Case Study

Marketing 2920
Professor Lutz
3/11/2011

Katie Burke Louise Mercer Rachael Roark Becca Steinberg Ivory Zhang

I. Executive Summary Background and Introduction Why is it important to study Yahoo? Yahoo is a prime example of how in todays world of rapidly evolving technology, a company must be looking ahead to the future for innovation opportunities; otherwise the company will be overtaken by competitors who capitalized on the opportunity to further explore the technology. As consumers, we reap the benefits of increases in technology, and those firms who pose increasing technological conveniences will be rewarded in terms of market share and customer loyalty. Yahoo is an online media provider whose goal is to be the most necessary Internet services provider for both businesses and consumers around the world. Since 2008, Yahoo has begun to lose its relevance allowing itself to be pushed to the side by the market share leader--Google. Success or Failure If Yahoo continues on its current path it will fail. Its failure will be caused by a lack of clear focus. Consequently, the firms core competencies have gotten lost in the process. The Yahoo brand is no longer clearly positioned, yielding little differentiation of the firms offerings. Yahoo is currently in the fourth stage of decline, grasping for salvation. Yahoo will progress into the fifth and final stage, capitulation to death or irrelevance, if it does not develop a strategy and define its core competencies. External Analysis Yahoos primary revenue comes from advertisements featured on its web pages. Since these pages are free to access, Yahoo targets shoppers and its customers customers to increase the traffic on the website. Yahoos main competitor is Google, with indirect competitors including Facebook, AOL, and YouTube. There are three main segments for its services: advertising, business services, and personal services. Yahoo is a reactor, trying to catch up with competitors rather than anticipating their moves in advance. While Google practices its business more offensively, being proactive in its actions. Internal Analysis Yahoos performance reflects low growth. Yahoo revenues come from products that are low growth cash cows. The balance scorecard indicates that there could be troubles ahead for the company. The financial portion of this analysis is the least troublesome; although the trends suggest that the financials will take a gradual decline once Yahoos cash cow products decline. Yahoos market orientation is below industry standards. Yahoo relies heavily on external innovation and strategic mergers. Yahoos core competencies have gotten lost in the mix while it has been focused on providing a wide variety of services. Final Recommendations and conclusions If the company continues on its current path Yahoo will fail. To prevent further decline Yahoo must define its core competencies and excise those services that are not core competencies from its business. What is causing Yahoo to decline is not its pursuit a multitude of internet services but Yahoo undisciplined growth and lack of strategic growthYahoo should reshape itself into a news service provider.

II. Background and Introduction The two founders of Yahoo, David Filo and Jerry Yang, Ph.D. candidates in Electrical Engineering at Stanford University started the Yahoo in a campus trailer in February 1994. Filo and Yang began listing links based on their personal interests, and then divided them into categories. When the existing categories reached their maximum holding capacity, the two engineers developed subcategories and the core concept behind Yahoo was born. Yahoos mission is to be the most essential global Internet service for consumers and business. (Yahoos Mission Statement, 2005) Yahoos continuous decrease in both market share and revenue began in 2008, not only putting Yahoo in a perilous position, but also pushing the company away from it core mission of being the most essential global internet service (Los Angeles Times, 2009). At this unstable point, a long-discussed internet search partnership between Microsoft Corp. and Yahoo Inc. was established on Feb. 2010. Since then, Yahoo has embarked on its new journey to defend its market position by cooperating with Microsoft, aiming to challenge the internet search engine giant--Google Inc. III. Success or Failure Yahoos current market strategy and enterprise operation strategy will lead to its failure in this internet and media communication industry. Starting with internet search as its core service, Yahoo once was the successful leader in this online-media industry, but confronted with its strong rival, Google, which occupied 72.6% in website search market in 2009, Yahoos market share of internet service has started to noticeably decline since 2008 (see Appendix A). Trends suggest that Yahoo will ultimately fail after a gradual and drawn out decline. According to Collins, some indicators that do not bode well for Yahoos future

include: Yahoo is losing share of overall internet usage, Yahoo has lost a number of key executives, and Yahoo has begun grasping for emergency saviors. Grasping for a leader-as-savior Yahoo is currently mired in the fourth stage of decline. One of the primary markers for the fourth stage of decline, as described by Collins, is grasping for salvation, which can take the form of a charismatic new leader.The cumulative peril and/or risks-gone-bad of Stage 3 assert themselves, throwing the enterprise into a sharp decline visible to all. Those who grasp for salvation have fallen into Stage 4. On March 23th, 2009, Yahoo hired Silicon Valley marketing veteran Elisa Steele as its new chief marketing officer. Steele spent nearly five years at Sun Microsystems, leading its marketing group. Her prior experience includes management roles at iPlanet, eCommerce Solutions, JavaSoft, and AT&T. The same year, Carol Bartz became the new CEO of Yahoo. Yahoo is treating Bartz like a silver bullet, placing all of its trust in her in the hope that she will solve the companys problems. Yahoo appears to have chosen wisely in naming Bartz as the new CEO. Yahoos stock price closed at $12.41 per share the day Carol Bartz stepped in, today Yahoos stock price has risen to $16.46 per share. Bartz aslo displays the character trait of humility, giving herself a grade of B- for her first years performance at Yahoo and only a passing grade for the past year. In his book How the Mighty Fall, Collins provides numerous examples in which a celebrity CEO who is more focused on sizzle rather than substance is detrimental to the companys health and further contributes to its decline, while the sublter, more data oriented CEOs were able to reverse their respective companys decline. Bartz appears to fall into the latter category and lends some hope to Yahoos future. Even though Yahoo faces further decline, with experienced and humble saviors, Yahoo may yet survive and reverse this downward spiral.

