Strategic Management -Yahoo

7/30/2019 Strategic Management -Yahoo

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It began as a college start-up before it became a giant in the Internet world. But with itsrecent problems and increasing competition, is Yahoo on its way to becoming irrelevant?

How It Started

The company began innocuously, with Stanford graduate students Jerry Yang and David Filobrowsing around in 1994 the then new world of the Internet. Yang then began posting

random stuffs online, including his golf handicap, his name in Oriental characters and a list ofall the websites he follows. Soon, he organized these into a list of other websites, naming itJerry and Davids Guide to the World Wide Web. These garnered the attention of otherusers as it provided an easy link to other useful and relevant sites.

Barely two months later, the site had been renamed as Yahoo, an acronym for Yet AnotherHierarchical Officious Oracle. It was also a slang for rural Southerners, a description appliedto Filo by his girlfriend back in college.

The company grew fast in a short amount of time. Before the end of the year, Yahoo wasalready experiencing more than a million hits in one day. Yang and Filo recognized this

unique opportunity and got support from Sequoia Capital, which invested $2 million in thecompany.
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Yahoo quickly became one of the most popular sites in the Internet. It employed around 50people by 1996, with these people tasked to add sites to the directory. That year, the company

had its initial public offering, raising $33.8 million in the process. By 1999, both Yang andFilo were worth more than $8 billion each. Yahoo stocks were trading at $118.75 per share inthe beginning of 2000. The company became so strong that it rendered its competitor, AOL,useless.

Then Came Google

Google came along just as the dotcom bubble was about to burst. These twin scenarios hitYahoo hard. Google proved itself to have a better and simpler search engine that spits outrelevant results. Google also made use of Internet crawlers that yielded automatic results. Atthat time, Yahoo was still using humans to add to its directory.

Around that time, the dotcom bubble also burst. From the $118.75 per share in January 2000,

Yahoo stocks dipped to as low as $4.05 per share barely 21 months later in September 2001.
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With Google growing cheaply because of its superior search engine and cheaper overheadcosts, Yahoo was forced to lay off some of its workers.

Keeping Calm and Surviving

Still, Yahoo survived this onslaught. It recognized its problems and took a strategy of bothconfrontation and collaboration. It even made use of Googles search engine starting in 2000as Yahoo developed its own technologies for its search engine. This was then launched in2004.

It also expanded its role in the Internet by gobbling up smaller companies in allied fields, likeHotjobs, a job finder in the web, Oddpost, a provider of webmail services, and Flickr, a

popular photo-sharing website.

It also enhanced its web portal by partnering with different content providers from around theworld. Information was categorized into Yahoo! Sports, Yahoo! Music, Yahoo! Movies,Yahoo! Finance, Yahoo! Weather, Yahoo! News, Yahoo! Games and Yahoo! Answers. Italso added a personalization service called My Yahoo!, which allows users to create theirown combination of all their favorite features, content, information and feeds into a single

page.

It also enhanced its Internet communication services, like Yahoo! Messenger and Yahoo!

Mail, with Yahoo! Mail facing Googles Gmail service challenge head on by offering
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unlimited data storage. It also provided social networking and user-generated contentservices, like My Web and Yahoo! Personals.

Yahoo also provided shopping services like Yahoo! Shopping, Yahoo! Autos, Yahoo! RealEstate and Yahoo! Travel, which allows users to garner important information and conduct

commercial purchases and transactions online, it even briefly had an eBay style service calledYahoo! Auctions, but this was discontinued in 2007, though the service was maintained inAsia.

By 2007, Yahoos share of all online searches stood at 22 percent. This was still way behindGoogles 54 percent, but substantially ahead of Microsofts paltry 10 percent. During the firstquarter of 2008, Microsoft offered $45 billion to take over the entire Yahoo group.

Missteps and Miscalculations

Yahoo has had its share of missteps and miscalculations. Several of its products and serviceswere forced to close down in the past few years, like Yahoo! 360, Yahoo! Buzz, MyBlogLogand several others.

