Thursday, June 27, 2013

Yahoo!'s Journey

The article, “Lessons in Longevity, from IBM” by Steve Lohr of the New York Times, spoke about the journey of IBM from being the dominating leader in the business, to losing out to the point of struggling to survive, to re-creating themselves back to a thriving company.

Some of the key points highlighted by IBM’s story are  -
1. Re-create yourself, evolve beyond past success
2. Don’t walk away from your past, build on it
3. Collaborate with multiple partners to forge in a new direction
4. Acting before the crisis occurs
5. Keep up with trends and changing market environment and needs
6. Reacting to changing competition

The 100 year evolution of IBM provides a cautionary lesson to companies from various industrial sector today, especially those in the technology sector. Although still on a much shorter timeline, a potentially similar challenge is found in the story of Yahoo!.

What is ‘Yahoo!’?

Yahoo! is an internet corporation known for its web portal, search engine, and other services such as mail, news, social gaming, video sharing, online mapping, advertising, etc. Founded by Jerry Yang and David Filo in 1994, Yahoo! sites are visited by roughly 600 million users each month. However it is no secret that Yahoo! is in trouble and has been so for a while since the early 2000s.

Yahoo’s journey.

Up until about 2000, Yahoo! rode a high wave buying its way through several companies such as OddPost, Flickr, HotJobs, etc and ended 2000 with an all time high stock price. From then on, there have been several kinks along the road leading to a slow but sure breakdown of the company. The journey since 2000 includes a failed attempt to acquire Google, overlooking opportunities to acquire Facebook and Youtube, and a failed attempt at a hostile bid by Microsoft.

Yahoo! is still huge but despite being one of the biggest draws on the web, Yahoo! is still very difficult to position as a company. It may never beat Google’s search engine or Facebook’s social network; it still gets ads because its sheer size but these are no longer as relevant, their quality and price paid are sure to keep dropping as Google and Facebook keep taking an increasing share of their display ad business. Consequently, Yahoo! runs the risk of going the same way as its previous competition, AOL, becoming largely irrelevant.

Yahoo’s new plan.

The Harvard Business Review spotlight on ‘Strategy as Simple Rules’ highlights the underlying phenomenon in the success of a company like Yahoo. Managers recognise the need for a simple set of guidelines and strategic processes to help make decisions and navigate through the chaotic landscape of such industries. Autodesk illustrates strategy as simple rules. This was reflected in Yahoo!’s new strategies when Carol Bartz was brought in as CEO when the company was headed towards a crisis.

A notable shift in the streamlining of targets and goals, both strategic and financial can be seen in the period before 2009 and after. Focus was shifted to more concrete, specific solutions for immediate revenue generation and ad sales boost along with continuous collaborations and acquisitions in keeping with the company’s interests.

1. Microsoft deal and the following multi-year plan - After resisting Microsoft’s hostile bid in 2008, Microsoft issued a three-year financial plan and strategic initiative to its investors. The plan offered targeted benchmarks for 2010. Specifically, it proposed to increase the net revenue from 5.1 to 8.8 billion dollars from 2007 to 2010. It also included scaling up Yahoo’s core search and display advertising businesses by 10% and 12% respectively. Yahoo!’s projections generated a price of about 40$ per share, while analysts thought a target of a low to mid 30’s would have been more appropriate. Additionally, analysts believed that Yahoo! had overestimated the growth in its search and display business.

2. Arrival of Carol Bartz and a new Microsoft deal - In 2009, Yahoo! hired yet another new CEO, Carol Bartz. Yahoo! was attracted to her proven abilities to cut spending and make operations more efficient and streamlined. Her tenure at Yahoo! was marked by a ten year deal with Microsoft to place Bing as Yahoo!’s search engine. Yahoo continued to sell its own ad space and keep 88% of the revenue, while Microsoft kept all the data needed to drive ad placement and ensure profitability. Microsoft became the undisputed #2 search engine behind Google while Yahoo! achieved its goals of streamlining operations, cutting down on the development budget, and maintaining its ad revenues. The leadership hoped this would allow them to focus on selling ads on its owned and operated pages and email. This deal was further expanded into a pact between Microsoft, Yahoo! and AOL to simplify the process of buying ad space and competing with Google’s dominance.

3. Latest deals - Acquiring Tumblr and revamping Flickr marked 2013 for Yahoo!, along with a yet undecided deal for Hulu’s acquisition. Although the purchase of Tumblr may have been an attempt to gain relevance once again and buy the ‘cool’ factor, it can definitely be used to get the boost that is much needed by Yahoo! at this point. One way could be a passive approach by letting Tumblr be so as to not kill it or ‘screw it up’ and just make money off it. Or instead, and more preferably, Yahoo! could use Tumblr as a ‘reverse mentor’ to welcome Tumblr and David Carp in to reinvent and transform the rest of their operations.On the other hand, the revamping of Yahoo!’s photo sharing site, Flickr, seems to have some positive impacts. The number of daily active users for the Flickr photo app has jumped 50 percent since it was redesigned in May, while use of mobile email has climbed 70 percent since an overhaul in April.Yahoo! simplified the interface, gave users the feeling of abundance, and most importantly embraced the mobile platform. Also keeping up with competition, Yahoo! is making a bid for Hulu, a free subscription based video sharing site. An acquisition like this would bring Yahoo! right into the thick of the video streaming service. This could help Yahoo! to compete with rival Google , which bought video-sharing site YouTube in 2006.


It is still too early to predict the end of Yahoo!. With just under two decades of history, there is still a lot of opportunity. But if it can't redefine itself, it could be well on it’s way to dissolving into irrelevance. Ultimately, Yahoo runs the risk of going the same way as AOL. On the other hand, Yahoo is still one of the most visited sites on the Internet, and if it determines the next steps in planning its future, it could easily find its way back to profitability. The future of Yahoo depends on its ability to redefine itself in a quickly changing Internet landscape.


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