Yahoo: A Leading Global Internet Services Company

Executive Summary

Yahoo is a global internet services company with an established reputation and strong brand recognition, which operates the Yahoo interactive Internet portal. The company provides varied products/services and diversified content such as search engine, email service, media streaming, downloads and ecommerce.

Originally established as a simple student research support hobby which major services included a free search engine and a free internet email service, yahoo will soon evolve into a global brand and then got an exponential success worldwide.

The demands and opportunities that arouse from this planetary success lead to a profound transformation of the yahoo economic model in the mid 1990s, and the company will ultimately turn into an economic giant, professionally managed by qualified people and financially profitable by the end of 1998.

Faced with the constant changes in the internet industry and the gradual rise of competition, it became imperative to remain profitable and competitive. The company therefore engaged in several projects, such as the diversification of its services offer, acquisition of smaller competitors, innovations in IT infrastructure and improvement in Software research and development.

Unfortunately, not all strategic decisions taken were judicious and Yahoo will soon have to deal with its first challenges translated by a stock price drop, inappropriate investments and a subsequent loss of revenues.

To break this deadlock, it is urgent an essential for Yahoo to take a number of initiatives as to stimulate its revenues. These actions include:

• Reformulating its range of services, and content.
• Reconsidering its pricing structure, integrating the Google’s competitive advantage.

• Improving its technology (search engine optimization, Video-advertising capabilities).
• Responding to the customers’ needs.

Introduction and company overview

Introduction

Yahoo Inc is a “Global internet communications, commerce and media company that that offers a comprehensive branded network of services (…) worldwide”. Although the company is headquartered in Sunnyvale, California, US, its activities have been replicated in 18 portals and 12 languages around the world. At the end of the 1990s, the company was globally known as the most popular Internet portal in terms of monthly traffic, with activities extended to a wide array of sectors such as:

• Advertising
• Communication
• Information storage and tracking
• Search engine
• Content management
• Mobiles services
• Internet services
• Web portal
• E-Commerce
• Yahoo directory
• Online mapping
• Small business & finance
• Social media
• Fantasy sport

Yahoo! (Yahoo) is an internet and media communications company, offering internet services such as search and email. The company provides a range of services to individuals, including search, shopping, information, entertainment and communication. Its major websites include Yahoo! Mail, Yahoo! Search, Yahoo! Answers and Flickr, among others. The company provides services in more than 25 languages and in more than 50 countries, regions and territories. It primarily operates in the US, where it is headquartered in Sunnyvale, California and employs 13,900 people.

The company recorded revenues of $6,460.3 million during the financial year ended December 2009 (FY2009), a decrease of 10.4% over 2008. The operating profit of the company was $386.7 million in FY2009, compared to an operating profit of $13 million in 2008. Its net profit was $598 million in FY2009, an increase of 42.7% over 2008. After having stressed the history of this firm and the challenges it is confronted, this paper will primarily discuss the internal and external economic environments respectively. Then it will study the question of possible options to solve the central problem of Yahoo. Ultimately, a recommendation of the best alternative will be made, together with an implementation plan.

Company overview

Yahoo Inc was founded in 1994 by David Filo and Jerry Yang, then graduate students at Stanford University. Yahoo was initially started as a “hobby” to help its founders “keep track of their personal research on internet”. Next, the hobby “has evolved into a global brand that has changed the way people communicate with each other, find and access information, and make purchases. Today, Yahoo! Inc. is the Internet’s leading global consumer and business Services Company, offering a comprehensive network of essential services for Web users around the globe as well as businesses of all sizes. As the first online navigational guide to the Web, Yahoo! is the leader in traffic, advertising, household and business user reach.

Yahoo! is also the most recognized and valuable Internet brand globally, reaching over 345 million unique users in 25 countries and 13 languages.” (www.yahoo.com) In order to respond to the needs of its increasing number of users worldwide, the company moved away from Stanford in 1995 and is since headquartered in Sunnyvale, California, Unites States. Yahoo has since evolved into a global Internet media company that serves millions of users daily. They have formed some strategic partnerships with various large firms such as Microsoft, Compaq, AT& T and MCI. They have also improved their IT infrastructure, software as to enhance individuals’ and businesses ability to connect each other anywhere around the world. Today, Yahoo offers an extended expertise and a wide range of services in over 100 categories that include but are not limited to:

• Communication services: Yahoo Mail, Messenger, Calendar, Chat, Greetings, Clubs and Photos
• Ecommerce (enabling online transactions): Yahoo Shopping, Auctions, Finance and Travel.
• Content Media Programming: Yahoo Sports, Yahoo Music, Yahoo Movies, Yahoo News and Yahoo Games.
• Marketing and Advertising: direct marketing, Yahoo ads, Yahoo banners, clicks, and conversions
• Broadcast Services: Internet, audio/video streaming, live/on-demand, training & distance learning,
• Small Business services: Yahoo Domains, Yahoo Website Services, Yahoo Servers & Yahoo Store.

