Yahoo!

Learningfromthehindsight
IntroducingtheCase

EPGDIBVSAT 2010_GroupII

BusinessStrategyCaseStudy

Yahoo (yet another hierarchical officious oracle), a dream turned reality for two Stanford engineering graduates.Createdalmostbyaccident,thiswebdirectorywasdrawnby100,000peopleperdayandthe needforexpandingfurtherintocyberspacebecameessential. Further to fund their ambition, they hired KOOGLE as the CEO (a fortyfiveyearold engineer with fifteenyearsofexperienceinthemanagementofhightechnologyfirms,includingastintaspresidentof InterMec,aSeattlebasedmanufacturerofbarcodescanningequipment). Koogle envisaged Yahoo as a global media company whose principal asset would be a major Internet gatewayorportal,whichwouldenableanyonetoconnect.KooglesambitionwastotransformYahoos simple directory service into a conduit for bringing together buyers and sellers, thereby facilitating commercial transactions over the Web (ecommerce). This vision would enable Yahoo to generate revenues from the sale of advertising space on its directory pages. Moreover, it would also garner significantrevenuesfromecommercetransactionsbytakingasmallsliceofeachtransactionexecuted overitsspace. Issueidentification Inthefirstninemonthsof2001,salesslumpedby34percentandthecompanyregisteredalossof$84 millionversusaprofitof$169millioninthepreviousperiod.Theprofitdeclinereflectedslumping advertisingrevenues,whichaccountedforcloseto80percentofYahoosrevenuesin2000.The problem,inthewakeofaslowdowninbusinessactivityintheUnitedStates,hadresultedindeclining advertisingrevenuesacrosstheboard.Moreover,manyofthebestadvertisersonYahoohadbeen otherdotcomcompanies,andalargenumberofthesehadgonebankruptin2001. 1. To what extent was the evolution of strategy at Yahoo planned? extent was it an emergent response to unforeseen events? In light of growing popularity in 1999, yahoo entered into business with a simple rule of selling advertisingspacetoallcategoriesregardlessofmanagingtheriskinvolvedwithprofileselectionofthe advertisers. UndertheleadershipofKoogle,yahooimplementedacorporatelevelstrategywithavisionoflaunching yahoo as a global media company. Subsequently they were keen on choosing business focused on facilitatingcommercialtransactionsovertheweb.Thiseffortwouldresultinreturnsforyahoo. Finally,theyalsoimplementedabusinesslevelstrategybybeingaggressiveonbrandingandproviding additional services like personalization of web page to registered users. They also endeavor to get a bettervisibilitybyexpandingandgainingfootprintoutsideAmerica. To what

RahulSarkarJayantSarkarPrashantYadav

DineshChugh

Yahoo!Learningfromthehindsight

EPGDIBVSAT 2010_GroupII

BusinessStrategyCaseStudy

Yahoos evolution of strategy was not responsive to shield unforeseen events as there was lack of flexibilityintermsofanalternativeplan.Hadtheiradvertisementspacebeenproportionallybalanced with well diversified sector across the business stream, yahoo could have sustained its position as a marketleader. 2. Could Yahoo have done a better job of anticipating the slowdown in advertising revenue that occurred in 2000 2001 and positioning itself for that slowdown? How? What might it have done differently from a strategic planning perspective? Hadyahoopositioneditselfstrategicallyoverthecyberspace,itwouldhaveenabledthecompanyto prepareforanyunforeseencircumstanceincludingtheslowdowninadvertisingthatoccurredin2000 2001. Duringthefirstthreequartersof2001,yahooencountereddiminishingreturnsfromtheadvertising spaceandalliedrevenues.Ratherthanavoidingtheprevailinguncertainty,theyshouldhaveswitchedto ashorttermstrategytotacklefallingrevenueinthefinalquarter.Yahooshouldhavedemonstrated flexibilityintheexistingkeyprocessesratherthancontinuedfocusongeneratingadvertisingrevenues fromthedotcomcompanies. Instead,YahoocontinueditsinterestindotcomsectorandoverlookedtheimpactofslowdownonIT sector.Theyshouldhavediversifiedandexploredothersectorsbeyonddotcomwhichwouldhave givenalevelplayingfieldintermsofriskdistribution. Fromastrategicplanningperspective,followingarethepoints: EXITstrategy:yahoocouldhavedetermineditsexitwhileexperiencingthepersistentdownfall indotcomsectorandshouldhavelaiddownastrongexitstrategy. Boundarystrategy:yahooneverenteredintobusinesswithaholisticapproach.Hadyahoo appreciatedtheexistingenvironmentandmarketdynamics,itwouldhaveincreased possibilitiesforyahootoprovisionforthebalancemarketcontributionandresultedina sustainablebusinessmodel. InnovationStrategy:yahoocouldhaveexploredotherdomainslikewebhosting,enterprise search,homeentertainmentsubscriptionandonlinegamesetc.thatcouldhavebeen simultaneouslycomarketedbyyahoofordirectcustomersandpotentialmarketopportunities. RahulSarkarJayantSarkarPrashantYadav DineshChugh

Yahoo!Learningfromthehindsight

EPGDIBVSAT 2010_GroupII

BusinessStrategyCaseStudy

3. Does Yahoo have a source of potential long-term competitive advantage? Where does this come from? Yes,yahoocertainlyhasasourceofpotentiallongtermadvantage.Itcamefromthefollowingfactors: Richandclassifiedcontentyahoowasapioneerofvarietyintermsofcontentwhichcateredtoevery visitorwiththerelevantinformation.Yahooalsoexhibitedprecisiontowardscategorizingcontentwhich enabled optimal search. Yahoo is known for it extensive web directory and its content which was classifiedaslisted200,000websitesunder20,000differentcategoriesandwasbeingusedby800,000 peopledaily. Hardwareinfrastructuretheserverspaceavailablewithyahoowassignificant.Intermsofcompetitive advantage,itremainsachallengetoimitate.Withsuchavastassetbase,itdefinitelystandsasoneof thestrongestcompetitiveadvantagetoorganisations. Intellectualpropertyyahoousedefficientalgorithmsandsearchengineoptimizationtechniquesfora bettersearchexperience.Yahoohasalwaysropedinbesttalentandleadsasanexampleinnurturing thebestofhumanresources. 4. What does Koogles resignation in May 2001 tell you about the role of a CEO in a public company? Koogles resignation proves his recognition of failure to handling a technology driven, innovative and demandingbusinesssuchasYahoo!Thereforethetakeawayis: 1. AsaCEO,theprimaryroleshouldbeframingandensuringimplementationofclearvision.The CEOshallalwaysbemindfulofchangingtimesandmarketdynamics. 2. A CEO should also formulate and drive a strong corporate level strategy which ensures the aboveaveragereturnsforthebusiness. 3. ACEOshouldbewellawareofthemarketdynamicsand must possessskillstomaneuverthe organization during unanticipated times and chaotic environment. He should also be efficient enough to map an adequate contingency plan to manage market turbulence and inevitable circumstances. END

RahulSarkarJayantSarkarPrashantYadav

DineshChugh