It bought the popular web hosting service called Geocities in 1999, only for it to close shop adecade later, thus deleting a huge amount of information from seven million web pages. Italso had a brief phone application that ran on Java called Yahoo! Go, but this was closed in2010.
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Other discontinued services from Yahoo include Yahoo! Tech, Farechase, Audio Search, MyWeb, Pets, Kickstart, Live, Briefcase and Yahoo! for Teachers. it also ran a geo-taggingwebsite called Yahoo! Koproi, but this was discontinued as it did not help with thecompanys bottom line, with most of its users based in Indonesia.

But it is its rejection of Microsofts offer to take over for $45 billion that may loom a largedark shadow over Yahoo. Microsoft had dropped the offer due to disagreements in theamount involved. Yahoos share price slowly but surely dipped. While Microsoft came backwith newer offers, all of them were at substantially lower amounts. It moved the billionaireinvestor named Carl Icahn to lambast Yahoo for its corporate irresponsibility in rejecting theoriginal offer made by Microsoft.

In 2008, Jerry Yang stepped down from his post as Chief Executive Officer, though he didretain the title of Chief Yahoo. He is still involved with the company, though at a much lowerlevel. In 2010, Yahoo decided to power its search engine using the facilities of Bing, the newsearch engine created by Microsoft.

Such is the dizzying ride of Yahoo. The college start-up turned Internet giant may soonfollow the footsteps of AOL, the company that Yahoo consigned to irrelevancy back in itsheyday.
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Mari ssa Mayer has been Yahoo's CEO f or one year, and in that time she's made 17 acquisitions, changed several staff

poli cies and updated most of Yahoo's servi ces, but her spending has only been possibl e through smart investment in

Al ibaba Group eight years ago.

Marissa Mayer, 38, has been Yahoo CEO for one year and has made 17 acquisitions in that time. (Credit: Reuters)

Saying the last 12 months have been a busy year for Marissa Mayer is something of an understatement. In thattime, Google's 20th employee became Yahoo's fifth CEO in as many years, gave birth to a baby boy, bannedYahoo staff from working at home(but gave them all aniPhone, Up fitness band and free lunch), oversaw theacquisition of 17 companies and convinced investors her internet dinosaur was far from extinct.

But none of these changes, nor the updates toYahoo's home screen, email service,Flickr photo-sharing app, or theblockbuster$1.1bn (730m) buyout of Tumblrare why the company's share price is up 70% year-on-year.

Investors have co-founder and former CEO Jerry Yang to thank for that, as it was he who saw potential in small Chinesecompany Alibaba in 2005, into which he invested $1bn for a 40% stake, and out of which Yahoo pocketed $7.6bn when itsold 17% of the company earlier this year.

When Mayer, 38, took over at Yahoo last July she told her staff there is "an enormous amount of opportunity" in front ofthem, but despite the headline acquisitions and policy changes it is Yahoo's stake in Alibaba which is keeping it alive andbankrolling those 17 acquisitions whilead revenue continues to slide.
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A future full of personalisation, daily apps and beauty

When Mayer eventually disclosed her plans for Yahoo! she said its future would be verypersonalized, and content and mobile focused. Speaking earlier this year at a WorldEconomic Forum event in Davos, she stated that Yahoo!s job was to order the web for users

on desktop and mobile.

With the web becoming so vast, theres so much content and theres so much social context,and now with mobile, theres so much location context and activity context, she said. Howdo you pull all that together? In Yahoo!seyes, through a feed of information that isordered. The web is ordered for you and is also on your mobile phone.

Since taking over Yahoo!, Mayer has revamped some of the companys offerings, cut out afair number of its apps and introduced users to some beautiful experiences. For instance, thecompanys weather app, launched earlier this year, plugs into Flickr by pulling user photos tohelp depict the current weather. Flickr has always been one of Yahoo!s best products and its

revamphas been a welcomed change that users have been waiting for.

The mission is to make Flickr desirable by making it beautiful, easy to use and mobile. SoMayer made it so:

were thrilled to take Flickr even further with a beautiful, completely re-imaginedexperience that puts photos front and center, she wrote when the revamped site launched.When it comes to photography, technology and its limitsshouldnt hinder the experience. Sowere also giving our Flickr users one terabyte of space for free.

Flickr truly is a breath of fresh air and quite mesmerizing. Its simplicity of use and effortlessbeauty rivals that of Instagram. It seems Yahoo! decided to allow the extraordinary talents of
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photographers to explode on the well designed site and app. This beauty ties in seamlesslyinto its weather app, this app makes checking the weather a stunning experience, it allows toexplore cities not just the climate. That being said, Flickrs architecture feels like its creakingunderneath the beauty, search, set management, browsing and relevance are still an issue.