Enterprise and Corporate Solutions

Although the majority of the services are offered for free, Yahoo charges a fee for its premium services and the revenues are mainly generated from advertising and marketing through the majority of Yahoo properties and affiliate sites. Despite a relative success and profitability in the 1990s, Yahoo’s strategy, execution and stock price have been stuck for many years now, due obviously to inappropriate decisions when facing the strong competition from Google and Amazon.

The company`s Mission

The first is the Mission is to “create deeply personal digital experiences” (www.yahoo.com) and be recognized as the “premier digital Media Company” (www.yahoo.com) within the web services community worldwide.

The company`s Vision:

During a speech in January 2008, Jerry Yang, then CEO of Yahoo Inc said “from the newest to the most experienced user, Yahoo’s goal is to be the simple starting point for a much richer and more complex world so you can get more out of it. Whether looking for fun, information, entertainment or social connection.” (http://investor.yahoo.net). To align with to this statement, the company’s effort will be oriented toward providing the best marketing solutions to the world’s largest advertisers; and delivering reliable platforms as to attract developers and publishers.

Yahoo’s Guiding Principles:

Excellence: The Company is committed to winning with integrity. They strive to maintain their leadership through hard work, flawless execution and skilled employees.

Teamwork: Encouraging Collaboration among employees to establish an workplace which respect differences and individual talents.

Innovation: The Company is always seeking new concepts and new ideas to improve, and thus encourage creativity and ingenuity to better serve the clients.

Community: Yahoo is committed to bringing a contribution and making an impact on society.

Fun: Yahoo believes that an humorous workplace can contribute to success and therefore encourages employees in that direction.

Customer Fixation: Yahoo shows respect and consideration to its customers and shares a personal responsibility to maintain its customers’ loyalty and trust by listening and responding to their expectations.

Stakeholder Analysis

The Shareholders: The Shareholders are considered to be the people who back the Company financially and Yahoo rewards their loyalty by consistently pursuing initiatives which succeed in creating Shareholder Value. This is reflected in the dividends per Common Share and the overall profitability of the Company.

The executives: They are substantially accountable of the company’s future success. They performance and objective decision-making are essential for yahoo’s ability to maintain a constant growth while attracting and maintaining skilled personnel and customers.

The employees: The employees would like to have working conditions which would guarantee them a peace of mind. They would like to also work in an environment where their contribution is appreciated and where their point of view is taken into consideration.

The customers/users: Customers would be happy to see a fair return on their investment. They require a service that meets their expectations accompanied by a reliable technical support.

External Analysis

General Environmental Analysis

The general environment mainly includes the main areas of a broader perspective that have a significant impact on the Web industry in general, and some incidence on the company. The general environment of Yahoo Inc consists primarily of five major areas: economic, political/legal, technological, and socio-cultural. These segments are by their nature, outside the control of our firm indeed, but it is essential to understand them in order to better conduct an assessment of the current situation and eventually have accurate prediction of the future.

Economic environment

Early in the 1990s, the global trend in economy was the unprecedented extension and intensification of globalization translated by the international integration of capital and product markets. This trend was sustained by reductions in transport and communication costs, financial liberalization, trade openness, but also and especially by technological progress and the adoption of internet as the major and most efficient communication tool. Economic Growth in emerging countries (China, India, Russia, Brazil, and Mexico) conveys market opportunities for Yahoo.

In this favorable context, Yahoo founders will leverage the opportunities that derive from the increasing demand for internet communication services and online advertising. In the same way that growth and economic competitiveness needs are favorable to the development of the Internet, the economic situation can produce the opposite effect in times of recession. Yahoo’s advertising and marketing revenues may decrease as the customers lower their budgets and buying patterns.

Technological environment

Over the past twenty years, technology revolution has changed the way people work and how they entertain. The digital devices have become more smart, sophisticated and interconnected. Still, users want even more powerful devices and applications, while businesses seek more cost-effective technologies to cope with increasingly complex challenges.

