority of Yahoos

offerings are low growth, with very few products that fall into the star category of the BCG

Matrix (See Appendix E). As a result, Yahoos market performance is stagnant. This could pose

a problem, as Yahoo performs among competitors who are revolutionizing the way everyday

people shop, watch media, network, and synthesize the limitless nature of the internet through

personalized offerings. Even more troubling is Yahoos significant decline in sales, as the $6.32

billion reported in December 2010 was a 10.32% sales decrease from 2009 (Schein, 2011).

Yahoos profits have increased by over $1 billion since 2008, but given the firms falling

revenue, such profit is not sustainable in the long term (Schein, 2011). This falling revenue is

especially dangerous since Yahoo is so reliant on cash cow products to generate sales. Since

cash cows are low-growth products in the maturity stage of the product lifecycle which will

eventually slope into decline, Yahoos revenue shows no promise of recovering.

Balanced Scorecard

An analysis of Yahoos balanced scorecard alludes to a potentially threatening future for

the company (See Appendix D).


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Financial

The financial sector of this analysis appears to be the least troublesome of the four

elements, as Yahoos ratios are in line with the industry (Schein, 2011). For Yahoo, this means

that its finances pose no immediate threat to its business. However, upon taking a broader view,

Yahoos trends suggest a decline in the businesss financial health. Yahoos net profit margin is

approximately 10% below competitor Googles. While the company has been successful at

raising its net income, it still falls far behind industrys major competitors (Schein, 2011).

Furthermore, Yahoos price to earnings ratio meets the industry median of 39.06, but still poses

an alarmingly high ratio at 23.04 (Schein, 2011). Investments guru Benjamin Graham suggested

that price to earnings ratios for attractive stocks should remain under 15 (Freund, 2008). The

high industry median can be attributed to the growth of many companies in this sector. Due to

the fact that Yahoos current growth appears to be very minimal, this poses a question of why the

companys price to earnings ratio is so high.

Customer and Market Orientation

Yahoos customer and market orientation is sub-par when observed on an industrial level.

When compared with five major competitors, Yahoo ranked third on the American Customer

Satisfaction Index, with a score of 76. Google, the leader among the competitors, had a high

score of 80, and AOL and Ask.com scored below Yahoo with scores of 74 and 73 respectively

(Allen-Short and Butsunturn, 2010). In an industry where personalization and individualism are

being incorporated into products, Yahoo must bolster the experience of individual customers if it

hopes to succeed. Additionally, out of a sample of 1,896 people, only 5 % responded with the

answer I always use Yahoo (Mintel, 2010). When Yahoo is compared with the 30 % of


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respondents that claimed to always use Google, there is an opportunity for improvement in

customer loyalty.

Marketing Processes

The marketing processes implemented by Yahoo rely heavily on external innovation,

which is a risky structure for its business. According to Yahoo, strategic mergers formulate the

base for much of Yahoos international business (10-K, 2009). The Yahoo Developers platforms

also allows for third parties to create Yahoo applications (10-K, 2009). With Yahoos capture of

third party innovation through mergers and the developers platform, the creative platform within

the company appears questionable. In its current state, Yahoo falls to the control of outside

forces. As long as developers are contributing to Yahoos platform, this system may benefit

Yahoo. Conversely, Yahoo could fall even farther behind the industrys innovation curve if there

is a disruption in this process.

Learning and Growth

Finally, Yahoos learning and growth shows a reactionary competitive stand in the

marketplace, despite the intellectual property rights the company holds. After the success of

YouTube and Hulu, Yahoo decided to experiment in online videos with the creation of Yahoo!

Video. The main feature of Yahoo! Video is Primetime in No Time, which features recaps of

the days most popular news stories in five minutes or less (10-K, 2009). Additionally, when

Yahoos search service lagged behind competitors, the company chose to outsource this service

to the higher-performing Bing search engine (Learmonth, 2010). As demonstrated by the above

examples, Yahoo appears to lack the long-term ability to keep up with the dynamic environment

of the marketplace.


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Determinants of Strategic Options

Yahoos strategic options currently appear ambiguous, as depicted by the firms core

competencies, marketing strategies, financial constraints and the ability to disrupt the current

standards of the industry.