Confusion and cynicism In Jim Collinss five stages of decline, stage four indicates People cannot easily articulate what the organization stands for. Instead of passionately believing in the organizations core values and purpose, people become distrustful (Collins, 2009). Yahoo stands on its fourth stage of decline at this point since consumers are unsure of what Yahoo is as a company and the extent of the services that it provides (Shields, 2010). Therefore, Yahoos multi-products strategy is likely to result in Yahoos forging ahead from its fourth stage to the fifth stage of decline. However, the failing of Yahoo is not inevitable and this process of decline is reversible if Yahoo adds structure to its sporadic market and product strategy and clarifies the company vision and strategy.

IV. Strategic Analysis A. External Analysis Market size and growth In 2009, Yahoo and Microsoft entered into a partnership in order to better compete against the market leader-- Google. Google currently has 72.6% of the market share in the US and Yahoo has 14.2% (see Appendix A). Analysts predict that by 2014 Yahoos revenue growth will equal only 4% and the operating margin is expected to be 13% (Barlas, 2011). One possible reason for Yahoos fluctuation in revenue is due to the lack of consistent leadership. Yahoos original CEO, Jerry Yang, was asked to resign after complaints regarding his management of Microsofts offer to buy Yahoo and termination of the partnership with Google (Arnoldy, 2008). Since Yang, Yahoo has gone through numerous CEOs, with the current CEO being Carol Bartz. Yahoo remains one of most trafficked sites in the world, with its revenues are generated from

online advertising. However, the company is challenged by low market share, audience fragmentation, and pricing power (Morningstar, 2011).

In order to provide effective online advertising services, Yahoo collects data from websites consumers visit and purchase from, then sells this information to other businesses. Yahoo is best known for its behavioral ad matching in which individuals searches and web purchases are tracked. Yahoos search engine however, is aimed at tech-savvy young professionals and students (Papadopoulos, 2006). Yahoo has broadened its target audience by introducing a new product called Shine. Shine provides females with the latest diet tips, fashion arrivals, and Celebrity gossip. This new service started in Canada, since Yahoos Canadian audience consists of a base of more than 6.5 million women aged 25-54 who visit Yahoo every month (LexisNexis, 2011). This age group is important demographic for advertisers, as women in this age range tend to be the buyers for households and make purchasing decisions (LexisNexis, 2011). Advertisers see great opportunity in this product because these women have limited time and a tool that allows them to search for what they need more efficiently is in high demand (LexisNexis, 2011). Wants and needs Yahoo sells its services primarily to businesses rather than directly to consumers. Yahoo earns a substantial amount of revenue from the sale of advertisements or sponsored data search results. In terms of Yahoos search engine, users want a fast and reliable search with a large variety of results, while businesses want online advertising services that will provide both high reach and frequency. In order to create customer loyalty, Yahoo must differentiate itself from competition by providing unique and superior services. Given the companys current broad product portfolio, specific needs and wants are not met with superior performance. By spreading

itself thinly among diverse product lines, Yahoo is not able to focus on being the best at satisfying a certain need. Segmentation Yahoo has three main product platforms: advertising, business services and personal services. Advertising is where Yahoo generates its largest revenue (10-K, 2010). The biggest contributors to advertising revenue include Japanese banner and text ad sales, U.S. paid search services, and advertisement planning services (10-K, 2010). The business service includes nonadvertising related services for corporations. A substantial amount of Yahoos revenue in this segment comes from fees such as information listings fees, data center service fees, incentive fees for acquiring new subscribers, and broadband service. Within the personal services, fees are associated with auction system usage fees, premium membership fees, and other sales of various content (10K, 2010). Therefore, Yahoo serves business and consumer segments. From the consumer segment, Yahoo specifically targets young, tech-savvy professionals (Papadopulos, 2009). Porters Five Forces The industry in which Yahoo operates is unattractive, as demonstrated by the Porters Five Forces Analysis described below. The competition firms in this industry face is fierce and are constantly vulnerable to creative destruction (Collins, 2009). This means only firms with significant intellectual and technological resources will attempt to enter the industry. For Yahoo, this is a benefit because there is promise of maintaining market share due to the difficulties incurred by other companies when trying to enter this industry.

