Case 12 – Yahoo /COMPANY NAME, WEBSITE, and INDUSTRY/State the company name, website address, and industry.
Outline and Grading Guide (150 points)
Choose a case from the textbook for this assignment from the following list.
Case 12 – Yahoo
COMPANY NAME, WEBSITE, and INDUSTRY
State the company name, website address, and industry.
BACKGROUND and HISTORY
Briefly describe the company in the case analysis. What is their primary business, who were the officers or key players described in the case study? If the case study company is currently in business, list the company’s current CEO, total sales, and profit or loss for the last year where data is available. Identify key events or phases in the company’s history. Describe the performance of this company in the industry. Visit the company’s website and use http://finance.yahoo.com and/or some other financial search engine to find this data. (15 points)
NOTE: Make sure to use APA citations throughout the paper. The textbook should be cited if it is the source of information. If you are not familiar with APA citation, check out the tutorial APA Guidelines for Citing Sources at the end of the course Syllabus. There are videos to help you with the APA format and business research in the Week 1 Lecture.
ANALYSIS VIA PORTER’S FIVE FORCES MODEL
Analyze the competitive environment by listing the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products and services, and the intensity of rivalry among competitors in the industry (Chapter 2). Summarize your key points in a figure. (25 points)
How does this company create and sustain a competitive advantage? What strategy from the readings was undertaken by this company? Were they successful? Can all companies use this strategy? How is the strategy affected by the life cycle in the industry? Remember to reference Porter’s generic strategies identified in Chapter 5 of the textbook, THIS IS CRITICAL. (40 points)
Choose two specific strategies from this list.
– Value Chain Analysis (pages 81–93)
– Resource View of Firm (pages 93–104)
– Industry Life Cycle Strategies (pages 187–195)
Apply them in detail to the organization. Be sure to think strategically and show the results clearly. Use the strategy as a sub-header for each section so it is clear what is being applied. (40 points)
COURSE OF ACTION RECOMMENDED
If you were in a position to advise this company, what strategy would you recommend to sustain competitive advantage and achieve future growth? Be specific and list the steps the company should take for successful implementation of your course of action. (15 points)
What do you think of this case study? Describe what you believe are the lessons learned from this case. (10 points)
When you have completed the paper using the above sections, insert a page break and have a separate reference page. The references should be listed in accordance with the APA guidelines as shown in the tutorial. (5 points)
• Use a title page.
• Font: Use Times New Roman, 12 point.
• Place your name in the upper left hand corner of the page.
• Each section of your paper should be headed by the bolded, capitalized item described above.
• Indent paragraphs.
• Insert page numbers bottom right.
• Paper length should be four to six double-spaced pages not including title page, references, or illustrations and tables.
• Use APA citations throughout the paper. If you are not familiar with APA citation, refer to tutorial, which is contained in the last section of our course Syllabus.
• Include a separate reference page at the end of the paper.
• Please prepare reference page as follows.
Dess, G., Lumpkin, G., & Eisner, A. (2012). Strategic Management (6e). Boston: McGraw-Hill Irwin.
• Save your paper in the following format: Your last name, initials of your first and middle name, and the company discussed in the case study.
EXAMPLE: If your name is Edward R Jones and you are writing a case study on Google, then the file name for your paper would be jonesergoogle.doc.
• Place the paper in the Dropbox designated by the weekly assignment.
Note that the report is worth 150 points and points are allocated for each section as noted in the outline.
Case 12: Yahoo!*
More than two years after the board of Yahoo hired Carol A. Bartz as chief executive to apply a little shock therapy to the ailing Web portal, the firm appears to be still suffering from many of the same symptoms. Its revenues and profits remain relatively stagnant, its market share has remained low, and there still continues to be a shortage of innovation (see Exhibits 1 and 2). Most analysts feel that her turnaround plan has failed to generate any significant results so far, prompting skepticism that she may not have been well suited for the job. “She’s been there long enough that you have to question her ability to have the impact that’s needed,” said Lou A. Kerner, an analyst with Wedbush Securities.1
Exhibit 1: Yahoo! Income Statement (in thousands of U.S. dollars)
Exhibit 2: Yahoo! Balance Sheet (in thousands of U.S. dollars)
Bartz has long warned that reviving Yahoo would take some time. Shortly after she took charge in January 2009, Bartz had warned that she would be trying to reverse a slide that has been years in the making, one that analysts say was caused by a slow decision-making process that allowed new competitors to capitalize on the various emerging trends among Internet users. During her two years at the head of Yahoo, Bartz has made substantial changes to the organization, including a shuffling of top executives. She has also tried to refocus the firm on its strengths in content areas such as news, sports, and finance and on other popular services, such as e-mail and instant messaging.