Core Competencies and Strengths

Yahoos core competencies have gotten lost its attempt to provide a wide breadth of

services. In aBrandweekpublication, author Mike Shields commented that many of Yahoos

customers live by Yahoo! News and Yahoo! Finance, alluding to the companys core

competency in the specialized forms of electronic information sources (Shields, 2010). Yet, the

company continues to dip into many different areas of Internet media. In review of Yahoo,

Carolyn Everson, Microsofts CVP of global sales and strategy commented, DoesYahoo want

to make using the Internet easier and more convenient by pulling the key pieces together in one

easy-to-use service [with a] unified or focused navigation as their primary service? Or do they

want to provide and be known for specific proprietary services?... it's hard to get momentum

without clear focus (Shields, 2010). In this case, Yahoos strategy appears to be limited by its

nondescript core competency. Until Yahoo can explicitly define its competitive advantage, it will

continue to try to tap into already-existent product markets with little success at gaining

significant market share.

Past and Present Marketing Strategies

Upon the founding of Yahoo, the strategy of the company was characterized by

simplicity. The firm simply wanted to attract as many users as possible and sell display ads

(Morningstar, 2010). However, as the industry has grown more complex, Yahoos current

marketing strategy requires its business to simultaneously focus on changing dynamics of


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Internet services. According to Yahoos most recent Annual Report, the company is focusing on

growing its search business, improving and expanding advertising services, and creating more

video interfaces (10-K, 2009). When compared to the competitive environment, many of these

goals can be related to regaining the market share that was lost due to the success of other major

companies such as Google, YouTube, and Facebook. Yet another direction Yahoo is turning

toward, is integrating its applications onto smart phones. In a recent interview, Yahoos CEO

Carol Bartz said that she thinks the company should do even more integration on the cell phone

platforms, and consequently the company has pushed Android and iPad apps into the market

(Morrison, 2010). Furthermore, Yahoo is attempting to keep up with social networking trends by

partnering with Facebook (Vascellaro, 2010). This partnership will integrate news feeds into

Yahoo.com and Yahoo! Mail accounts and allow Yahoos offerings to be easily shared on

Facebook, one example includes a Facebook uploading option for Flickr users (Vascellaro,

2010). Overall, Yahoos strategy appears to havea catch-up mentality, without a clear

unification of the products Yahoo offers. In an active marketplace, Yahoos reactive strategy

raises questions of long-term sustainability.

Financial Resources and Constraints

The current state of Yahoos finances lends the company room to grow (see Appendix B

for selected financial charts). Overall, the company is not at immediate risk of going bankrupt.

Yahoo currently has over $1 billion in cash, and little long-term debt, which allows the firm to

channel cash into reinvestments (Schein, 2011). However, the companys cash flow from

operations has decreased from $1.9 billion in 2007 to $1.24 billion in 2010, raising the question

of whether or not the company is effectively using its financial freedom to generate gains

(Schein, 2011).


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Ability to Disrupt

Ultimately, Yahoos reactive, undefined position yields the firm no opportunity to disrupt

the status quo. In an analysis for investors, Morningstar reported that Yahoos competitive

standing is weakening (Morningstar, 2010). According to Morningstar, Yahoos weakened state

can be tied to low market share, audience fragmentation, and low pricing power (Morningstar,

2010). Given these conditions and the current strategies employed by the company, Yahoo is

subject to working within existing channels rather than initiating changes itself.

Summary of Strengths & Weakness

After conducting a SWOT analysis, data shows Yahoo to be financially stable (See

Appendix F). This stability can aid the company in future growth. However, Yahoos lack of

innovation puts the company behind the technology curve. The companys reactor strategy

does not contribute to long-term sustainability, and does not give Yahoo the opportunity to

introduce innovative ideas that have not been seen before. Yahoo is a well-established company

with deep roots, a strong brand, and the second highest market share. However, by offering so

many media products, Yahoo has lost its focus and lacks objectives and strategies (See Appendix

F). Yahoos partnership with Microsoft has been successful thusfar, and now Yahoo is

attempting to stay current with social networking trends by partnering with Facebook. Overall,

Yahoo has the tools to disrupt the market, but its current strategies and thinly spread focus is

holding the company back.