Competitive intensity In this industry there are a few, large players between which the competition is very fierce. Google is currently dominating this industry with Yahoo as a far second. Indirect competitors such as Facebook and YouTube also play a significant role in this industry. Since access to these websites is free and advertising rates are relatively inexpensive, the switching costs are very low for both end users and advertisement buyers. This means that customer retention is critical in order to remain competitive in this industry. Rapidly evolving technology further intensifies competition and increases the pressure to keep ahead of the innovation curve. Yahoo must have a platform that uniquely satisfies a specific need for consumers, or the company fall subject to irrelevance as other key players provide better services. Power of Buyers Yahoos buyers, meaning other businesses that advertise on Yahoos websites, have low power. Businesses have a more immediate impact on Yahoos revenue than consumers, though derived demand plays a role in the success of Yahoos main source of revenue--advertising. The volume of Yahoos revenue is spread out over a large number of companies that use Yahoos websites as an engine for advertising. (10-K, 2010). Each buyer does not necessarily purchase mass volumes of advertisements, so Yahoo is not dependent on the success of individual purchases. Ultimately, this gives Yahoo an advantage when setting terms of agreement with buyers. Power of Suppliers The power of suppliers fairly high, as the suppliers that are extremely relevant to companies like Yahoo are providers of intellectual capital. These sources are relatively limited when compared to the number of buyers Yahoo does business with. From a macro level, the

numbers of people who are capable of creating complex online web-services are small. While Yahoo does not depend on component parts from suppliers, the success of its business directly relates to the quality of people in the company. Within an extremely dynamic industry, Yahoo must acquire the best people in order to gain a competitive edge. Due to this, the power of suppliers will continue to remain high for Yahoo, giving the company less control over the terms of supply from the people which fuel Yahoos business. Threat of Substitutes Threat of substitutes is high due to the fact that online media consumption takes a variety of forms. Yahoo competes for internet views and online time with diverse companies, such as YouTube, Facebook, and Hulu. Since switching costs among these free-to-access websites are minimal or nonexistent for end users, substitute products pose a great threat for Yahoo. From the perspective of Yahoos buyers, switching costs are also low due to Yahoos undifferentiated position. Advertising is viewed by many businesses as an extra activity that is less important than the creation of a product. Therefore, companies are not reliant on Yahoo to be the sole provider of their advertising business. In order to gain power over substitute products, Yahoo must make its services so effective that businesses and end users see Yahoo as an essential component of their everyday processes and business success. Threat of Potential Entrants Potential entrants are a significant threat to Yahoo. Although generally it takes a substantial investment in technology to start up a company in this industry, there have been those companies like Facebook that started in a college dorm room that circumvented this particular barrier to becoming a social media giant (see Appendix C for details). In entering the industry, the most significant investment is arguably the intellectual capital and vision of those individuals

who have the ability to create innovative online platforms. For Yahoo, this means the company must provide a differentiated service to end users that continues to satisfy the changing needs of the population. If Yahoo fails to do this, innovative new entrants that better attract customers could detract from Yahoos advertising revenue. Direct and Indirect competitors Google, with a market share of 72.6%, is Yahoos main competitor (see Appendix A). Google was established in 1996 and had a partnership with Yahoo until 2003, when Yahoo decided to go independent. This cost Google a percentage of its market share, but had a more drastic effect on Yahoo. Yahoos ultimate goal is to be the top ranked search engine, but Google is currently entrenched in a high position of power. Google also launched the WAC- Wave, Android, and Chrome in retaliation against Yahoo and Microsoft. The Wave is a personal communication and collaboration tool as part of one of Googles online software applications. The Android is a mobile operating system and the Chrome is a web browser that was introduced after Microsoft Windows (Google definitions, 2011). After Yahoo and Microsoft partnered, the two companies had a created Windows 7 in order to create an innovative advantage over Google. Also, Bing.com powers Yahoos search engine and Microsoft gained access to Yahoos advertising platform. As a result, Google began to feel the repercussions of these changes (Arnold, 2010). AOL, another competitor, was founded in 1983 originally as a media corporation but developed into a global search engine. In 2005, Google purchased a 5% share of AOL for $1 billion dollars (Arnold, 2010). Currently, AOL is not a direct threat because the company is not in a financially stable position in which it can spend the millions of dollars necessary to gain a

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larger market share. With emerging websites such as YouTube and Facebook, AOL was unable to maintain its position as one of the top websites (Mintel, 2010). Yahoos indirect competitors include Facebook, which is the largest social networking site in the world. Facebook had an increase of 93% of new unique viewers from January to December 2009 amounting to 132 million users (Mintel, 2010). Even though Facebook is not a search engine, it still occupies time users could potentially be spending on Yahoo, harming the companys market share and audience capacity. Facebook is ranked second for the most popular website on the Internet with Google as the leader, YouTube in third and Yahoo in fourth (Mintel, 2010). Indirectly these competitors are harming Yahoos performance by occupying a portion of the consumers total available time on the Internet, and therefore appealing to those companies looking to advertise online. Yet another indirect competitor consists of those companies and individuals that develop mobile applications for smart phones and tablet computers, such as the iPad. Yahoo could gain significant income through advertising if it had a strong mobile platform. Research shows that one in four respondents go online via cell phone. This is a key statistic that indicates the direction online media providers must follow in order to remain relevant (Mintel, 2010). Another indirect competitor is other online advertising companies. The majority of Yahoos revenue comes from advertising, and competing online advertising coordinators such as InterActiveCorp could draw customers from Yahoos services. Yahoo currently lacks a strong competitive advantage. Yahoos search statistics are very low, so businesses are less attracted to Yahoos advertising services when compared to competitors that effectively draw end users to their sites. Yahoos search market share declined by 2.3% from June 2010 to December 2010. (ImpactMedia 2011) However, the company has the