Many other forms of services which were no longer considered to be central to the firm’s strategy, such as personals, job listings, and real estate have been outsourced and are now largely handled by third parties. By far, Bartz’s biggest move has been handing over its search engine and related advertising to Microsoft, its one-time search nemesis. The agreement allows Yahoo to forgo the cost of maintaining search infrastructure while still collecting most of the revenue from the partnership. The firm can now focus on display advertising—banners and other graphical ads—where it remains the industry leader.
In spite of all of these moves, Yahoo’s financial results for the third quarter of 2010 showed only slight gains. Despite having an enormous audience of 630 million unique monthly visitors, making it the most visited Web site in the world, users are spending less time on the site. This stands in stark contrast to the traffic that is being generated by Google and Facebook, both of which continue to make big gains. “They’re treading water right now,” said Jordan Rohan, an analyst with Stifel, Nicolaus & Company.2
Bartz has acknowledged that much work needs to be done to restore Yahoo to its former glory, but she maintains that firm is showing signs of improvement or at least stability. “First you walk, then you run, then you fly,” she said in a conference call with securities analysts.3 Larry L. Cornett, a former Yahoo search executive, said that he was encouraged by the early stages of Yahoo’s turnaround but that Bartz needed to clearly lay out what the company stands for. “Maybe there’s some conversations internally, but from the outside, there isn’t a crystal-clear definition of what Yahoo means,” he explained.4
Dealing with a Slump
After a period of strong growth in the late 1990s, Yahoo saw a steep fall in revenues and profits as advertisers cut back on their spending after the dot-com bust. Under Tim Koogle, Yahoo had developed as a web portal that relied heavily on advertising revenues for profits. He had been confident that advertisers would continue to pay in order to reach the younger and technologically savvy surfers that would use his portal. As advertising revenues dropped off sharply, leading to a steep decline in the firm’s stock price, Koogle was replaced in April 2001 by Terry Semel, an experienced Hollywood media executive who had once controlled Warner Brothers.
Semel realized that he had to entice traditional advertisers back to his site. He made an all-out push to court advertising agencies that Yahoo had pushed away with its arrogance during the years before the bust. He also tried to attract back the business of big advertisers such as General Motors, Procter & Gamble, and Coca-Cola by using technology that allowed the website to move beyond static banner advertising, offering eye-catching animation, videos, and other rich-media formats. As advertisers gradually decided to spend again on online advertising after the slump, Yahoo managed to draw many of them back to its site, leading to a dramatic increase in its advertising revenues.
But Semel did not want Yahoo to rely primarily on advertising for its revenues. He began to push for other sources of revenue by making acquisitions that would allow his site to offer more premium services that consumers would be willing to pay for. One of the first of these was the buyout of HotJobs.com in 2002, which moved the firm into the online job-hunting business. Semel followed up with the acquisition of online music service Musicmatch Inc., hoping to bring more subscribers into the Yahoo fold. Over the next few years, the firm continued to add to its growing range of services by acquiring firms such as Flickr, a photo-sharing site, and Del.icio.us, a bookmark-sharing site.
By making such smart deals, Semel was able to build Yahoo into a site that could offer surfers many different services, with several of them requiring the customer to pay a small fee. The idea has been to coax Web surfers to spend hard cash on everything from digital music and online games to job listings and premium e-mail accounts with loads of extra storage. Semel hoped that the contribution from such paid services would continue to rise over the next few years, allowing the firm to rely less heavily on advertising. In his own words, “We planted a lot of seeds … and some are beginning to grow.”5
Semel’s biggest moves, however, were tied to his efforts to strengthen Yahoo’s position in the search area. Yahoo had been using Google to provide these services, but with Google’s growing strengths in this area, Semel decided further develop Yahoo’s own search engine. In 2002 he purchased Inktomi, a strong contender in search engines with whom Yahoo had also worked in the past (see Exhibit 3). A year later, Yahoo also bought Overture Services, a company that specialized in identifying and ranking the popularity of websites and in helping advertisers find the best sites to advertise on. Finally, Semel spent millions of dollars on further improving its search advertising system in order to stem the continual loss of search-related advertising revenues to Google (see Exhibit 4).
