Yahoo Strategic Management Report

chawbacon Business on profits Time Group 2 Aaron Duke Alejandro Reynoso Erin Moon Sophia Benevento February 21, 2012 Dr. Jay Lee GM 105 California State University, capital of California Executive Summary yokel started out as a hobby between two Stanford students, Jerry Yang and David Filo, and glum from a simple website with categorized information to a powerful navigational tool for megs of users. It generated millions in tax taxation and succored shape the way the modern-day earnings is use, both in terms of streaming information and streaming revenue.The U. S. military branch used the internet in the 1960s as a way of safeguarding against concentrate information. Decades later, it was used as a tool to help researchers share informaiton. In the 1990s, HTML language was created to help read documents easier. Within a few years, browsers, vena portaes, and internet proceeds providers (ISPs), along with the low price and lightheaded access to computers had connecte d the world and the internet was born.As Yang and Filo created a way to monetize the traffic created by the general yahoo adit, the attractiveness of the yokel model helped propel the global r individually of the internet, and brought about wild challenger, impertinent tools, juvenile models of monetization, and the need for unused dodging. When using Porters five forces model to analyze the ingress industrys attractiveness, it is sluttish that attractiveness is low. The bargaining power of suppliers is high, bargaining power of the buyers is low, threat of current entrants is high, start-up costs motion high barriers to entry, alternative edia allow the threat of substitutes to be high, and the potential for revenue has saturated the industry with competitors. This warlike environs rapidly changed since yahoo was first created. There was virtually no competition and it was able to promptly deposit macro commercialise segments. Using a strategy of simplicity, in dependence and strategic abetter _or_ abettorships, yahoo created a user-friendly point-of-entry for consumers to find information on the internet while making millions of dollars. Yahoo led the doorway industry from 1994 to 1998, during which its market capitalization grew to $30 billion.In 1999, the industry began to change further as mergers and acquisitions consolidated power. Media companies, ISPs, browser companies and content providers were merging and acquiring each opposite in a flurry of moves in parade to retain competitive advantage. The strategy of independence that brought Yahoo success needed to be reevaluated. In an environment with much(prenominal) volatile and intent competition, what strategy should Yahoo implement? As removeer of the internet portal industry, Yahoos function, both in terms of its external environment and internal resources and capabilities, should be employ in collection to bring about above-average returns.Both the Industrial Organiz ation (I/O) and Resource-Based models of above-average returns jakes be utilized. It shows Yahoo to be in a favorable position and the tools needed to impressively create new partnerships that depart obtain market share and long term profitability. Further, A SWOT analysis shows that Yahoo has strong inciter image and opportunities for strategic partnerships, even though as first-mover in the industry, it lacked a long-term strategy and is imperil by intense competition.The story of Yahoo shows that a companys strategy must unendingly be evaluated for utileness in terms of its current external environment and its internal resources and capabilities. era effective strategy early on may bring about a favorable position in the industry, competitive forces will cause a company to seek out new strategies, new partnerships and new models in prescribe to remain competitive and profitable. Background Jerry Yang and David Filo created the portal Yahoo in April of 1994. It was origi nally used as a hobby to track web plowes sent to them by friends.They were students at Stanford, but they gave up their education to focus on running Yahoo. Jerrys Guide to the World Wide Web was created by Yang and Filo as a guide to navigate though the web. These web sites were sorted into a database and thousands of users began to use their service. Yahoo officially became a handicraft on March 5, 1995. They hired Tim Koogle as CEO, as well as a staff of six people which eventually grew. Yahoos operations had three cleave departments property development, marketing and sales, and international.Property development focused on production and engineering science. Marketing and sales handled corporate marketing, crinkle development, and sales. They also had customized Yahoo pages in 18 countries, which was run by their International departments. Yahoo was located in Silicon Valley, and they offered five main services (properties) to consumers such as navigation, community, ad hominemization, e-commerce, and international. Navigation allowed consumers to find information. Community offered an address book, email, chat, and message boards for consumers.Personalization allowed users to personalize their web pages and e-commerce offered shopping and former(a) flip online sales. International properties were designed for those in diametrical countries and had each countrys language and local content. By 1998, Yahoo had an estimated 100 million connected consumers, 167 million page views per day, and a market value of $30 billion. By 1998, they had an increased revenue for 1. 