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potential to create a strong competitive edge. Now that Yahoo has joined forces with Microsoft, the company has the potential to take market share from Google. However, in order to do this, Yahoo needs to condense its products and segments. Yahoo has a variety different products on the market, many of which consumers are unaware of. Instead of trying to broaden its market, Yahoo needs to concentrate on more specific areas such as Yahoo!Finance and Yahoo!News. The top competitors in the internet industry (Google, Facebook and YouTube) have very specific segments in which these businesses concentrate all of their resources and intellectual capital, while Yahoo occupies a shallow position in each of these markets. Types of competitors Yahoo is in a reactive position. In the past, Yahoo has been overshadowed by Googles innovation. Even with the new partnership, Microsoft and Yahoo are still trying to create new products and segments in order to keep their market share. Yahoo is reacting to Googles new innovations. Yahoo is not the industry leader, but it continues to develop products. Yahoo is not a first mover, but it is usually in a stable position that allows the company to test new ideas. However, in some cases Yahoo can be seen as an analyzer. These instances are more the exception rather than the rule. For example, Microsoft introduced Windows Version 7 recently, a risky move after the successful introduction of XP into the market. Yahoo has not introduced any radically different segments or products that could be detrimental to the firms financial position or market share. Yet, Yahoo is continuing to make smaller innovations and develop new ideas that are mildly successful but not disruptive, such as the development of Prime Time in No Time which is further discussed below. Google and Facebook would fall into the prospectors category since these companies are generally early movers. For example, MySpace, Tagged and Bebo preceded Facebook. However,

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Facebook entered the market with a bold and risky strategy that helped to catapult the company to top market shareholder in the social networking industry. Google also has considerable market share so it can afford to try risky new innovations and need not to be so conscious of stability. Googles introduction of the WAC includes the Wave, Android, and Chrome, all of which offer new products to the market. AOL fits into the defender category; the company is not at the forefront of technology and it is struggling to keep abreast with the top leading competitors. AOL tries to keep pace by offering lower prices while still attempting to provide high quality and good service. Yahoo offers a wide range of products and lacks the innovation that sets Google and Facebook apart. AOL is still one of the main search engines, but the company cannot afford to take huge risks that would put the company in financial jeopardy. Macro-environmental analysis Demographics Forty percent of Yahoos users come from its Japanese market. Japan has a total population of 126,804,433 people and 64.3% of the population is aged between 15-64 (Index Mundi, 2010). In Japan, there are slightly more males than females, with a ratio of 1.02 (Index Mundi, 2010). Yahoos primary target audience is tech savvy, young professionals and with a slight emphasis on males over females. Given the Japanese demographics, Yahoos target audience aligns well with the population trends in Japan. The United States total population is 310,232,863, with 67% of this population in the 15-64 age range. In contrast to this young percentage of the population, America has a significant ageing population of Baby Boomers. There are 77million Baby Boomers entering the age of retirement that are not currently included in Yahoos primary target audience (Trandgressional, 2011). Although this demographic of young, tech savvy people has the potential to be profitable, larger demographic trends highlight

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other segments of the population that on that maybe more effective to target. Baby Boomers tend to pay a lot of attention to the stock market, so a good way for Yahoo to create a new target audience could be to cater towards the needs of this demographic. Americas fastest growing ethnic group is the Hispanic population. Currently, this demographic accounts for 15% of the total population and it is continuing to grow at a fast rate (Transgenerational, 2011). Yahoo could create a new Spanish product line, in which current services are offered in Spanish in order to cater to the needs of this demographic. Economic After the 2008 economic recession, the United States and Japanese economies show promise for growth in 2011. According to a recent Wall Street Journal publication, economists predict 3.2 % growth each quarter in the United States (Izzo, 2011). Additionally, United States inflation rates are expected to be 1.9%, which is within the Feds comfort zone of 0.5% to 2%, and unemployment is predicted to decrease to 8.8 percent (Izzo, 2011). The Japanese economy contracted in the first quarter after a year of 3.9%, but growth is still predicted for the Japanese 2011 fiscal year due to increasing exports (BBC, 2011). The economic growth, low inflation rates, and reduced unemployment mean more purchasing power and potentially greater disposable income for consumers. This affects Yahoo because businesses may have an increased interest in advertising as consumers spend more in order to capture a share of wallet. The global recovery from the financial crisis has a direct effect on Yahoos business. During the recession, firms used more online advertising than print ads due to cheaper prices. At the end of December 2010, online advertising increased 13.9% to $25.8 billion, whereas Print ad sales decreased 8.2% to $22.8 billion (Schweizer, 2010). However, once the recession is over, businesses may return back to print ads and alternatives to online advertising as the economy

