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The evolution of an Internet leader

I recently found out that the deadlines are not (hard) deadlines but instead meant to help us turn in the assignments on time. This helped me make a better analysis this time (and turn it in at a decent hour) for which I received very positive comments! I hope you like it, comments are welcome.

This module was about analyzing company evolution. For this we had to identify the evolutionary stage and business functions of the firm, and analyze the coherence of both. 

The evolution of an Internet leader

The value drivers of a firm have a significant influence on the core competencies the firm develops over time. These capabilities, in turn, influence the products and services that the firm offers in the market, characterize a firm's value chain and can have a significant effect on its value system. For the majority of firms, core competencies and underlying value drivers have an effect on the firm's evolution. Analyzing this evolution is useful for evaluating the effectiveness of strategy.

Mass-individualized position

Internet giants like Yahoo! have developed core competencies needed to survive in a rapidly changing market. Yahoo! has gained some of these capabilities by acquiring young start-up companies that provide new technologies. The acquired competencies, mostly in the form of new technologies, are used in the provision of services that are highly customizable and individualized. This is trend is evidenced by the company's major changes in the past 10 years.

The changes that are accomplished through acquisitions are most visible through the services offered to the public and are also evidenced on the company's financial performance. Notable examples include the acquisitions of Overture and DoubleClick, both of which significantly added value and competencies in online advertising for Yahoo! and Google, respectively. Other noteworthy examples are the more recent acquisitions of Maven Networks and YouTube. Overall, acquisitions are indicative of the strategic intention. Microsoft's proposal to acquire Yahoo!, for example, signal the company's strategic intentions of expansion in the Internet industry.

During the past 10 years Yahoo! has successfully completed several acquisitions. Most recently, this past February 12th, Yahoo! announced its acquisition of Maven Networks[1], a leading online video platform provider .

The major changes in Yahoo! during the past 10 years include[2]:

– Launch of Yahoo! auctions (1998)
– Yahoo! acquires Geocities (1999)
– Global expansion; new sites in Spain, China, Mexico, Brazil, India (1998-2000)
– Terry Semel appointed as CEO (2001)
– Yahoo! Maps introduced (2002)
– Yahoo! acquires Inktomi (2002)
– Yahoo! acquires Overture (2003)
– VoIP in Yahoo! Messenger (2005)
– Launch of Yahoo! Video (2006)
– Yahoo! acquires Zimbra (2007)
– Jerry Yang steps up as CEO (2008)

These changes have predominantly concentrated in the services that Yahoo! supplies to its customers. Through acquisitions or new services developed in-house, Yahoo! has increasingly strived to offer new capabilities to its users. These changing competencies indicate shifts in strategic direction throughout the company's evolution, until its current state of mass customization of service offerings.

Expansion into interactive services geared to individual users, including video, interactive maps, online advertising and platforms for service provision, have been the cornerstone of Yahoo!'s developments over the years and have predominantly led the company into mass-individualization. Most of these changes have come in response to Google's dominance of the Internet industry, also achieved through mass-individualization. Yahoo!'s trend towards mass-individualization can bee seen in the figure below.

Figure 1: Business evolution grid

As can be seen in the figure, Yahoo! was initially situated in the capacity phase, at this time it provided listings of Internet websites for free. The company was forced to make profits, first in order to get funding and within a year, in order to go public. Yahoo! reached profitability through online advertising, the main business model for Internet companies at the time. The company could have been classified as homogeneous back then, if only briefly as it quickly diversified its service offerings in response to fierce competition from Google. Almost at the same time, Yahoo! was already at mass individualization, mostly because of the high degree of versatility offered by the Internet (which facilitates customization) and the nature of the services Yahoo! was offering (whose natural evolution was towards diversification).

Evidently, the rapidly changing environment forced Yahoo! to evolve quickly, in a pace often referred to as 'Internet speed.' As mentioned in the company's most recent (2006) annual report: "Looking back, the first phase of our growth-from 1995, when Jerry and David founded the company, until 2000-was the Wild West era of the Web. The focus was 'get big fast.' Yahoo! established a global brand and our user numbers soared, as we made navigating the Internet easy and fun."[3]

Business functions

Yahoo! is currently involved in a number of business activities that have evolved over the years to mass-individualization. It groups these activities in offerings for businesses ( B2B ) and customers ( B2C ). Currently at mass invidualization, Yahoo!'s business functions under these two broad categories have an orientation to adaptability. This is evident from the flexibility and innovativeness of the company's business functions. The following table shows the characteristics of Yahoo!'s business functions in relation to the company's evolutionary position. Following the resource-based view, these descriptions concentrate on the company's most valuable resources.