And with those two apps it became obvious that Yahoo! has gotten into the business ofbeauty. Every app that has been released since Mayer joined has emphasised simplicity, alesson from her Google days no doubt. Even Mail looks quite tempting these days, a tadGmail(ish) but tempting still, and that is saying something.

There is a freshness about the company that means die-hard fans like my father and sister arebeginning to feel that their dedication is paying off.

It seems that Yahoo! is finally thinking about providing its users with an experience ratherthan a just a web service that happens to have other stuff too. Changes like these harken goodtidings for the company. They tell the world that it is finally ready to get back to the table it

help build. But is it too late? There are more dominant, more liked and wildly successfulcompanies that have been succeeding at this for a while now: Google, Facebook andInstagram.

In startups we trust: a tale of many acquisitions

Yahoo! has a lot of money, which is odd because its stocks arent that great, and it has beenon a buying spree that would putBecky Bloomwoodto shame. It has spenta lot of moneyonTumblr, Summly, Snip.it, Loki Studios, GhostBird Software, Stamped and OnTheAir. Thecompany has bought around 14 companies in the last year, double what it acquired between2010 and mid 2012. I suppose thats what happens when yousell off some your stakein arather profitable Alibaba.

When you look at the types of companies that Mayers Yahoo! is buying it is clear that thecompany is prepping itself for a social, mobile and content-driven future quite in line with theCEOs plans. When Yahoo! announced its acquisition of Tumblr, Mayer said that the

blogging platform was redefining creative expression online:

On many levels, Tumblr and Yahoo! couldnt be more different, but, at the same time, theycouldnt be more complementary. Yahoo is the internets original media network. Tumblr isthe internets fastest-growing media frenzy. Both companies are homes for brands

established and emerging. And, fundamentally, Tumblr and Yahoo! are both all about users,design, and finding surprise and inspiration amidst the everyday.

So Yahoo! wants to meet todays media where they are while creating a home for brands aswell as being part of your daily expression. It makes sense, though Yahoo! is still a powerfulcompany, it hasnt been very relevant in a long time. Aligning itself with successful and sexystartups (Summly and Tumblr) makes getting back to the table a more manageable journey.

According toThe Wall Street Journal, Yahoo! has already demonstrated staying power overthe last few years and spending over a billion on Tumblr shows a significant power shift onthe companys part. Though there are risks, what Yahoo! currently lacks is youth power,

something Tumblr has in droves. The quest for cool is indeed a desperate one, Yahoo! is
http://en.wikipedia.org/wiki/Shopaholic_%28novels%29http://en.wikipedia.org/wiki/Shopaholic_%28novels%29http://en.wikipedia.org/wiki/Shopaholic_%28novels%29http://en.wikipedia.org/wiki/List_of_mergers_and_acquisitions_by_Yahoo%21http://en.wikipedia.org/wiki/List_of_mergers_and_acquisitions_by_Yahoo%21http://en.wikipedia.org/wiki/List_of_mergers_and_acquisitions_by_Yahoo%21http://memeburn.com/2012/09/yahoo-sells-17-of-its-alibaba-stake/http://memeburn.com/2012/09/yahoo-sells-17-of-its-alibaba-stake/http://memeburn.com/2012/09/yahoo-sells-17-of-its-alibaba-stake/http://online.wsj.com/article/SB10001424127887324787004578493130789235150.htmlhttp://online.wsj.com/article/SB10001424127887324787004578493130789235150.htmlhttp://online.wsj.com/article/SB10001424127887324787004578493130789235150.htmlhttp://online.wsj.com/article/SB10001424127887324787004578493130789235150.htmlhttp://memeburn.com/2012/09/yahoo-sells-17-of-its-alibaba-stake/http://en.wikipedia.org/wiki/List_of_mergers_and_acquisitions_by_Yahoo%21http://en.wikipedia.org/wiki/Shopaholic_%28novels%29


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rumoredto be bidding for video streaming service Hulu as well, but whether it can fork outthe millions for that after the billion on Tumblr remains to be seen.

