Thursday, June 20, 2013

Yahoo’s rise, decline, stagnation and then Marissa Mayer!

Yahoo!, started in a Stanford University campus trailer in 1994 has had a long history of ups and downs marked by prominent strategic changes, reorganization and a competitive market. It started essentially as a directory of websites, and grew into an extensive web portal, supported by many acquisitions along the way. It saw a phenomenal growth period and a strong return for its shareholders amidst the outlandish dot-com bubble burst when its share price reached a high of $118 in 2000.

It expanded its portfolio into news, finance, sports, and mail content/services along with Yahoo! Search service and sponsored advertising. However, the fact remained that there wasn’t anything proprietary about the content Yahoo provided and thus can be duplicated. It fared well in the web market but failed to create any unique strategic position that could be supported and enriched by its core capability. This was the time when Google had started making inroads into Yahoo’s space, though it was still in an early state to make any outrageous claims.

In a sense, Yahoo! Buzz and Google Trends were yin and yang at that time. Buzz Index only touched the surface of all the search activity that is going in Yahoo!'s properties. These approaches were somewhat reflective of the corporate strengths of both these companies at that time. Though Yahoo!’s service had an innovative design and strong technology departments, Yahoo!'s historic advantage had been around expanding its vertical content silos, whilst Google has focused on web industry’s evolution and future trends.  This fundamental difference made Yahoo resist any change and eventually lose the sight of the impending scale of the market operations. An example of this was the use of human editors rather than automated methods to rank Web pages, which, as expected, proved unable to keep up with the explosive growth of the Web. They were largely pushed to the sidelines by so-called algorithmic search providers such as Inktomi and Google and by the advent of commercial search providers lead by Overture.

So, the next most logical move is to catch a “destined bus” to that place, if you cannot get to the destination yourself. Yahoo’s acquisition of Overture in 2003 was termed by analysts as a "strong move" in terms of competition with MSN, while emphasizing that there was sufficient room in the growing ‘paid search sector’ for new entrants. However, after the acquisition, Yahoo failed to capitalize on the fast changing trends in social media. The shortened life cycle of web interfaces, user tools, media/content services made the businesses grow just as fast as required to be outdated. The focus on horizontally integrated social media development and keeping the user engaged and excited made the ecommerce industry very unpredictable and flexible. At this point in time, a clear strategic vision and shedding off that stubborn non-changing attitude was a necessity.  The absence of it, as demonstrated by strategists and market visionaries, was one of the most prominent reasons of Yahoo’s failure. On one hand where Google was agile and a market reactor in this regard, Yahoo on the flipside could not synchronize its own capabilities with its acquired companies and customer needs, and hence failed in its broader vision.

53% of Yahoo’s revenues come from advertising on its own properties and segments. Its stock soared to near a 52-week high after Overture’s acquisition. However, Yahoo’s continued average performance in the period to follow made the stock over-valued. At the time of Microsoft’s acquisition many analysts criticized the principals of Yahoo! to claim their worth north of $38/share, which they think painted an outrageously false picture farther away from the status quo.

At the advent of 2012, Yahoo’s board realized a sense of urgency in breaking their negative momentum, for which they laid their stake on Marissa Mayer, a former Google executive. This move was followed by some active changes by Marissa, such as change in policies, acquisition of Tumblr and a failed attempt to acquire Hulu. So, do you think this strategic move would bring a new dawn for this organization which was once a household name for web revolution?

1. “Marissa Mayer Is the Right Kind of Game-Changer.” Harvard Business Review. Accessed June 16, 2013.
2. “Yahoo to Buy Overture for $1.63 Billion - CNET News.” CNET. Accessed June 20, 2013.
3. “Yahoo! Buzzlist Versus Google Trends.” ReadWrite. Accessed June 20, 2013.
4. Yahoo finance! Stock Prices:

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