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recovers and cost cutting is less important. If Yahoo can keep its costs of online advertising low, it should be able to keep and even increase its user base. The majority of businesses have turned to online advertising purely because of the mass amount of growing online traffic. There is a constant need for access to information, so end users are likely to continue using online search and media despite economic downturns. This makes online advertisements an effective solution for business promotions throughout the market cycle. Natural environment Due to the recession, gas prices are increasing, ultimately influencing some consumers to shop online. Since January 2010, gas prices have increased from $2 to $3.10, which is an increase of 67% (Hemingway, 2011). These prices may provide Yahoo with an advantage since the company provides an online shopping platform. There is also a need for raw materials in the production of technology hardware that Yahoo uses, such as the use of gold in computer chips. However, these materials are finite, so technology manufactures and buyers must monitor usage rates of these materials in order to continue production. Another major natural risk Yahoo is subject to is natural disasters, which could interrupt the fibre optics and strip users of internet connections. Technological There is a huge development in technology right now, as electronic and online services are evolving at a rapid rate. It is predicted that the technology growth in the 21st Century will be equivalent to 2,000 years of growth at past rates (Kurzweil,2007). If Yahoo cannot keep up to date with the latest innovations, then the company could quickly lose market share. However, this rapid growth provides huge opportunity to for a learning organization to continually flourish.

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Socio-cultural Social networking is a growing trend that has gained momentum in the last 5-10 years. Facebook and Twitter have evolved enormously and Facebook currently outranks Yahoo in on a list of the worlds top sites. Facebook is ranked second most visited website on the internet where Yahoo is ranked fourth (mostpopularwebsites, 2011). Facebooks active users are doubling every 6 months, with an average of 3% weekly growth since January 2007 (Hazlett, 2009). Facebook and has more than 60 million active users (Hazlett, 2009). Since Yahoo competes for internet time and online advertising space with social networking sites, the popularity of these websites could potentially detract from Yahoos business. Government Yahoo has an advantage in the Japanese market since legal restrictions were placed on Google. Yahoo has capitalized on this opportunity, as the Japanaese market currently accounts for 40% of Yahoos audience. Recently, Google faced major political problems with in Japan and China. Google violated privacy restriction laws with the Google Maps application, ultimately tarnishing a relationship with the governments of these countries (Thomas, 2009). This gave Yahoo the perfect opportunity to expand to its market, but the company must remember its competitor's mistakes as it move forward in the international marketplace. Conclusions In conclusion, the macro environment provides a positive opportunity for Yahoo. There are significant emerging demographic groups that Yahoo could lucratively target, including Baby Boomers and Hispanic population. The market is continuing to grow and continual innovation within the industry is bringing consumers online for new reasons. One challenge of this environment relates to the difficulty of beating the innovation curve in order to establish new

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socio-cultural trends which highly affect the business of key players in the online media category. Another major obstacle is the volatility of sales throughout the business cycle. Despite these drawbacks, overall the macro environment shows promise of being a positive contributor to Yahoos future growth, as long as the company leverages its strengths to meet these conditions. Summary of External Analysis including Opportunities & Threats Since Yahoo and Microsofts partnership, display Ad revenue rose 14%; however, Yahoo is still struggling with its search revenue which fell by 27%. Yahoos main focus is advertising. Therefore, its main customers are other companies, although due to derived demand, consumers are at the core of Yahoos advertising business. Yahoo also generates revenue from business services and personal services. Falling behind the innovation curve is Yahoos main threat, but other competitors include AOL, YouTube, Facebook, and individual app companies/developers. Another major threat to Yahoo is the possibility of a new technology platform being developed that renders Yahoos services irrelevant and obsolete (see Appendix F for details). Google can afford to try risky, new, and innovative ideas, while Yahoo is much more cautious about testing bold new ideas and technologies. Yahoo has the opportunity to gain a substantial amount of income through advertising if it creates a strong mobile platform. Yahoo has the opportunity to become bolder and more innovative by leveraging the advantages offered by new technology platforms, like the iPad, which would decrease the risk of being overcome by movers like Google (See Appendix F for details). Yahoo has a large international presence, which allows the company the opportunity to develop and expand in the international market. Yahoo already is the top search engine in Japan, however, the volatility of the international market poses a threat to the company, with the current turmoil in the Middle East providing a prime example. After

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conducting a thorough external analysis, external conditions are such that if Yahoo leverages it strengths effectively, the company can play the market to its benefit. B. Internal/Self Analysis Marketing Performance Analysis The overall marketplace performance of Yahoo, Inc appears to be low growth. Yahoo has a relatively high contribution margin of 58% (Schein, 2011). Despite the recent recession, the company is still managing to generate profit relatively efficiently. In analyzing the companys product portfolio, much of the Yahoos revenue comes from the cash cow products such as Yahoo! Mail, Yahoo! Search, and Yahoo! News (10-K, 2009). The majority of Yahoos offerings are low growth, with very few products that fall into the star category of the BCG Matrix (See Appendix E). As a result, Yahoos market performance is stagnant. This could pose a problem, as Yahoo performs among competitors who are revolutionizing the way everyday people shop, watch media, network, and synthesize the limitless nature of the internet through personalized offerings. Even more troubling is Yahoos significant decline in sales, as the $6.32 billion reported in December 2010 was a 10.32% sales decrease from 2009 (Schein, 2011). Yahoos profits have increased by over $1 billion since 2008, but given the firms falling revenue, such profit is not sustainable in the long term (Schein, 2011). This falling revenue is especially dangerous since Yahoo is so reliant on cash cow products to generate sales. Since cash cows are low-growth products in the maturity stage of the product lifecycle which will eventually slope into decline, Yahoos revenue shows no promise of recovering. Balanced Scorecard An analysis of Yahoos balanced scorecard alludes to a potentially threatening future for the company (See Appendix D).