5 years. intentness Evolution The network was first used in the U. S. Military for defense in 1960.In 1986, the National acquisition Foundation used it for transferring research files and exchanging electronic mail. In 1991, Hyper text markup language (HTML) was created by Tim Berners Lee. This language allowed documents to yoke to one a nonher through a host computer, and people co uld view graphics, audio and text. In 1994, the first internet browser was created. This allowed people to view web documents easily. Navigation sites, called portals, soon followed. Portals had two types of consumers non-paying users and paying companies that cute to advertise.Portal companies typically made revenue through publicize, and they often paid for information that would be exclusive to their site, such as intelligence activity and sports. Click-thrus and referral fees made up a studyity of their revenues from consumers, as well as targeted placements. During the 1990s, personal computers began to sell quickly for home use. Computers were sold with modems, software, a browser, and a way to access the internet. The two browsers that were normally used were Netscape and MSN. Portals could be chosen by the consumer, but they often came included on the computers.Consumers also chose portals establish on habit, quality of information, and brand. Access to the internet was usually done through the phone company, and later fast broadband was offered through cable providers. cyberspace usage began to increase at a fast gradation and soon in that location were millions of people using the internet daily in umteen countries around the world. labor Attractiveness Using Porters five forces model, we conclude that the bargaining power of the content providers change depending on the relevance of the information.The bargaining power of suppliers of unique information, such as popular real-time news or sports, was high. Some of the portals paid companies a monthly rate up to $50,000 for information. However, that bargaining power of other suppliers of information such as specialized content, which was less authoritative to the portal, is moderately high. This could range between $2,500 to $20,000 per month. Nevertheless, virtually of the smaller content providers would receive free placement in exchange for their information. Overall, the bargaining s uppliers of the most outstanding information is very high.Technology and labor were also suppliers. The threat of new entrants to the industry is high. However, the capital requirements in ramble for a new entrant to get by is also very high. During the first few years aft(prenominal) Yahoo was launched, many other entrants decided to enter the market. There would be even more entrants in the next few years. Yet, most of the companies that compete against Yahoo are not making money, they are very losing money. There are many substitutes in the industry that users may prefer to use instead of a portal.Portals considered themselves to be media companies and not just a search engine. Some of the substitutes of portals are television, newspapers, movies, magazines, and even other non-portal websites. In addition, the bargaining power of major paying customers, those who want to advertise on the portals, is very high. In transgress of this, the bargaining power of small paying cus tomers is moderate. The smallest orders of advertisement were $1000. But all of the deals where typically negotiated. Moreover, the competitive controversy is very intense. The and two portals who were making money in 1998 are Yahoo and AOL.However, AOL was not only a portal, it also provided internet access, which provided the majority of their income. Yahoo was the only portal that was not also an ISP and was salve profitable. In summary, the overall attractiveness to enter the industry is very low. The industry is saturated with many different types of competitors, and the start up cost for a new entrant is extremely high. Performance and Strategy When Yahoo invented the first internet portal, it also created the internet portal industry There was virtually no competition and it was able to quickly secure large market segments.It had the blue ocean at its feet as it created new demand in an uncontested market. Yahoo saw the value of creating a user-friendly Internet portal bef ore anyone else. By moving quickly and efficiently, Yahoo was able to negotiate, and frequently dictate, pricing with partners which led to large amounts of revenue. Yahoos performance has been very effective, resulting in positive revenue gains leading to profitability in 1998. Yahoo chose a strategy based on forming strategic partnerships that simply added value to the company.They decidedly chose not to merge with other companies in order to retain full control