As one of the leading pioneers of internet Yahoo! was founded in 1994 on board a trailer on Stanford’s University’s campus by Jerry Yang and David Filo. Yahoo’s core came from display and search advertising such as billboards on top of homepages. However the company faced losses due to poor management decisions which in turn angered the shareholders. By 2010 Yahoo’s revenues estimated roughly $6. 3 billion which of 84% came from advertisement and the remaining from subscription fees for photo services and real estate. Yahoo’s motivation came from having a unique product and was not a means to a larger business model.
As internet grew bigger and more companies entered the market the rivalry stared to worry the decision makers in Yahoo. Several companies offered to purchase the company but met with resistance and that became recognition for independence for Yahoo. After 2001 with the growth of the internet, U. S economy was undergoing recession and companies’ revenues were declining, among them the Yahoo’s shares which fell from a high $42. 88 to a low $9. 09. Vivendi a French entertainment company offered to combine the firms but were hindered due to protectionism and despite the financial difficulties Yahoo was determining to remain independent.
Company loss and angry shareholders led the first CEO of the company Timothy Koogle to step down and the management was now looking into music and movies to boost exposure and profits. A new CEO with many years of experience and success within Hollywood was now chosen to guide Yahoo! Terry Semel had no background in technology and advertisement but the board convinced Roy Bostock, with many years of advertising experience, to join the team. Yahoo’s biggest competition Google had its major breakthrough in 2004 by exposing a different approach of exposing advertisements.
The ad clicks which was shown on the side of the search results generated 40% advantage over its competitor Yahoo! To counter Google’s tactics Yahoo! paid $1. 3 billion to improve ad sales and strengthen its market position. Analytics were revealing that Google was making ?4. 5 per ad click while Yahoo was averaging ?2. 5. In order to close the gap between the two companies the Panama project took effect in 2006. Yahoo! was visioning itself to compete in a different set of environment where voice and video would replace traditional advertisement to more relevant and interesting search results.
However the Panama project would take longer than expected due to transitional delays and complains of service interruptions from other companies. Other reason was the Panama project would require additional personnel and expertise. Something that Yahoo! did not have as they had a small investment while Google maintained its superiority and maximized profits with ad clicks. The board decided to cancel the project as it would cost the company more money than the $1 billion dollar initially planned to invest. As Google dominated Yahoo’s domestic strategy and gained more market the management of Yahoo! ooked in the Asian market specifically the Japanese they had explored in 1996.
As Yahoo! was popular in the Asian market the company broaden its Asian holding in 2005 by purchasing 43% stake in Alibaba, which was a Chinese business to business sales forum, in exchange for $1 billion dollars as Alibaba was competing with eBay to gain Chinese market. In 2008 Microsoft offered an investment totaling $44. 6 billion to counter Google knowing Yahoo! was looking in technology saving both companies $1 billion dollars a year in research and development. However no agreement was made as Yahoo! elt Microsoft was undermining the company and its global brand. As Yahoo’s shares was declining other offers was rejected from AT&T, Comcast and Time Warner Cable suggesting components such as Yahoo news, Yahoo finance should be part of established industry leaders. In order to bring good news for its shareholders Yahoo! came up with a three year plan combining its already strong position with a 305 million monthly users as a must buy service for buyers, sellers, advertisers and publishers. However analyzers saw this as an aggressive macroeconomic strategy while Google continued its dominance over Yahoo!
In 2009 Carol Bartz was appointed as the new CEO for Yahoo! She was known to cut costs and reform the company to create value for shareholders and gaining possibility for customers, partners and employees of the company. However it did not take long before she was criticized for her relations with Alibaba. The Chinese business to business selling forum’s subsidiary Alipay was an online payment site which was sold to a private company making it out of reach for Yahoo! Investors became angry and blamed Bartz for its cold relationship with the Alibaba group.
Her ten year agreement with Microsoft led to boost the panama project ranking Yahoo! as the number three search engine. The leadership hoped that her strategy of a $200 million budget cut would help the company to focus more on selling banner ads for its owned media and email pages. However that was not enough as investors blamed the mistakes on the board and their way of handling business, selecting four CEO’s in four years, as the deal with Microsoft should have taken place in 2008. In a letter Daniel Loeb CEO of Third Point LLC with a 5. % stake wrote his complaint and demanded to fire Carol Bartz and the board in order to restore order in the organization. Porter’s five forces analysis 1. Threat of new competition: * Yahoo’s biggest threat in this report is Google who started to gain advantage in 2004 by new way of advertising on its search engine. 2. Threat of substitute products or services:
* More internet users were changing over to Google for a free service usage and a more user friendly image with non-disruptive service as Yahoo! was undergoing during the Panama project. 3. Bargaining power of customers: Google’s shares were benefiting the shareholders more than Yahoo! as Google was ranked number one search engine as more users were switching over from Yahoo! 4. Bargaining power of suppliers: * Unhappy partners such as the Asian Alibaba group and high cost of personnel and expertise for developing Research and Development. 5. Intensity of competitive rivalry: * Google maximizing its ad clicks profits and gaining more leverage over Yahoo! by being more cost effective and capitalize on Yahoo’s mistakes and dominating their domestic strategy. SWOT analysis Strengh: * Yahoo! s considered a pioneer among internet users offering variety of search components fitting each person’s interest. Its messenger was widely used among service members of companies as well as regular individuals. Weaknesses: * The company failed to meet the shareholders expectations as well as lacking expertise among its board members and their choice of CEO’s which was not directing Yahoo! the right way domestically and internationally. Opportunities:
* Gaining new market in Asia and other parts of the world and maintain a strong business relationship in order to gain more market while Google was strong domestically. Threats: Cost of personnel and expertise as Yahoo! was in need of new technology in order to maintain competitive with Google. VRIN analysis: * Valuable * Asian market which boosted Yahoo’s revenues and its uniqueness as a brand. * Rare * Its several components offered in one such as yahoo! Finance, Yahoo! Dating Yahoo! Flickr. * In-imitable * Voice and video Advertisement aiming interesting search results based on preference. * Non-substitutable * Yahoo’s chance of investing in Alipay in order to compete for the Chinese market. Internal analysis: Yahoo’s core lays in advertising; other sources include subscription fees for Yahoo! ail, small business services, the sale of smart phone applications, and storage space on photo sharing site Flickr, real-estate fee to list items on yahoo as well as a referral fee from brokers who provide service through Yahoo! Finance. External analysis: Yahoo’s opportunity of combing companies and having partners, domestic and foreign, to remain cost effective and competitive in order to satisfy their shareholders. Reference Palepu, K. G Srinivasan, S, Lane, D, & Cornell, I (2011,October,31). Strategy and Governance at Yahoo! Inc.. retrieved November 06 2012, from Harvard Business School Web Site: http://hbsp. harvard. edu/product/cases