V. Final Recommendations and Conclusions

Strategic Alternatives

Yahoo is currently in the early stages of decline, however if action is taken now the

company will still have a chance to recover and survive. Yahoo can either integrate change into


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every segment of the company to completely restructure it, or Yahoo can incorporate changes

into the business by narrowing its focus and coming up with a strong strategy and clear

objectives. In its current state, Yahoos biggest challenge is its lack of clear focus. Yahoos

pursuit of a diverse product portfolio does not relate to a well-defined strategy. As determined by

our analysis, Yahoo faces four strategic options to address this issue:

Status Quo Re-focus Yahoos product line to return to a primaryflywheel Growth through market development in the Pacific Rim Change everythingbring in an innovative new executive with a new vision for the

company

These options are explained in greater detail in the chart below:


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Strategic Option Pros Cons

Status Quo Stay financially stablethrough a gradualdecline

No drastic actionwhich would furtheraccelerate decline

Large competitors willcontinue to gainmarket share and

eventually push Yahooout of the industry

The company willeventually fall intoirrelevance

Re-focus Yahoos Product

Strategy The firm will not waste

resources (funds andintellectual capital) onextraneous lines

The ability to excel ata specific function

becoming the best inthe world

Regain a position on aperceptual map

Potential opportunitycosts for eliminatingproducts that couldhave grown with moreresources

Shareholders might seethis as a sign of troublefor the company and acomplacent approachto the dynamicmarketplace

Growth through market

development in the Pacific Rim Potential new markets International

recognition

Capitalizes on theopportunity to be asignificant market

leader in thosecountries

Could be potentiallyrisky given any marketvolatility in thosecountries which Yahoodepends on

Large investmentsrequire to developthese markets

The firm couldpotentiallycompromise control inspreading theorganization in variedmarkets

Change everything Dramatic, instantincreases in shareprices

Attention from themedia and Wall Street

Gives hope for a futureof leadership throughthe proactive approach

Short-term focus withpotentially negativelong-term effects

Reliant on silver-bullet mentality(Collins, 88)

Does not address keyissue of establishing aprimary flywheel


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Defense of Strategy

While maintaining the status quo, growing through market development, and changing

everything are viable options, these alternatives fail to address Yahoos key issue as effectively

as the alternative to re-focus Yahoos product strategy. Yahoos primary revenue comes from

business-to-business advertising services, which correlates the growth of Yahoos income to the

success of Yahoos services for end users (10-K, 2009). When Yahoo has a clear position in the

minds of consumers, businesses will be more interested in advertising on Yahoos sites. With the

plethora of over 25 different product offerings, Yahoos core competency is unclear. Yahoo

should conduct an analysis of its different product segments to find which services are significant

contributors to profits and maintain focus on those products. The other extraneous products

should be eliminated from the product portfolio. By trimming out unnecessary products, Yahoo

is better able to focus itself on a being the best in the world at a specific function. Based on our

analysis, we suggest that Yahoo should consider focusing its business on being an online

information provider since Yahoo! News and Yahoo! Finance are excelling (Shields, 2010).

Ultimately, Yahoo will have greater success in future growth pursuits after establishing a defined

base from which the firm can grow.

Risks and Downsides of this Decision

Re-focusing Yahoos product portfolio is the best option for the company, but this

decision does come with risk. In eliminating product lines, Yahoo incurs the opportunity cost of

cutting a service that could have been lucrative with more focus or investment. Furthermore,

cutting products may appear as a sign of struggle to shareholders. Healthy companies experience

growth as a result of success, so companies that cut products may imply failure. Shareholders


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may prefer that Yahoo implements a more disruptive strategy that would cause a spike in stock

prices. The problem with this dynamic approach, however, is the lack of long term sustainability

of stock price growth.

Summary

In conclusion, Yahoo will fail if it does not refocus its gaze and boil the company down

to the core competencies and create a strong strategy. Once this strategy is created Yahoo must

create an effective discipline and follow it; the company must avoid the temptation for

unchecked growth that drains away energy from the main flywheel of the company.


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Appendices


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Appendix AMarket Share of Yahoo and its competitors

Source:http://www.readwriteweb.com/archives/search_engine_wars_bing_keeps_growing_while_yahoos.php
http://www.readwriteweb.com/archives/search_engine_wars_bing_keeps_growing_while_yahoos.phphttp://www.readwriteweb.com/archives/search_engine_wars_bing_keeps_growing_while_yahoos.phphttp://www.readwriteweb.com/archives/search_engine_wars_bing_keeps_growing_while_yahoos.php


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Appendix B: Selected Financial Data

Revenue vs. Net Income

Stock PriceLast 12 Months

Source: Schein, Amy (2011). Yahoo! Inc. Hoovers. Retrieved from Hoovers


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Appendix C: Porters 5 Forces