Exhibit 3: Yahoo!’s Significant Milestones
Exhibit 4: Share of U.S. Internet Searches: Monthly Estimates, January–July 2010
Source: comScore Networks.
Creating a Theme Park
With the expansion of services, Semel envisioned building Yahoo into a digital Disneyland, a souped-up theme park for the Internet Age. The idea was that web surfers logging on to Yahoo’s site, like customers squeezing through the turnstiles in Anaheim, should find themselves in a self-contained world full of irresistible offerings. Instead of Yahoo being an impartial tour guide to the Web, it should be able to entice surfers to stay inside its walls as long as possible. In order to make such a concept work, Semel believed that the firm should establish strong links between its various sites that would allow its consumers to move effortlessly from one of them to another.
This vision for Yahoo represented a drastic change from the model that had been developed by its original founders. The firm had let managers push for their own pet projects, resulting in an assortment of offerings that operated relatively independently. No one had thought about developing the portal as a whole, much less how the various bits and pieces could work together. Under these conditions, executives fought hard to obtain sufficient support for the particular services that each of them had developed. “Managers would beg, borrow, and steal from the network to help their own properties,” said Greg Coleman, Yahoo’s executive vice president for media and sales.6
Semel had been pushing to stitch it all together. He demanded that Yahoo’s myriad of offerings, from e-mail accounts to stock quotes to job listings, interact with each other. Semel called this concept “network optimization” and regarded this as a key goal for his firm. In order to ensure that the various efforts that were being made by managers were tied to each other more closely, he moved swiftly to replace its freewheeling culture with a more deliberate sense of order.
Semel began to pursue this stronger integration by chopping the 44 business units that he had inherited down to only 5. He also made it clear that every initiative proposed by any of the units was expected not only to make money but also to feed Yahoo’s other businesses. Consequently, Semel pushed Yahoo away from its earlier emphasis on long brainstorming sessions and initiatives driven by hunches. Instead, he demanded that managers make formal presentations of their new ideas in weekly meetings of a group called the Product Council, with nine managers from all corners of the company. The responsibility of the group was to make sure all new projects bring benefits to Yahoo’s existing businesses.
In spite of Semel’s efforts to tightly control the growth of Yahoo into new areas, the push to develop a digital theme park has led some analysts to question whether the firm has spread itself too thin. Even some people inside Yahoo began to question its goal of providing a broad range of services that can attract an audience that can be sold to advertisers. In a scathing internal memo written in the fall of 2006, Brad Garlinghouse, a senior Yahoo vice president, compared Yahoo’s strategy to indiscriminately spreading peanut butter across the Internet. “We lack a focused, cohesive vision for our company,” he stated in the memo. “We want to do everything and be everything—to everyone. We’ve known this for years, talked about it incessantly, but done nothing to fundamentally address it.”7
Searching for a Direction
Garlinghouse’s memo was intended to push Yahoo into establishing a clearer vision for the firm to pursue. He had believed that a stronger focus on specific goals would result in more specific responsibilities for individuals and units and speedier decision making for the firm. He had realized that Yahoo’s attempts to offer a wide variety of services had led to a proliferation of new executive hires, which eventually contributed to a growth of conflict between various business units. This had made it difficult to move swiftly to make critical decisions, such as making key partnerships and acquisitions to keep up with the changing competitive landscape. The once high-flying Internet pioneer was losing online advertising revenues to search engines such as Google and social networking sites such as Facebook (see Exhibit 5).
Exhibit 5: Number of U.S. visitors: Monthly Estimates, January–July 2010
Source: comScore Networks.