Therefore these rapid changes in technology have impacted the way users access the web. Subsequently to these changes, the devices and services offered by Yahoo have evolved over time and have been diversified to try to bring a response to each customer segment and accommodate their needs of new technologies and Internet advertising solutions. To maintain its competitiveness, Yahoo should strive to commit to research and development as to always identify future trends, new segments and work to anticipate the continuously increasing demand. This constant quest of improvement incurs additional spending on equipment, IT infrastructure, software and training.

Political/Legal environment

Upon the advent of the internet, there was no law or regulation governing this sector, and the players in the internet industry had almost no legal obligation. Today things have evolved and internet cannot regulate itself anymore, since abuses from users have engendered many scourges such as cyber crime, Cyber bullying, Public Records and E-Mail Privacy, Internet Gambling, Spam and scams. Governments and states have implemented laws and regulations to protect internet users and provided a series of measures, regulations and legislations to which all players must comply. It is therefore essential that Yahoo comply with the laws that exist in the field of protection of users’ rights, privacy protection. These regulations are also a guarantee that protects the company against eventual attacks that could affect yahoo’s business.

Socio cultural environment

The population growth in Developing countries leads to a growing number of potential internet services users. The rate of internet penetration in these markets will rise as people have disposable income. And the more internet users are, the greater the demand for yahoo services in these countries will be.

Competition analysis

According to a recent statement from Scott Thompson, CEO of Yahoo, “Yahoo’s competitive advantage is its Data”. Yahoo operates internet services, products and content, offering news, entertainment, shopping, search and media. The difference from its competitors is that Yahoo is “Part media company, part Technology Company — it’s all about turning data into useful, compelling, and entertaining information” (Scott Thompson). Yahoo’s positioning is determined by a number of factors that contribute to customers acquisition and retention and include: the visibility, the ease of access to the portal, its usefulness, integration, the quality of search results, and the customization of the online services that Yahoo offers and that build a great user experience.

Yahoo’s most significant competitors can be identified by segment and specialization. In the segment of Internet Service providers or Web portals, the direct competitors of Yahoo are Google, MSN and AOL. These firms each offer an integrated variety of Internet products, advertising services, technologies, online services and content as does Yahoo. Yahoo also competes with many companies in various other segments such as Social Network, Auction, Ecommerce, and Advertising. Yahoo main competitors include:

• Segment
• Company
• The features

Web Portals| Google| Targeted and solid search results;Revenue through ad sales. Advertisers deliver relevant ads targeted to search queries or Web content. The Google Network allows 3rd party customers to use Google’s ad programs to deliver relevant ads to their own sites. | | MSN| Internet content and servicesMsn.com Web portalNews, information, entertainment content, online shopping & searchCommunications services include Msn Messenger, We-based e-mail service Hotmail. | | AOL| Dial-up Internet access; Content and communication tools such as News, maps, entertainment, information and technology.Revenues contextual advertising sales. Sells ads on AOL Properties & 3rd Party Network Search is provided through a deal with Google.| Social Networks| Facebook| Access through free account created by user on the site.Age requirement for members is 13 and valid email ID’sNetworks are organized into categories: regions, colleges, workplaces and high schools. User can pull contacts from a Web-based e-mail account, into Facebook.com.

Can Find friends in several ways, including search engine to look for a specific person and lot more. Other features include Chat, Graph search, Message | | Twitter| Users post and receive messages to a network of contactsDo not allow send bulk email messagesAbility to build a network of contacts, and invite others to receive your TweetsAbility to follow other members’ posts. Twitter makes it easy to opt into or out of networks.Users can choose to stop following a specific person’s feed.| | Linkedin| Online social network for business professionalsDesigned specifically for professional networkingHelp users find a job, discover sales leads, connect with potential business partners. LinkedIn does not focus on making friends or sharing media like photos, videos and music. To access, user register and create a profile page.

To register user need to provide personal informationUsers can update their profile with education and job details and a summary. Users can also give and receive recommendations from co-workers and bosses.| | MySpace.com| Access requires creating a profile. You then, invite friends to join there and search for your friends on already profiled on MySpace these friends become your initial Friend Space. Once the friendship is confirmed all the people in your friends’ Friend Space become part of your network. In that sense, everyone on MySpace is in your Extended Network. As part of terms of MySpace, the user must be at least 14 years old to register.

| Advertising| Google Ad Sense| Run ads that will interest your users. Leverage Google search technology.