Threat of new entrants is high when: High Low

economies of scale are** (scale on membership): XX Y

product differentiation is XX Y

capital requirements are Y XX

switching costs are XX Y

Incumbents control of distribution channels is: XX Y

Incumbent proprietary knowledge is Y XX

access to raw materials n/a XX

access to government subsidies is n/a XX

power of buyers is high when High Low

concentration of buyers relative to suppliers is XX

volume of purchase is XX Y

product differentiation of suppliers is Y XX

threat of backwards integration by buyers is XX Y

buyers knowledge about buyers suppliers cost structure is XX Y

extent of buyers profits is XX Y

cost savings from the suppliers products are n/a XX

importance of the suppliers in put to quality of buyers final product is n/a XX

percentage of total buyer's cost spent on the suppliers input is. XX n/a

Power of suppliers is high when High Low


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concentration relative to buyer industry is XX Y

availability of substitute products is XX Y

importance of customer to the supplier is XX n/a

differentiation of the suppliers products and services i n/a XX

switching costs of the buyer are XX Y

threat of forward integration by supplier is Y XX

Intensity of competitive rivalry is high when: High Low

number of competitors is XX Y

industry growth rate is Y XX

fixed costs are XX Y

storage costs are XX Y

product differentiation is XX Y

switching costs are XX Y

exit barriers are XX Y

strategic stakes are XX Y

Threat of substitute products is high when: High Low

Profitability of industry producing substitutes is XX Y

rate of improvement in price- performance relationship of substitute product is XX

Appendix D Balanced Scorecard


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Appendix E: BCG Model

Financial

2010 reports:

- Net Income: 1.23 Billion in (Schein, 2010).

-Net Profit Margin: 9.26% (Schein, 2010).

-ROAM: 23.04% (Schein, 2010).

-P/E Ratio: 23.04 (Schein, 2010).

-D/E Ratio: 0.01 (Forbes, 2010).

-ROI 8.8% (Forbes, 2010).

Customer and Market Orientation

- 5% of respondents say they always use Yahoo!(Mintel, 2010).

-American Customer Satisfaction Index Score of 76(2010).

Internal Processes

- Focus on strategic international mergers

-Open the Yahoo! platform to third party developers

-Sales through field sales, telesales, online andreseller

(10-K, 2009).

Learning and Growth

- Partnership with Bing to outsource search service(Learmonth, 2010).

- Wide array of intellectual property includingpatents for innovation, trademarks, software, andtrade secrets (10-K, 2009).

-"Primetime in No Time" video stream (10-K, 2009).


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Appendix F: SWOT

Strengths

Well-established company, deep rootso 2ndhighest market shareo People live by yahoo news and

financeo Large international presence

Partnershipso Face booko Microsoft

Strong brand Developers platform that allows it to

grow with the app platform Finances are stable-low debt, lends it

room to grow

Weaknesses

Lack of innovation Inefficiency in marketing efforts Search revenue fell, but still increasing money in advertising Change of software in its email service Offering so many products has caused

it to lose its focus Lack of objectives and strategies Behind the technology curve

Opportunities

Strong mobile platform Opportunity to form strong partnerships Opportunity to develop expand in the

international market High growth market Jumping on board with new technology,

ex. iPad

Threats Being overcome by competition that is

bolder and more innovative, such asGoogle

Volatility of the international market A market that is constantly changing New technology platform that comes

