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 code-

named Project Panama, users of its search engine will hardly notice a difference. Users

will see the text ads adjacent to the main search results, which is just a little more

interesting, tempting them to click on those ads a little more often. Those clicks should

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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 Hewlett-

Packard Co (HP). This might attract more consumers in Asia Pacific, Europe, North

America and South America. The number of new customers will grow and increase

Yahoo!’s global foothold and financial status.

2. Online video chatting

As social portals loose their luster, video portals have started to become one of

the new gems of the Internet. Yahoo!’s purchase of JumpCut in September 2006 should

leverage the company for the advancement.

Yahoo! Threats

1. A hinted acquisition by Microsoft

There have been a number of rumors floating around that Microsoft might

attempt to acquire Yahoo! One of Microsoft's major reasons for a possible acquisition is

that MSN lags behind both Yahoo! and Google in search.

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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

2. Yahoo!’s new ad campaign

3. Increased revenue from global markets

4. Global and strong brand recognition

5. Yahoo! Inc. has beaten Google in the

mobile market

6. Yahoo! Inc. has many more auxiliary

products compared to the competitors.

1. Reliance on U.S. for revenue

2. Click fraud

3. Yahoo! is ranked 5th in visitors among

video sites, while YouTube. Which is

owned by Google is ranked 1st.

4. Google search results generate twice

as much revenue as Yahoo!.

5. Advertising revenue is failing due to

Google and other competitors in the

market.

OPPORTUNITIES THREATS

1. Partnerships with several big

companies.

2. Online video editing and the Yahoo!’s

purchase of JumpCut.

1. A prospective acquisition by

Microsoft

2. Legal threats

3. Consumer attitudes towards online

advertising may become more

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3. Yahoo!’s purchase of Flickr. negative.

4. Increasing strength of competitors.

5. Social websites such as MySpace and

FaceBook are now breaking into the

online advertising market.

Conclusion and Recommended Strategies

According to the analysis of Yahoo, Yahoo may focus on some key points as

follows.

1. Globalization: Yet with all strengths and opportunities, Yahoo! must remain

conscious of significant weaknesses and threats it faces in the current environment and

the future environment. Although many equate Yahoo! with only search, Yahoo! should

position themselves as a global, strong, surviving Internet information services

company and global advertising agency.

2. Customers Focus Strategy: Customer segmentation is absolutely essential for

many businesses to success around the world. After all, customers are the bread and

butter of any business. Yahoo! should design their marketing plan to focus on the

search, information services, and advertising, and also address the growing concern it

faces from its competitors. Also, Yahoo! should take another look and care of its

customers to the completest. Their satisfaction promises returns. For Yahoo Company

to capture the growth of the internet, it should become more customer-focused.

3. Merger and acquisition: Merger or acquisition could be an opportunity to the

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

extreme caution and speed up negotiation. In addition, an extensive internal and

external assessment must be carried out at both companies. The results must be

carefully analyzed and only then the appropriate action taken. Any merger or

acquisition must be profitable and provide advantages for the company in the short and

long run.

4. Competition: Usually competition is a threat for the company but instead company

should look at it as opportunity. Competition should be used for Yahoo! as a strategic

opportunity to develop, expand, advance, and mature in this competitive market by

using modern technology. And Yahoo! should diversify its sources of revenue and

break away from the dominance of advertising. Competition always works as a motive

for the business, community, and society as a whole, as it help businesses to seek

continuous improvement in products, and services.

5. Strategic Organizational Structure: The Company’s structure should depend on

the company’s business strategy. The structure should not depend upon geography,

products or customers. It should depend upon what is best for the organization.

Furthermore, Yahoo! should implement "Open Door Policy" to allow an open line

between groups and top management instead of top-down approach which slow the

process of decision making. The structure of Yahoo! is divided into three groups:

audience group, advertising and publisher group, and technology group. This strategic

functional organizational structure provides Yahoo with a competitive advantage over

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centralized organizational structures in the same industry.

Table 2

TOWS Matrix

　 Internal Factors Strengths (S)

1. New search algorithm

2. New Ad campaign

3. Increased revenue from global

markets

4. Global brand recognition

5. Yahoo! Inc. has beaten Google

in the mobile market

6. Yahoo! Inc. has many more

auxiliary products compared to the

competitors

Weakness (W)

1. Reliance on U.S for revenue

2. Click Fraud

3. Yahoo! is ranked 5th in visitors

among video sites.

4. Google search results generate

twice as much revenue as Yahoo!.

5. Advertising revenue is failing.

External Factors 　

Opportunities (O)

1. Partnerships

2. Online video

chatting

3. Possess Flickr

SO Strategies

1. Remodel the current video site

and encourage advertising on

the site by using the strong

brand strength and recognition

of Yahoo!

2. Use Flickr as a new means of

advertising for the partnerships

with VISA or NFL.

3. Use Yahoo!’s current expanded

market to target advertisers in

the foreign countries.

WO Strategies

1. Use internet video advertising

boom to strengthen Yahoo!

Video sites.

2. Use Flickr as a tool to

developing a better video site.

3. Increase Flickr’s capabilities in

order to reverse the decline in

image search on Yahoo!

4. Merge W1 with O1 to create new

market opportunities.

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4. Use S1,S2,S3,S4 to develop

partnership and online gaming.

(O1&O2)

5. Develop partnership with

security software corporations to

combat this menace. (W2 vs. O1)

Threats (T)

1. Prospective

acquisition by

Microsoft

2. Legal threats

3. Consumer

attitudes

4. Increasing

competitors

5. Social websites

are breaking into the

online advertising

market.

ST Strategies

1. Use Yahoo!’s brand recognition

and its partnerships with NFL to

promote searches on Yahoo!

2. Use Yahoo! Brand recognition

to build a social website through

Yahoo! Inc.

3. Use S1, S2 to remain profitable

in order to avoid acquisition

tendencies.

4. Avoid violating set rules and

laws to prevent legal litigations.

WT Strategies

1. Increase advertising for Yahoo!

search engine to increase users.

2. Establish good working

partnership with other players in

the industry to avoid harsh

competitions.

After developing the SWOT matrix, it seems to be in the company’s best

interest to pursue a strategy that focuses on increasing their advertising revenues.

Yahoo!’s most predominant strength is their brand recognition. In developing a strategy

for Yahoo!, the company should use their strong brand recognition to entice more

advertisers for their site. They also must concentrate their efforts on upgrading and

advancing their target advertising capabilities.

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