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An Analysis of Yahoo’s Corporate Strategy

On February 1st, Yahoo! received an unsolicited acquisition proposalfrom Microsoft. The threat of a hostile take-over has turned Yahoo¡'s Corporate Strategy into a hot topic of discussion across university classrooms (and coffee machines), those of the TUDelft are no exception! (See the press release)

In the next few weeks, I will post a series of essays analyzing Yahoo!'s Corporate Strategy. These papers are assignments from a course in Technology and Strategy of the MoT programme, that I'm taking this semester. They will cover topics ranging from value chain analysis, company evolution, operational value creation, organization of innovation and evolution of R & D, and knowledge productivity. The analyses are meant to be the building blocks for an analysis of corporate strategy, and should be based on an analytical perspective (that should be consistently maintained throughout the essays).

The last assignment for this course is to draw conclusions from these analyses. I hope to draw some conclusions about Microsoft's (possible?) acquisition of Yahoo. Undoubtedly, the situation will develop in the coming days so it will be very exciting to see how itall unfolds.

For now I leave you with the company introduction I prepared for this assignment. Comments are welcome!

Yahoo, a Global Leader

Description

Yahoo! is a well-known leader in the Internet industry. Founded in 1994 by Jerry Yang and David Filo, back then PhD students at Stanford, Yahoo! quickly grew out of its start-up phase. Evolving at the speed of the Internet, sometimes seemingly faster, it went public in April of 1996. Through the years, Yahoo! has matured into an industry leader and one of the world's most influential Internet companies. In many ways Yahoo has set the pace of innovation on the Internet, through revolutionary technologies and novel monetization models, and also through leadership in strategic initiatives.

Like many start-ups, Yahoo! began by solving a problem faced by its founders. As PhD students, Jerry and David had to reference several academic and technical papers in their PhD theses. They created a list of references to keep track of their growing bibliography. The list caught on at Stanford and grew to the point that Jerry and David were mostly adding links to the list instead of working on their research appointments. Soon after, they founded Yahoo! and received venture capital funding from Sequoia Capital.

To receive funding, Yahoo! crafted its initial business plan around advertising. "No one had any idea how big the Internet was, but the model was advertising."[1] In addition, Yahoo! got involved in activities that would bring in users or help generate money, both crucial during the initial growth stage. Despite its leadership in Internet technologies, Yahoo! lacked an experienced management team that could effectively drive sales. At the time, Netscape was spearheading the Internet revolution, and gave Yahoo! a significant boost by letting it handle the majority of its directory service traffic. This helped Yahoo! in selling formal advertising packages. Soon after, Tim Koogle was brought in as CEO, quickly proceeding to establish a management team.

In its evolution, Yahoo! faced increasing pressures from competitors like Excite, Lycos and AOL. The strategy chosen at the time, to position itself as a media company instead of one focused on technology, was effective until Google came along with full-text search technology[2]. In an environment of fierce competition Yahoo! was pressed to continue innovating. In this quest, Yahoo! missed out on advancements like the web-based email revolution. Having missed Hotmail, later acquired by Microsoft, it had to settle for the second spot with the Rocketmail service. Throughout this evolution, and up to the present day, Yahoo! has faced challenges that have required it to adjust and change its strategies.

Company Structure

Currently, Yahoo! is a public company with shares traded on the Nasdaq stock exchange (under the YHOO ticker symbol)[3]. It offers services based on Internet search, content, communication and personalization technologies. Yahoo describes itself as "a leading global internet brand and one of the most trafficked Internet destinations worldwide."[4] As a company, Yahoo "seeks to provide online products and services essential to users' lives, and offers a full range of tools and marketing solutions for businesses to connect with Internet users around the world."[5] Yahoo! headquarters are located in Sunnyvale, California.

More information about the company type from the annual report:

"Yahoo! Inc., together with its consolidated subsidiaries is a leading global Internet brand and one of the most trafficked Internet destinations worldwide. Our mission is to connect people to their passions, their communities, and the world?s knowledge. We seek to provide Internet services that are essential and relevant to our global audience of users and our advertisers."[6]

The company was restructured in December of 2006 as part of a strategic change to align operations with customers. More recently, founder Jerry Yang stepped up as the company's CEO. The structural change is summarized in the company's annual report:

"In December 2006, we announced a reorganization of our structure and management to align our operations with our key customer groups. Under the new structure, we will have two customer-focused groups: the Audience Group and the Advertiser & Publisher Group. Each of these groups will be supported by the Technology Group. We believe having a more customer-focused organization, supported by robust technology, will speed the development of leading-edge offerings for our most valuable audience segments and the provision of marketing services to our
advertisers. This reorganization is expected to be completed by the end of the first quarter of 2007."[6]