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Financial The financial sector of this analysis appears to be the least troublesome of the four elements, as Yahoos ratios are in line with the industry (Schein, 2011). For Yahoo, this means that its finances pose no immediate threat to its business. However, upon taking a broader view, Yahoos trends suggest a decline in the businesss financial health. Yahoos net profit margin is approximately 10% below competitor Googles. While the company has been successful at raising its net income, it still falls far behind industrys major competitors (Schein, 2011). Furthermore, Yahoos price to earnings ratio meets the industry median of 39.06, but still poses an alarmingly high ratio at 23.04 (Schein, 2011). Investments guru Benjamin Graham suggested that price to earnings ratios for attractive stocks should remain under 15 (Freund, 2008). The high industry median can be attributed to the growth of many companies in this sector. Due to the fact that Yahoos current growth appears to be very minimal, this poses a question of why the companys price to earnings ratio is so high. Customer and Market Orientation Yahoos customer and market orientation is sub-par when observed on an industrial level. When compared with five major competitors, Yahoo ranked third on the American Customer Satisfaction Index, with a score of 76. Google, the leader among the competitors, had a high score of 80, and AOL and Ask.com scored below Yahoo with scores of 74 and 73 respectively (Allen-Short and Butsunturn, 2010). In an industry where personalization and individualism are being incorporated into products, Yahoo must bolster the experience of individual customers if it hopes to succeed. Additionally, out of a sample of 1,896 people, only 5 % responded with the answer I always use Yahoo (Mintel, 2010). When Yahoo is compared with the 30 % of

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respondents that claimed to always use Google, there is an opportunity for improvement in customer loyalty. Marketing Processes The marketing processes implemented by Yahoo rely heavily on external innovation, which is a risky structure for its business. According to Yahoo, strategic mergers formulate the base for much of Yahoos international business (10-K, 2009). The Yahoo Developers platforms also allows for third parties to create Yahoo applications (10-K, 2009). With Yahoos capture of third party innovation through mergers and the developers platform, the creative platform within the company appears questionable. In its current state, Yahoo falls to the control of outside forces. As long as developers are contributing to Yahoos platform, this system may benefit Yahoo. Conversely, Yahoo could fall even farther behind the industrys innovation curve if there is a disruption in this process. Learning and Growth Finally, Yahoos learning and growth shows a reactionary competitive stand in the marketplace, despite the intellectual property rights the company holds. After the success of YouTube and Hulu, Yahoo decided to experiment in online videos with the creation of Yahoo! Video. The main feature of Yahoo! Video is Primetime in No Time, which features recaps of the days most popular news stories in five minutes or less (10-K, 2009). Additionally, when Yahoos search service lagged behind competitors, the company chose to outsource this service to the higher-performing Bing search engine (Learmonth, 2010). As demonstrated by the above examples, Yahoo appears to lack the long-term ability to keep up with the dynamic environment of the marketplace.

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Determinants of Strategic Options Yahoos strategic options currently appear ambiguous, as depicted by the firms core competencies, marketing strategies, financial constraints and the ability to disrupt the current standards of the industry. Core Competencies and Strengths Yahoos core competencies have gotten lost its attempt to provide a wide breadth of services. In a Brandweek publication, author Mike Shields commented that many of Yahoos customers live by Yahoo! News and Yahoo! Finance, alluding to the companys core competency in the specialized forms of electronic information sources (Shields, 2010). Yet, the company continues to dip into many different areas of Internet media. In review of Yahoo, Carolyn Everson, Microsofts CVP of global sales and strategy commented, Does Yahoo want to make using the Internet easier and more convenient by pulling the key pieces together in one easy-to-use service [with a] unified or focused navigation as their primary service? Or do they want to provide and be known for specific proprietary services?... it's hard to get momentum without clear focus (Shields, 2010). In this case, Yahoos strategy appears to be limited by its nondescript core competency. Until Yahoo can explicitly define its competitive advantage, it will continue to try to tap into already-existent product markets with little success at gaining significant market share. Past and Present Marketing Strategies Upon the founding of Yahoo, the strategy of the company was characterized by simplicity. The firm simply wanted to attract as many users as possible and sell display ads (Morningstar, 2010). However, as the industry has grown more complex, Yahoos current marketing strategy requires its business to simultaneously focus on changing dynamics of