Run ads targeted to your audience
Filter unwanted ads.
Getting started is fast and easy. | Auction| EBay| Online – Access through My eBayTracking sales informationStatus Icons to help you easily track your salesPreview, Edit, reschedule or cancel scheduled listings Monitor active listings real timeTrack your Gross Merchandise Volume amount Customized views of important information Printer-friendly views| Ecommerce| Amazon| Delivers notifications and Email subscriptions * Offers Special occasion remindersContent includes Media library, RSS feeds, Content correction and promotional videos.Community and customer reviewsShopping features.|

• Competitive Rivalry
  (High)
• Threat of new entrants
  (Low)
• Bargaining power of suppliers
  (Low)
• Bargaining power of buyers/Users
  (Low)

Threat of Substitute products

Degree of Rivalry (High).

Although Yahoo has an established reputation and a considerable market share, Google, MSN, AOL, Facebook, Amazon, MySpace and YouTube are very strong competitors in their respective segments and niches. Their market share are constantly increasing.

Bargaining power of buyers /Users (Low).

Yahoo’s users do not have the same needs nor the same purchasing capacity. Customers from developing countries may not have enough purchasing power and can only access Yahoo services at low costs. In general, although corporate customers can exert pressure on advertising prices, individual users do not have influence on pricing, thus their power is low.

Threat of New Entrants (Low).

It is not easy to get into internet business and build a reputation and market share as Yahoo or Google did. There are high technological requirements and the costs associated in building the IT infrastructure and Software are even higher. New entrant may specialize in one or two segment, but it is not easy to compete with Yahoo in all the segments.

Threat of Substitutes (High).

Yahoo products and services are not unique as m any other player offer similar solutions and can even do better that Yahoo in some segments. Facebook for social networking, Google for search engine and Amazon for ecommerce are good examples.

Bargaining power of suppliers (Low).

With its global reputation worldwide presence and a strong corporate image, Yahoo is seen by the majority of its suppliers as a business opportunity. Therefore, suppliers are willing to make any concessions to avoid losing such a great customer. Yahoo assuredly leverages numerous advantages such as discounts and payment. So the fear of suppliers is almost inexistent in Yahoo Company.

Opportunities

The Environmental monitoring in general and Air Monitoring test equipment market in particular is expected to experience continuous growth (estimated at 4.6% annually) as technology is adapted into more product offerings. The DAP offers capabilities such as improved methodology and data prediction capability that no other product in the market offers. With the increasing demand from organizations and firms to test and meet Environmental regulations, the Diagnostic Air Patrol will bring a value added revolution, save time during the product development stage.

Threats

The sluggish economic recovery throughout the world is slowing the growth of the Air testing market. The price of testing devices used to build the DAP may continue to increase, leading to higher costs of production. The end-users are becoming very cost-conscious and they demand added capabilities and features for the price they are paying for instruments. With a number of big players in the test equipment market, a newcomer might have difficulty entering the market. Cloning of DAP by unscrupulous manufacturers could also be a problem thus the product should be protected by a tight IP. The tendency of end users to patronize companies with a wide breadth of products would be a potential challenge to Diagnostic Engineering Inc.

Internal Analysis

Yahoo’s formidable success to date is attributable to a number of distinct competitive advantages:

• The Yahoo! brand is one of the most widely recognized in the world (after Google, the second best-known interactive web portal).
• Yahoo creates, owns, and maintains a wide array of intellectual property assets that it believes are amongst the Company’s most valuable assets. Yahoo’s intellectual property assets include patents and patent applications related to our innovations, products and services; trademarks related to its brands, products and services; copyrights in software and creative content; trade secrets; and other intellectual property rights and licenses of various kinds. Yahoo seeks to protect its intellectual property assets through patent, copyright, trade secret, trademark, and other laws of the U.S. and other countries, and through contractual provisions.
• In terms of product development, Yahoo continually enhances, expands, and launches products and features to meet evolving user, advertiser, and publisher needs for technological innovation and a deeper, more integrated experience.

Most of its software products and features are developed internally. However, the Company also purchases technology and licenses intellectual property rights when the opportunity is strategically aligned, operationally compatible, and economically advantageous. Yahoo believes that it is not materially dependent upon licenses and other agreements with third parties relating to product development. The Company also formed Yahoo! Labs, an umbrella organization that includes its industry-leading Yahoo! Research group, a new Applied Sciences group, and its Academic Relations team, which has spearheaded key relationships with some of the world’s most influential universities and institutions. Yahoo! Labs is designed to foster the long-term scientific competitiveness of Yahoo! as a world leader on the Internet through cutting-edge, multi-disciplinary research in a variety of fields, including economic theory, computer science, artificial intelligence, and various social sciences (Yahoo 2008 Annual Report).

