Yahoo is a company that started back in 1994 as a website directory and evolved into a very well known brand over the years buying into all sorts of new technologies while remaining cast as a search engine making money off advertising.
Symptoms of Problems
There were many visible symptoms of the problems within Yahoo. First off, when the dot.com bust hit, Yahoo found itself in dire straits as far as financials are concerned. As time goes by, Yahoo is ever loosing market share to Google as a search engine. More and more people are googling things instead of resorting to Yahoo. Along with people using Yahoo less for searching, user are leaving Yahoo in favor of other sites such as Google, AOL, Facebook, MySpace, and other news/weather websites. At the same time as all of this there is seen a general decrease in Yahoo’s revenues. In an effort to expand and gain market share and realize greater profits Yahoo often goes out and acquires companies – however, they are finding out after the fact that they are paying too much. Finally, the stock price of Yahoo has plummeted and continues to remain at very low levels in comparison to other companies.
Identifying the Problems
The first problem identified is that Yahoo’s only source of income is from that of advertising. Yahoo has not diversified its sources of income and is therefore very susceptible to the market’s whims. When things like the dot.com bust happen and companies cut back on advertising (or quit since they went out of business) then Yahoo feels the full force of it. Additionally, if a competitor like Google comes along and can do the advertising better, Yahoo has no other income streams to fall back on. The next problem is that Yahoo cannot seem to get on the leading edge of innovation and instead is buying into new ideas after they have been started and taken off. This inability to be innovative in-house has left yahoo with no other option than to try to buy into innovation which can be costly. Finally, Yahoo started off as a website directory fueled by advertisements.
As time went by and the number of websites exploded it would only make sense for Yahoo to move into the search engine business as this is what customers view to be their core competency. However, shortly after inception Yahoo began outsourcing its Search capabilities to third party companies including Google, and now Bing, which is run by Microsoft. This essentially leaves them paying their competitors for something they should be doing themselves. Not only has their Search Engine competency decreased, but they are also falling behind in the dynamics and innovations of online advertising.
Analysis of the Causes
The causes of the problems and symptoms of Yahoo vary. First off, with the market troubles due to the dot.com bust many smaller companies reduced their advertising expenses, these smaller companies making up a large chunk of Yahoo’s advertising profits caused a cascading effect of both their income and consequentially stock price to drop. Beyond simply fewer companies desiring to advertise, as Yahoo looses search engine market share fewer and fewer people are using Yahoo to search. The fewer people use Yahoo to search the less income Yahoo gets from its would-be advertisers. This again affects the stock price negatively. As the stock price is negatively affected this decreases the amount of money Yahoo has available to acquire new companies with. This however is amplified by the fact that Yahoo is going out and finding newly innovated companies doing cool new things to bring in customers and paying them large sums of money to take them over.
While this works sometimes, Yahoo is finding it is paying too much for these new companies which it also in turn fails to keep innovative. So while they are on the leading edge for a brief period of time, these new companies fall behind due to a certain level of “maintenance” being neglected as far as continuing their creative nature. Finally, Google as a company, which is now Yahoo’s biggest competitor as things stand, came into existence in the depths of the dot.com bust. This means Yahoo was at its worst and least prepared to put up a fight to maintain market share. Coming to market under such conditions appears to have made Yahoo’s competitor strong and capable of claiming more than its fair share of the market.
Yahoo will have many objectives. First, there should be more dynamic sources of revenues and not be depending so heavily on advertising revenues. Therefore an objective should be to have more diversified and thus safer forms of income. Secondly, an objective of becoming a leader in new innovations and not simply buying into them after the fact, but being the starter and first mover in new ventures. The last objective will be to become the gold standard of search engines and premier online advertiser within the industry.
To meet these objectives there are a number of possible options. The first option would be to develop Yahoo’s auction site/services by offering new and high quality services that users need so as to make more frequent and better sales. The next option would be to offer new Technological services based off the many businesses Yahoo has acquired. Offering website building and maintaining technical services to businesses, small business services for online expansion, and other possible technological services that could be sold to small businesses that Yahoo already does for itself – basically utilizing the people Yahoo has within itself to make money outside of itself. Next, give the growing craze of social networking sites, Yahoo could work to form joint ventures between them and Yahoo so as to create a mutually beneficial relationship without Yahoo expending the capital to but them.
Additionally Yahoo could work on finding new services that add value for customers that can become fee-based services. Another option could be to fire Semal in favor of a CEO that is more geared towards creating new technologies as opposed to acquiring them and that is perhaps more in-tune with the internet industries and the creative nature necessary to thrive. Finally, Hiring newly graduated algorithm specialists from prestigious universities to Strengthen Yahoo’s core competency as a search engine and thus hopefully enabling them to surpass competitors in reputation of the best search engine.
Plans of Action – Short-Term
First off Yahoo will offer fee-based services for businesses such as, website development, technical support, intraweb search systems, website infrastructure, ect. This will generally entail long-term relationships between Yahoo and these businesses, in particular with small businesses because they do not have a lot of information about technical support and will be in need of expansion and training. Next, Yahoo will offer strong incentives to employees to develop new products or services. Both in terms of financial compensation and by giving the employee power over there idea and the ability to follow through with it into the long term. Our final short-term plan is to hire a strong team of people to strengthen and improve Yahoo’s search engine and push advertising abilities to new levels of effectiveness by using Yahoo’s available technology.
Plan of Action – Long-Term
The long-term plan of action for Yahoo is to continue developing Functional Resources so as offer value-creating services to businesses, and develop Business-level strategies that will bring in new customers and create expanding cash-flows from different income sources other than just advertising. The next plan is to develop a corporate-level strategy that promotes both related and unrelated diversifications through a culture of empowerment of employees to develop/invent new services/technologies that will position Yahoo as a leader in the future. Finally, develop a functional-level strategy to study competitors and upstarts to better identify, strengthen, and improve Yahoo’s core competencies. By studying others in the field and using them as benchmarks, Yahoo will know what it has to do to attain its necessary high level of market share.
Control of Implementation:
To control the company and make sure the objectives are being met by our plans of action we will implement a system that requires a certain percentage of income streams to be unrelated to advertising and will be calculated off the financial reports. Simply reducing advertising to meet the percentage will be considered unacceptable and actions will be called for. Next a quota of new services/technologies to be created every year will be set. This requirement will be measured by the number of proposals for new projects that are submitted within the company. If the Quota is not met, there will be a re-evaluation of the systems regarding innovation and compensation. Finally, to measure our over-all ability in our core competencies we will look at market data pertaining to search engine usage and see how Yahoo compares. If need be, advertising efforts will be taken along with customer surveys and changes to meet goals.