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Internet services. According to Yahoos most recent Annual Report, the company is focusing on growing its search business, improving and expanding advertising services, and creating more video interfaces (10-K, 2009). When compared to the competitive environment, many of these goals can be related to regaining the market share that was lost due to the success of other major companies such as Google, YouTube, and Facebook. Yet another direction Yahoo is turning toward, is integrating its applications onto smart phones. In a recent interview, Yahoos CEO Carol Bartz said that she thinks the company should do even more integration on the cell phone platforms, and consequently the company has pushed Android and iPad apps into the market (Morrison, 2010). Furthermore, Yahoo is attempting to keep up with social networking trends by partnering with Facebook (Vascellaro, 2010). This partnership will integrate news feeds into Yahoo.com and Yahoo! Mail accounts and allow Yahoos offerings to be easily shared on Facebook, one example includes a Facebook uploading option for Flickr users (Vascellaro, 2010). Overall, Yahoos strategy appears to have a catch-up mentality, without a clear unification of the products Yahoo offers. In an active marketplace, Yahoos reactive strategy raises questions of long-term sustainability. Financial Resources and Constraints The current state of Yahoos finances lends the company room to grow (see Appendix B for selected financial charts). Overall, the company is not at immediate risk of going bankrupt. Yahoo currently has over $1 billion in cash, and little long-term debt, which allows the firm to channel cash into reinvestments (Schein, 2011). However, the companys cash flow from operations has decreased from $1.9 billion in 2007 to $1.24 billion in 2010, raising the question of whether or not the company is effectively using its financial freedom to generate gains (Schein, 2011).

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Ability to Disrupt Ultimately, Yahoos reactive, undefined position yields the firm no opportunity to disrupt the status quo. In an analysis for investors, Morningstar reported that Yahoos competitive standing is weakening (Morningstar, 2010). According to Morningstar, Yahoos weakened state can be tied to low market share, audience fragmentation, and low pricing power (Morningstar, 2010). Given these conditions and the current strategies employed by the company, Yahoo is subject to working within existing channels rather than initiating changes itself. Summary of Strengths & Weakness After conducting a SWOT analysis, data shows Yahoo to be financially stable (See Appendix F). This stability can aid the company in future growth. However, Yahoos lack of innovation puts the company behind the technology curve. The companys reactor strategy does not contribute to long-term sustainability, and does not give Yahoo the opportunity to introduce innovative ideas that have not been seen before. Yahoo is a well-established company with deep roots, a strong brand, and the second highest market share. However, by offering so many media products, Yahoo has lost its focus and lacks objectives and strategies (See Appendix F). Yahoos partnership with Microsoft has been successful thus far, and now Yahoo is attempting to stay current with social networking trends by partnering with Facebook. Overall, Yahoo has the tools to disrupt the market, but its current strategies and thinly spread focus is holding the company back. V. Final Recommendations and Conclusions Strategic Alternatives Yahoo is currently in the early stages of decline, however if action is taken now the company will still have a chance to recover and survive. Yahoo can either integrate change into

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every segment of the company to completely restructure it, or Yahoo can incorporate changes into the business by narrowing its focus and coming up with a strong strategy and clear objectives. In its current state, Yahoos biggest challenge is its lack of clear focus. Yahoos pursuit of a diverse product portfolio does not relate to a well-defined strategy. As determined by our analysis, Yahoo faces four strategic options to address this issue: Status Quo Re-focus Yahoos product line to return to a primary flywheel Growth through market development in the Pacific Rim Change everythingbring in an innovative new executive with a new vision for the company

These options are explained in greater detail in the chart below:

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Strategic Option Status Quo

Pros

Re-focus Yahoos Product Strategy

Growth through market development in the Pacific Rim

Change everything

Cons Stay financially stable Large competitors will through a gradual continue to gain decline market share and eventually push Yahoo No drastic action out of the industry which would further accelerate decline The company will eventually fall into irrelevance The firm will not waste Potential opportunity resources (funds and costs for eliminating intellectual capital) on products that could extraneous lines have grown with more resources The ability to excel at a specific function Shareholders might see becoming the best in this as a sign of trouble the world for the company and a complacent approach Regain a position on a to the dynamic perceptual map marketplace Potential new markets Could be potentially risky given any market International volatility in those recognition countries which Yahoo Capitalizes on the depends on opportunity to be a Large investments significant market require to develop leader in those these markets countries The firm could potentially compromise control in spreading the organization in varied markets Dramatic, instant Short-term focus with increases in share potentially negative prices long-term effects Attention from the Reliant on silvermedia and Wall Street bullet mentality (Collins, 88) Gives hope for a future of leadership through Does not address key the proactive approach issue of establishing a primary flywheel