Shareholder dissatisfaction with Yahoo’s financial performance finally led to the resignation of Semel in July 2007. The firm turned to Jerry Yang, one of its cofounders, who had been serving as “Chief Yahoo!” to improve earnings and profits. When he took over, Yang promised that he would move quickly to come up with a new sweeping plan for Yahoo after a 100-day review of every aspect of its operations. As part of this plan, Yang announced a three-pronged new direction for Yahoo. He wanted his site to be the premier starting point for consumers on the web, to be a top choice for marketers seeking to place ads on sites across the Web, and to open Yahoo’s technology infrastructure to third-party programmers and publishers. Yang was clearly aware that these goals would require time and investments, but he was upbeat about his firm’s progress. “We are seeing early signs of success as a result of this clear new focus,” he announced soon after he took charge.8
Although these changes were welcomed, analysts were not sure that Yang could move quickly enough before competitors gain more ground and before investors lost patience. “They have six to nine months to prove their initiatives are working,” said Mark Mahaney of Citigroup Smith Barney9 These concerns were echoed by Jeffrey Lindsay, an analyst with Sanford C. Bernstein. “I have a lot of respect for Jerry Yang,” he commented six months after Yang had taken charge. “But so far his changes have been slow and incremental instead of quick and bold. To move at such a slow pace in the Internet market is risky.”10
It was clear that the many problems that Yahoo was facing would pose a considerable challenge for Yang. In particular, there were questions about the firm’s decision to invest in its own search engine rather than forging a partnership with Google. Similarly, the firm failed to clinch some crucial deals, including one with Facebook, one of the hottest social networking websites. Rob Sanderson, an analyst at American Technology Research, warned that the firm was at a critical juncture. “They’re relevant, and hold their audience pretty well, but the investor and media perception is that Yahoo is another AOL—a once-great company in decline,” he explained.11
One of the biggest challenges faced by Yang was the offer made by Microsoft in early 2008 to buy Yahoo for $33 a share, or approximately $47.5 billion. Yang refused to sell his company for less than $37 a share, although the shares had been trading for around $20. Shareholders were upset, because they stood to lose about $20 billion by the rejection of Microsoft’s offer. “I don’t think anything Yahoo puts out there is going to be comparable with what Microsoft was offering” said Darren Chervitz, comanager of the Jacob Internet Fund, which owned about 150,000 shares of Yahoo.12
Scrambling for a Focus
Less than a year and a half after he had assumed control, Yang decided to give up his role as CEO and revert to being the Chief Yahoo!, the strategy position that he had held before. After an extensive search, the board appointed Carol Bartz as the new head of the firm. Bartz had been in charge of Autodesk, a computer-aided software design firm for 14 years before stepping down recently. She was expected to develop a stronger focus for a firm that was perceived to have been drifting, especially during Yang’s turbulent leadership. Analysts were generally positive about her appointment, although many suggested that she lacked online media experience.
Bartz was expected to move quickly to reassure investors who were angry with Yahoo’s board for refusing to accept Microsoft’s bid for the firm. Shortly after she took over, Bartz moved to overhaul the company’s top executive ranks, consolidating several positions and creating others in an attempt to make the company more efficient. She combined the firm’s technology and product groups into one unit and created a customer advocacy group to better incorporate customer feedback. The changes were intended to speed up decision making within the company by making it “a lot faster on its feet,” Bartz wrote in a Yahoo public blog. But Ross Sandler, an analyst with RBC Capital Markets, said the restructuring was more promising because it clarified responsibilities. “There has been confusion at the top for so long,” he said. “This should solve that problem.”13
By July, Bartz had reached an agreement to hand over its search operations to Microsoft, which had invested heavily in relaunching its search engine and renamed it Bing. The terms of the 10-year agreement gave Microsoft access to search technologies that Yahoo had helped to pioneer and develop. Yahoo would transfer many of its talented engineers to Microsoft and lay off 400 employees who ran the search operations. In return, Yahoo would receive 88 percent of the search-related ad revenue for the first five years of the deal, much higher than is standard in the industry.
Reactions to the deal have been mixed. Some Yahoo shareholders have expressed concerns that the company will lose its valuable search experience, which would be difficult to recover from. “It feels kind of like a stab in the chest,” said Chervitz. “It certainly feels like Yahoo is giving away their strong and hard-fought share of the search market for really a modest price. My sense is that Yahoo will regret making this move.”14
But Bartz insists that the firm could no longer continue to match the level of investment Google and Microsoft have been making in searching, one of the web’s most lucrative and technically complex businesses. “This deal allows Yahoo to invest in what we should be investing in for the future—audience properties, display advertising, and the mobile Internet experience,” Bartz said in an interview soon after the deal had been finalized. “Our vision is to be at the center of people’s lives online.”15
Waiting for a Turnaround?