Core Activities

The core components of Yahoo's business are products and services that rely on four pillars of what it describes as the "foundation for the next generation of the Web, providing our users the power to connect, communicate, and create, gather and share information online."[7] These core activities support the strategic objectives that Yahoo recently set forth for accelerating growth and creating long-term value for its shareholders: "to become the starting point for the most consumers on the Internet, to establish Yahoo! as the must buy for the most advertisers and to deliver industry-leading platforms to attract the most developers."[8]

To achieve these business functions, Yahoo relies on a redefined organizational structure. Through three main operating groups, audience, advertiser & publisher, and technology, Yahoo has set out to achieve expansion and leadership in key organizational competencies. These include culture expansion, creation of social media environments, leadership in next generation advertising platforms, and drive of organizational effectiveness and scale.

Major Market Developments

In the past few years, the major market developments include the establishment of online advertising as a viable and profitable alternative, relying on pay-per-click monetization models that employ search technologies to serve content requested by users. Increased partnerships and development of new services also characterize Yahoo's market environment. Moreover, competition is the main aspect that has shaped the current state of the Industry. The most recent market development has been the unsolicited acquisition proposal by Microsoft which Yahoo! is currently analyzing.

The company's annual report lists the major developments under the headings shown below:

(1) Established new alliances and partnerships
(2) Invested in new and existing offerings to further improve user experience
(3) Enhanced offerings and systems to improve monetization

From (1) the most interesting developments have been: a strategic partnership with Seven Network Limited (a leading media company in Australia), cooperation with Telemundo for increased penetration into the US hispanic market, agreements with Hewlett Packard and Acer for a co-branded toolbar featuring Yahoo! services, increased mobile offerings, strategic partnership with eBay for graphical and search advertising, strategic partnership with several newspapers to deliver search, display and classified advertising.

From (2) the most interesting developments were: redisgned home page, Yahoo! Answers, next generation Yahoo! messenger, Yahoo! Go for Windows mobile, launched enhanced Maps product, next generation Yahoo! video, launched Yahoo! tech and Yahoo! food.

The most interesting developments from (3) were: new search marketing system, dubbed Panama to improve search experience and more valuable leads.

The majority of the market developments in new and existing product offerings have come as a response to Google's own products and services. In the past years, and even since its founding, Google has presented significant competition to Yahoo!'s products and services.

Major Portfolio Developments

To keep up in this turbulent environment, Yahoo! has concentrated on strategic acquisitions since its early years. The most recent acquisition of Zimbra interestingly positions Yahoo as a competitor of Microsoft in the email and collaboration space, commonly dominated by the Microsoft Exchange product. Zimbra offers, "open source server and client software for messaging and collaboration – email, group calendaring, contacts, and web document management and authoring."[9] Other key acquisitions include those of Del.icio.us and Flickr, which are especially promising Web 2.0 technologies.

In the past few years, Yahoo! has made major organizational changes. The most significant was the stepping down of Terry Semel, former CEO, to leave the executive chief position to founder Jerry Yang. Before this, Yahoo had already begun restructuring to change its strategic focus. In a press release it announced: "Yahoo! Re-Aligns Organization to More Effectively Focus on Key Customer Segments and Capture Future Growth Opportunities"[10]

Yahoo! is one of the leaders in the turbulent and risky Internet industry. For more than 10 years, Yahoo! has been able to maintain a position of leadership and innovation in this space. Google is increasingly challenging Yahoo!'s profits and presence in this market. Microsoft's recent unsolicited acquisition is especially compelling in this light. In sum, there has been no better time to analyze the Internet giant Yahoo!. It will be very interesting to see this story unfold.

[1] Livingston, J. Founders at Work: Stories of Startups' Early Days. Apress, New York NY, 2007.
[2] Adapted from Livingston, J. Founders at Work: Stories of Startups? Early Days. Apress, New York NY, 2007.
[3] http://yhoo.client.shareholder.com/faq.cfm
[4][5] http://yhoo.client.shareholder.com/press/faq.cfm
[6] http://yhoo.client.shareholder.com/annuals.cfm
[7] http://yhoo.client.shareholder.com/press/faq.cfm
[8] http://advision.webevents.yahoo.com/yahoo/earnings/2007/Q4/
http://yhoo.client.shareholder.com/press/releasedetail.cfm?ReleaseID=291270
[9] http://www.zimbra.com/
[10] http://yhoo.client.shareholder.com/press/ReleaseDetail.cfm?ReleaseID=220987

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