out that makes it completely obsolete How to protect intellectual property

rights


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http://new.stjohns.edu/media/3/9da6177691fd45a7af452412e7b4caf9.pdfhttp://new.stjohns.edu/media/3/9da6177691fd45a7af452412e7b4caf9.pdfhttp://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V8S-4TFDCFB-1&_user=10&_coverDate=12%2F31%2F2008&_rdoc=1&_fmt=high&_orig=gateway&_origin=gateway&_sort=d&_docanchor=&view=c&_searchStrId=1659506171&_rerunOrigin=google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=be1eab91f1ffef647bc7953f054269ae&searchtype=ahttp://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V8S-4TFDCFB-1&_user=10&_coverDate=12%2F31%2F2008&_rdoc=1&_fmt=high&_orig=gateway&_origin=gateway&_sort=d&_docanchor=&view=c&_searchStrId=1659506171&_rerunOrigin=google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=be1eab91f1ffef647bc7953f054269ae&searchtype=ahttp://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V8S-4TFDCFB-1&_user=10&_coverDate=12%2F31%2F2008&_rdoc=1&_fmt=high&_orig=gateway&_origin=gateway&_sort=d&_docanchor=&view=c&_searchStrId=1659506171&_rerunOrigin=google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=be1eab91f1ffef647bc7953f054269ae&searchtype=ahttp://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V8S-4TFDCFB-1&_user=10&_coverDate=12%2F31%2F2008&_rdoc=1&_fmt=high&_orig=gateway&_origin=gateway&_sort=d&_docanchor=&view=c&_searchStrId=1659506171&_rerunOrigin=google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=be1eab91f1ffef647bc7953f054269ae&searchtype=ahttp://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V8S-4TFDCFB-1&_user=10&_coverDate=12%2F31%2F2008&_rdoc=1&_fmt=high&_orig=gateway&_origin=gateway&_sort=d&_docanchor=&view=c&_searchStrId=1659506171&_rerunOrigin=google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=be1eab91f1ffef647bc7953f054269ae&searchtype=ahttp://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V8S-4TFDCFB-1&_user=10&_coverDate=12%2F31%2F2008&_rdoc=1&_fmt=high&_orig=gateway&_origin=gateway&_sort=d&_docanchor=&view=c&_searchStrId=1659506171&_rerunOrigin=google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=be1eab91f1ffef647bc7953f054269ae&searchtype=ahttp://www.bloomberg.com/news/2010-12-20/u-s-web-ads-exceed-newspaper-print-ads-http://www.bloomberg.com/news/2010-12-20/u-s-web-ads-exceed-newspaper-print-ads-http://www.bloomberg.com/news/2010-12-20/u-s-web-ads-exceed-newspaper-print-ads-http://www.bloomberg.com/news/2010-12-20/u-s-web-ads-exceed-newspaper-print-ads-http://oxygen.mintel.com/sinatra/oxygen/display/id=509024http://oxygen.mintel.com/sinatra/oxygen/display/id=509024http://www.thebigmoney.com/blogs/feeling-lucky/2009/05/13/googles-japanese-problemhttp://www.thebigmoney.com/blogs/feeling-lucky/2009/05/13/googles-japanese-problemhttp://www.thebigmoney.com/blogs/feeling-lucky/2009/05/13/googles-japanese-problemhttp://oxygen.mintel.com/sinatra/oxygen/display/id=509024http://www.bloomberg.com/news/2010-12-20/u-s-web-ads-exceed-newspaper-print-ads-http://www.bloomberg.com/news/2010-12-20/u-s-web-ads-exceed-newspaper-print-ads-http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V8S-4TFDCFB-1&_user=10&_coverDate=12%2F31%2F2008&_rdoc=1&_fmt=high&_orig=gateway&_origin=gateway&_sort=d&_docanchor=&view=c&_searchStrId=1659506171&_rerunOrigin=google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=be1eab91f1ffef647bc7953f054269ae&searchtype=ahttp://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V8S-4TFDCFB-1&_user=10&_coverDate=12%2F31%2F2008&_rdoc=1&_fmt=high&_orig=gateway&_origin=gateway&_sort=d&_docanchor=&view=c&_searchStrId=1659506171&_rerunOrigin=google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=be1eab91f1ffef647bc7953f054269ae&searchtype=ahttp://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V8S-4TFDCFB-1&_user=10&_coverDate=12%2F31%2F2008&_rdoc=1&_fmt=high&_orig=gateway&_origin=gateway&_sort=d&_docanchor=&view=c&_searchStrId=1659506171&_rerunOrigin=google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=be1eab91f1ffef647bc7953f054269ae&searchtype=ahttp://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V8S-4TFDCFB-1&_user=10&_coverDate=12%2F31%2F2008&_rdoc=1&_fmt=high&_orig=gateway&_origin=gateway&_sort=d&_docanchor=&view=c&_searchStrId=1659506171&_rerunOrigin=google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=be1eab91f1ffef647bc7953f054269ae&searchtype=ahttp://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V8S-4TFDCFB-1&_user=10&_coverDate=12%2F31%2F2008&_rdoc=1&_fmt=high&_orig=gateway&_origin=gateway&_sort=d&_docanchor=&view=c&_searchStrId=1659506171&_rerunOrigin=google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=be1eab91f1ffef647bc7953f054269ae&searchtype=ahttp://new.stjohns.edu/media/3/9da6177691fd45a7af452412e7b4caf9.pdf


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