Table 1


Business Function    Description  Resource(s) used Relation to mass-individualization  
 Marketing  Online advertising services  Search technologies and Brand  User generated content, pay-per-click, auctioned prices
 Supply Chain  Integration of Services and aggregation of information  Research and Development and Competencies from acquired firms User mobilized content, pay for premium services  
 Information  Technology and User generated content  Technology and Users  User generated content, services modified to user demands, seamless service upgrades, short product development life-cycle
 Organization  Innovativeness and flexibility  Human Resources and Technology   Valued individual workers, continually customized technology 


Coherence of Business functions

The characteristics of these business functions are coherent to each other and are instrumental in Yahoo!'s current evolutionary position. An analysis of the business functions is provided below.

  • Marketing – Yahoo! is the world's second largest provider of online advertising services. It strives to provide "the most efficient and effective marketing services for businesses."[4] Online advertising is the main business-oriented ( B2B ) marketing component of Yahoo!'s business. Customer-oriented (B2C) activities include services for Real Estate, Shopping, Travel, Autos, and Personals. These services are all geared towards providing useful (individualized) market information to link buyers and sellers. To this end, Yahoo! leverages two of its most valued resources: search and brand. In relation to the company's evolutionary position, these activities and resources focus on distributing user-generated content.
  • Supply Chain – Yahoo!'s properties and services can be integrated to provide value added services to customers. By employing web technologies, Yahoo! is able to exploit the capabilities of the Internet to aggregate user generated content and create flows within the company's value chain. To this end, Yahoo! relies on R & D capabilities and acquisitions of (start-up) technology companies to develop and access new resources.
  • Information – Yahoo! is a leader in employing Internet technologies to add value from user generated content. Using the Internet as a platform enables Yahoo! to provide services that can be continually and easily modified to meet customer demands. To accomplish this Yahoo! relies on its users (to supply content) and its technology (to shape content). This is Yahoo!'s most coherent business function, the one that places the company predominantly in a mass-individualized position.
  • Organization – Yahoo! is a flexible and innovative company. It relies on self-organizing teams of experts and leverages cutting-edge technology to create innovative services. The highly dynamic environment creates an organic structure where individual experts thrive. Coupled with the latest Internet technology this enables a high degree of responsiveness and ability to achieve mass customization.

In general, the business functions of Yahoo! are coherent and enable the company to achieve flexibility and innovativeness. Some business functions are better characterized under mass-individualization, while others have aspects that are predominantly heterogeneous. However, this is expected from a young company that is constantly evolving and operates in a dynamic environment.

Coherence of Business functions and Evolutionary position

The business functions of Yahoo! are in line with its evolutionary position. The innovativeness and flexibility that the company is capable of, and has shown over the years, position Yahoo! predominantly in the mass-individualized phase of evolution. Only through these competencies could the company have achieved this position, this means that the business functions are coherent with placement.

Yahoo! belongs to the mass-individualized phase of evolution. It predominantly competes under this phase of evolution. Furthermore, it is constantly undergoing changes because of the environment it operates in, not because it is changing into a different phase of evolution.

Yahoo!'s business functions offer the flexibility needed to adjust to rapid changes. Most of the company's business functions can be classified under mass-individualization, those that do not fit in this grouping predominantly, at least exhibit some of its characteristics. This makes it possible for Yahoo! to compete at all levels under mass-individualization. Even though some business functions compete on different evolutionary levels, the company's core business components are situated under mass-individualization.

[1] “Yahoo! acquires Maven Networks”, Yahoo! Press release, February 12, 2008. http://yhoo.client.shareholder.com/press/releasedetail.cfm?ReleaseID=293433, accessed February 25, 2008.

[2] “List of Acquisitions by Yahoo!”, Wikipedia, http://en.wikipedia.org/wiki/List_of_acquisitions_by_Yahoo%21, accessed February 21, 2008.

[3] Yahoo! Annual Report, http://yhoo.client.shareholder.com/annuals.cfm, accessed February 20, 2008.


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