Even though progress has been slow, Bartz has managed to refocus Yahoo on areas such as news, sports, and finance, where it has considerable strengths. While she has moved the firm away from other activities she considered to be peripheral, Bartz has invested heavily in content over the last year, hiring dozens of editorial employees and buying Associated Content, a freelance news site, to enhance local news coverage. She also claims to have made progress with revamping the technology behind the web portal that should make it possible to introduce new services more quickly in the future. At the same time, Bartz has managed to achieve an improvement in Yahoo’s profit margins due to her aggressive moves to cut costs wherever possible.
In spite of these achievements, some investors are losing patience and have begun to demand that Yahoo’s board replace Bartz although her contract does not run out until 2012. Besides the slow growth in revenues and profits, they point to the continual turnover among executives at the firm. Three top managers have stepped down over the past couple of months, creating a perception of continuing turmoil and uncertainty. Even with this turnover, Blake Irving, recently hired as the firm’s product chief, claimed that employees are not feeling demoralized or rudderless. “What ends up getting picked up on more are the departures than the new people coming in,” he said.16
The news that some private equity firms are considering a bid to buy Yahoo has created more pressures for Bartz. These efforts are preliminary, however, as the equity firms are speaking with AOL and the News Corporation about teaming up on a deal. Salim Ismail, a former Yahoo executive who is now executive director of Singularity University, said that Yahoo should convert from a publicly traded company to a private one to escape the pressure of quarterly earnings reports. According to Ismail, this will free up the firm to take the steps needed to abolish the complex organizational structure that is slowing decision making and reducing innovation. “They’re putting on a Band-Aid when what they really need is major surgery.”17
Though concerns continue to surface about the future of Yahoo, many people still think that the firm just needs some time to find a new direction. Peter Thiel, a prominent Silicon Valley investor, maintains that Yahoo should not make any drastic moves. In particular, he believes that more big acquisitions would be misguided, especially if they prevent the firm from gradually focusing on what it does best. Paul Gunning, chief of a digital advertising agency, also claims that, despite some problems that need to be resolved, Yahoo has remained a great place for marketers to reach consumers. “We’re bullish on them,” he said.18
1. Kopytoff, V. G. 2010. Even under new captain, Yahoo seems adrift. New York Times, October 18: B4.
2. Kopytoff, V. G. 2010. Yahoo profit rises, but revenue is flat. New York Times, October 20: B2.
4. Kopytoff. 2010. Even under new captain.
5. Elgin, B. & Grover, R. 2003. Yahoo!: Act two. BusinessWeek, June 2: 72.
6. Ibid.: 74.
7. Ackerman, E. 2007. Can ‘Chief Yahoo’ Yang make it work this time as CEO? Knight Ridder Tribune Business News. June 24: 1.
8. Helft, M. 2008. Yahoo to cut 1,000 jobs, and warns on growth. New York Times, January 30: C3.
9. Swartz, J. 2008. Yahoo encounters a fork in road toward its future. USA Today, January 28: 2B.
12. Helft, M. 2008. Yahoo celebrates (for now). New York Times, May 5: C1.
13. Vascellaro, J. E. 2009. Bartz remakes Yahoo’s top ranks. Wall Street Journal, February 27: B3.
14. Lohr, S. 2009. Linked up. Now what? New York Times, July 30: B7.
16. Kopytoff. 2010. Even under new captain.
* This case was developed by Professor Jamal Shamsie, Michigan State University, with the assistance of Professor Alan B. Eisner, Pace University. Material has been drawn from published sources to be used for class discussion. Copyright © 2011 Jamal Shamsie and Alan B. Eisner.
Dess. Strategic Management text and cases, 6th Edition. McGraw-Hill Learning Solutions, 2012. VitalBook file.
The citation provided is a guideline. Please check each citation for accuracy before use.
Dess. Strategic Management text and cases, 6th Edition. McGraw-Hill Learning Solutions, 2012. VitalBook file.
The citation provided is a guideline. Please check each citation for accuracy before use.