Strengths

Yahoo has the maximum number of users and most of revenue is generated through ads in yahoo mail. Due to its large mail subscriber base, yahoo is considered to be the powerful marketing company. Yahoo is known for its web portal, search engine, yahoo finance, yahoo answers, yahoo mail, yahoo directory etc. Its product portfolio includes yahoo messenger, yahoo mail, yahoo personals, yahoo 360, Delicious, Fickr, Yahoo Buzz, yahoo Mobile, yahoo shopping, yahoo real estate, yahoo next, yahoo boss, yahoo meme, Y! connect Etc Weakness

As per Jan 2012 data, a survey says yahoo’s market share in search engine is only 6%. Google already has 83% market share and the immediate competitors are Baidu which has same 6% and bing has 4% in search engine. Yahoo is losing its market share in mailing services very gradually due to Google’s strong presence in search engine market and it related product portfolio complementing to search engine services. Mail services, news, shopping, financial data and business directory services are provided by many others like MSN, CNN, e-bay, Money control etc. Financial health of the company is not so promising for the investors. The company’s assets both in terms of intangible and tangible are on the declining side. Google being the leading the service provider on the internet , is grabbing the revenues from advertisements. Most of the services provided by Yahoo are unknown in the internet space

Opportunities

• Yahoo Directory is the most structured and authenticated business directory, any customized development to its user in this will lead to flow of new revenue to the company
• The number of mobile users is constantly increasing in developing nations. Development of Yahoo! Mobile wap services will improve the market share
• Advertising in social media and internet has become essential element for every commodity
• Yahoo has huge potential in combining its services with social media platforms like Flickr etc
• It can focus on diversification of related business segments in Internet space Threats
• The biggest threat for any global service provider on the internet is increasing competitions in the local market especially China
• Another major threat is addressing of the cultural issues while going to foreign market
• Yahoo’s presence in the search engine services is declining very rapidly because of Google’s strong presence
• The number of competitors is increasing of new innovations in the internet space by young entrepreneurs
• The advertising market which was once dominated by yahoo is being slowly grabbed by the social networking sites like Facebook, Myspace etc

SWOT Analysis

The external environment includes all the factors outside the organization which provide opportunities or pose threats to the organization. The internal environment refers to all the factors within an organization which impart strengths or cause weakness of a strategic nature (About Yahoo, 2008). The environment in which an organization exists can be, therefore defined as the opportunities and threats operating in the external environment apart from the strengths and weakness existing in the internal environment. A systematic approach to understand the environment of Yahoo is the SWOT analysis.

Internal Factor Analysis (IFA) of the Yahoo Corporation

Strengths: The strength is an inherent capacity which an organization uses to gain a strategic and competitive advantage.

The strengths of Yahoo Corporation are: Yahoo Corporation has beaten Google in the mobile market. It has more appurtenant products as compared to its competitors. It has strong brand recognition and can be accessed easily by anyone (Kotler, 2002). It focuses on affiliated advertising for large adverting accounts. It has over 500 million users of its services and solutions. International business presence is its key long term strength (SWOT Analysis Yahoo, 2008).

Weaknesses: A weakness is an inherent limitation or constraint which creates strategic disadvantages for the company. It is overdependence on a single product line, which is potentially risky (SWOT Analysis Yahoo, 2008). The weaknesses of Yahoo are: Yahoo is ranked 5th in visitors among video sites. YouTube was first owned by Google. There has been near about 3 % slump per year in Yahoo’s image search. Google search results produce double revenues as compared to Yahoo. Due to competition, advertising revenues are falling (SWOT Analysis Yahoo, 2008). For Yahoo, differentiation is difficult. Almost all of its services are available from other sources. The future of Yahoo is uncertain as the technology develops and new unforeseen advertising media emerges.

External Factor Analysis (EFA) of the yahoo Corporation:

Opportunities: the various opportunities available to Yahoo Corporation are: Internet video advertising is expected to increase by 82 %; Yahoo has the opportunity to emphasize on internet video advertising. Yahoo should emphasize on the expansion of Broadband. For Yahoo, international market is a huge opportunity (Kotler, 2002). For Yahoo, Mobile technologies offer another opportunity. In the present era, the users are accessing the Internet through personal computers, but in the coming years, the televisions, phones, music players will be merged with internet (SWOT Analysis Yahoo, 2008).

Threats: the threats to Yahoo Corporation are: Yahoo has only 24% of online searches as compared to Google which has about 50% of all online searches. The attitudes of consumer towards online advertising may become more negative. The numbers of competitors are increasing. In terms of revenues, Google is exceeding Yahoo.

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