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Defense of Strategy While maintaining the status quo, growing through market development, and changing everything are viable options, these alternatives fail to address Yahoos key issue as effectively as the alternative to re-focus Yahoos product strategy. Yahoos primary revenue comes from business-to-business advertising services, which correlates the growth of Yahoos income to the success of Yahoos services for end users (10-K, 2009). When Yahoo has a clear position in the minds of consumers, businesses will be more interested in advertising on Yahoos sites. With the plethora of over 25 different product offerings, Yahoos core competency is unclear. Yahoo should conduct an analysis of its different product segments to find which services are significant contributors to profits and maintain focus on those products. The other extraneous products should be eliminated from the product portfolio. By trimming out unnecessary products, Yahoo is better able to focus itself on a being the best in the world at a specific function. Based on our analysis, we suggest that Yahoo should consider focusing its business on being an online information provider since Yahoo! News and Yahoo! Finance are excelling (Shields, 2010). Ultimately, Yahoo will have greater success in future growth pursuits after establishing a defined base from which the firm can grow. Risks and Downsides of this Decision Re-focusing Yahoos product portfolio is the best option for the company, but this decision does come with risk. In eliminating product lines, Yahoo incurs the opportunity cost of cutting a service that could have been lucrative with more focus or investment. Furthermore, cutting products may appear as a sign of struggle to shareholders. Healthy companies experience growth as a result of success, so companies that cut products may imply failure. Shareholders

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may prefer that Yahoo implements a more disruptive strategy that would cause a spike in stock prices. The problem with this dynamic approach, however, is the lack of long term sustainability of stock price growth. Summary In conclusion, Yahoo will fail if it does not refocus its gaze and boil the company down to the core competencies and create a strong strategy. Once this strategy is created Yahoo must create an effective discipline and follow it; the company must avoid the temptation for unchecked growth that drains away energy from the main flywheel of the company.

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Appendices

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Appendix A Market Share of Yahoo and its competitors

Source:
http://www.readwriteweb.com/archives/search_engine_wars_bing_keeps_growing_while_yahoos.php

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Appendix B: Selected Financial Data

Revenue vs. Net Income

Stock PriceLast 12 Months

Source: Schein, Amy (2011). Yahoo! Inc. Hoovers. Retrieved from Hoovers database.

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Appendix C: Porters 5 Forces Threat of new entrants is high when: economies of scale are** (scale on membership): product differentiation is capital requirements are switching costs are Incumbents control of distribution channels is: Incumbent proprietary knowledge is access to raw materials access to government subsidies is Y n/a n/a Y High Low XX Y XX Y XX XX Y XX Y XX XX XX

power of buyers is high when concentration of buyers relative to suppliers is volume of purchase is product differentiation of suppliers is threat of backwards integration by buyers is buyers knowledge about buyers suppliers cost structure is extent of buyers profits is cost savings from the suppliers products are

High XX XX Y XX Y XX Y

Low

Y XX

XX Y n/a XX XX

importance of the suppliers in put to quality of buyers final product is n/a percentage of total buyer's cost spent on the suppliers input is. XX n/a

Power of suppliers is high when

High

Low

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concentration relative to buyer industry is availability of substitute products is importance of customer to the supplier is differentiation of the suppliers products and services i switching costs of the buyer are threat of forward integration by supplier is

XX XX Y XX n/a n/a

XX XX Y

XX

Intensity of competitive rivalry is high when: High number of competitors is industry growth rate is fixed costs are storage costs are product differentiation is switching costs are exit barriers are strategic stakes are XX XX XX Y XX Y XX

Low Y XX

Y XX Y XX Y Y Y

Threat of substitute products is high when: Profitability of industry producing substitutes is

High XX Y

Low

rate of improvement in price- performance relationship of substitute product is XX

Appendix D Balanced Scorecard

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Financial 2010 reports: - Net Income: 1.23 Billion in (Schein, 2010). -Net Profit Margin: 9.26% (Schein, 2010). -ROAM: 23.04% (Schein, 2010). -P/E Ratio: 23.04 (Schein, 2010). -D/E Ratio: 0.01 (Forbes, 2010). -ROI 8.8% (Forbes, 2010). Customer and Market Orientation - 5% of respondents say they always use Yahoo! (Mintel, 2010). -American Customer Satisfaction Index Score of 76 (2010).

Internal Processes - Focus on strategic international mergers -Open the Yahoo! platform to third party developers -Sales through field sales, telesales, online and reseller (10-K, 2009).

Learning and Growth - Partnership with Bing to outsource search service (Learmonth, 2010). - Wide array of intellectual property including patents for innovation, trademarks, software, and trade secrets (10-K, 2009). -"Primetime in No Time" video stream (10-K, 2009).

Appendix E: BCG Model

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Appendix F: SWOT Strengths Weaknesses Well-established company, deep roots Lack of innovation nd o 2 highest market share Inefficiency in marketing efforts o People live by yahoo news and Search revenue fell, but still finance increasing money in advertising o Large international presence Change of software in its email service Partnerships Offering so many products has caused o Face book it to lose its focus o Microsoft Lack of objectives and strategies Strong brand Behind the technology curve Developers platform that allows it to grow with the app platform Finances are stable-low debt, lends it room to grow

Opportunities Threats Strong mobile platform Being overcome by competition that is Opportunity to form strong partnerships bolder and more innovative, such as Opportunity to develop expand in the Google international market Volatility of the international market High growth market A market that is constantly changing Jumping on board with new technology, New technology platform that comes ex. iPad out that makes it completely obsolete How to protect intellectual property rights

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