It takes more than pretty and startups to make you cool again

The company has said or done very little search in the last year and its finance app, possiblyits best tool, seems to have just been left as is maybe that is for the best. Though video andnews startups have been acquired, Yahoo! isnt making any big noises around revampingYahoo! News. Perhaps the company has given up its fight on search (it does Piggyback offBing after all)? Might be for the best that one.

But theres still a sense that Yahoo! is struggling with its identity. Is it a tech company or amedia company? It may not want to be a media company, but it actually still isand needs tofigure out how all that fits in with its new vision.

Here is what I see: a company trying to fight its way back from the depths of irrelevance.

Yahoo! isnt a dead company: anyone that can afford to pay a billion dollars for somethingthat barely makes money isnt out for the count. What Yahoo! is, is a not so popular big-but-not-mega internet company. It has dedicated users but does not have the cult following ofGoogle, Facebook and Apple.

Mayer is working hard to bring the company back, culling useless apps and launching moreuser-demanded ones is a good start in the trek out of oblivion. But is a buying spree really theanswer?

No one really knows what Yahoo! is up to with all these purchases. A strong mobile, socialand media focus seems to be coming through but is it enough? This has been Yahoo!s

problem in recent years, trying to be both a tech and media company. Mayer hasnt reallygiven a concrete distinction of which she would like to be. For now it just seems to be case ofI got dollar dollar bills so buy buy buy.

Yahoo fights back

Yahoo reported mixed financial results in the second quarter of 2013, with ad

revenue declining but profits rising 46%, as the internet giant continues itsfight back against the likes of Google and Facebook.
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The news comes as chief executive Marissa Mayer marked one year at the helm of Yahoo,embarking on a series of acquisitions, while scaling back on less profitable areas andfocusing on content, mobile and video.

The results were the first since the company acquired blogging platform Tumblr for $1.1bn

(73m) in June.

Profits were $331m, up 46% from the same time last year. The rise was due mostly to thecompany's investment in Chinese ecommerce site Alibaba.

Display advertising revenue fell 13% in the quarter, while search revenue was down 9%.

Commenting on the results, Mayer said: "We reached a pace of launching a new productalmost every week," said Ms Mayer during a webcast to discuss the company's earnings. Asyou can tell, we've been busy."

According to research firm eMarketer, Yahoo's share of global digital ad spending isexpected to decline to 3.1% in 2013 from 3.37% last year.

In the US, eMarketer estimates that Yahoo's share of US digital ad revenues will decline to8% from 8.6% in 2012.

Yahoo bought nine technology start-ups in the past quarter, including Tumblr and Summly,bringing the total to 17 acquisitions under her watch.

Yahoo hopes this will diversify its base, attract engineering talent and boost company morale.Mayer also mentioned an improved environment at the company, noting that in the secondquarter, attrition - that is, employees leaving the company - declined by 59%.

She also noted that more than 12% of new hires in the past year were boomerangs - that is,people who left Yahoo only to come back.

Significant chunk

Of the $390m profit Yahoo made in thefirst quarter this year, $218m came from Alibaba Group, which is enjoying successasChina's internet economy grows and the company approaches a stock market flotation.

It was a similar story for thesecond quarter, as Yahoo earned $846m in cash by redeeming its shares in the group,

representing a significant chunk of Yahoo's $1.07bn revenue for the quarter, down 1% on last year.

Alibaba saw its revenues jump 80% year-on-year in 2012 to $1.8bn and profits doubled in the same time to $642m.

The 24% stake Yahoo still holds in Alibaba is potentially worth another $20bn, giving Mayer and her board plenty of cash tokeep on buying companies - and their staff - in the hope that the purchases will bring features and services Yahoo customerswill want to use.

Reinvigorate

There's no doubt Mayer has helped to reinvigorate Yahoo after years of being little more than an also-ran while Google andFacebooksaw huge growth, and widespread publicity for each change to its products and update to staff policy is no doubt abonus, but Mayer can't live off Alibaba forever.

One day that $7.6bn will be gone and although Mayer knows she still has around $20bn in options to play with, getting rid ofthis will take away the most profitable part of her company, and investors will jump ship.
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The next few years will be a balancing act as the stabilising wheels are removed and Yahoo, with dozens of acquired startupspatching up the rust, will have to make progress under its own steam.

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