of operations. This way, Yahoo executives were able to topic full advantage of both its position and revenue streams and reinvest into the company. This would create value-adding properties and services and thus stay beforehand of the competition. The strategy that Yahoo implemented proved very successful. This strategy was one of simplicity and independence compared with their other competitors. They had a maintained a credit line plan that was developed in 1995 and a one-year operate plan that showed their fiscal goal s and top priorities.They did not spend a penny a detailed marketing plan. The employees worked in scraggy quarters, although the structure of the firm was hierarchal. Employees worked in cubicles to save costs. Yahoo was the only portal, aside from AOL, to post profits in 1998. AOLs profits were significantly larger than Yahoos due to the fact that they generated large amounts of revenue as an Internet service provider (ISP). By selling access to the internet, AOL gained revenue from both Internet use and access, while Yahoo generated revenue only from internet advertising.In 1998, it seemed that Yahoo was trending toward losing market share to AOL because would have been wise to invest money into becoming an ISP, however as we have seen, the dominant ISPs have wrick companies like AT&T and MCI, companies that control the means of communication, namely the phone lines and satellites. Yahoo has kept their rudimentary strategy. Yahoo possesses in-house expertise in engineering. A ll in all, their strategy has been very successful until 1999. Mergers & Acquisitions of Competitors There were many mergers and acquisitions in the portal industry during 1998 and January 1999.Media sites such as Disney and NBC were partnering with portals such as Infoseek and Snap to gain a competitive advantage and market share. Internet service providers were also acquiring portals with the hopes of gaining more consumers and increasing their profits. For guinea pig, the service provider Home acquired Yahoos main competitor Excite, while AOL acquired the very popular Netscape. The internet and portal industry was new for the public in the 1990s. Although there were billions of dollars being spent in e-commerce and by advertisers, the portal industry had only a few years of data to compare when creating a new strategy.Many companies relied on analysts predictions for revenue, which may not have been accurate. The strategies ranged from ISPs hosting portals, media company mergers with portals, and portals acquiring numerous smaller businesses. While few of the strategies seemed to make logical sense, the only two portals that created a profit in 1998 were Yahoo and AOL. The conundrum with many of these acquisitions and mergers was the amount of money that was being spent at the risk of their stakeholders, particularly their capital market stakeholders. For example, Home paid $6. billion for Excite, but only a few years later, Home filed for unsuccessful person (Source). These internet service providers and portals had a first-mover advantage so they were able to gain a large market share. Increased competition brought about mergers and acquisitions which consolidated power within fewer companies, in hopes of gaining more of a competitive advantage and greater market share. A Strategy Change? Koogle and his team were aware of the intense competition in the external environment and considered its plectrons. Though they were successful and profitable, they were unsure of the forthcoming.Their strategy was grassroots and they had used one business plan, which never changed. They were an independent company, unlike some of their competitors. The management at Yahoo should offer observing the market and begin to create a new business and marketing plan. The portal industry is growing and becoming fiercely competitive, and with Yahoos main competitor Excite flaunting their slogan, so far with the homogeneous old Yahoo? they should consider changing their strategy. Their high stock price has allowed them to hire some of the most skilled engineers. This, along with capital has allowed them the option to either make or buy companies.Partnering with other businesses that have interest in their company such as AT&T, MCI, Time Warner, and News hatful may be good options. They also have the capital to acquire Geocities, which is another internet portal. They can also negotiate exclusive distribution deals with personal computer makers su ch as Compaq, Gateway, HP, and IBM in order to secure market share and increase its customer base. Yahoo should adjust their strategy because as their competitors continue to partner with other firms, their customers will likely choose to advertise with these larger companies and they risks losing millions in profits.The best option for Yahoo would be to approach News Corporation and negotiate a possible media partnership in the future. This will allow Yahoo to gain more consumers while leaving them with control of the company. It is not wise to sell because Yahoo has an estimated worth of $30 billion, and their rival Excite had just sold for less than $7 billion. (I/O) Model of Above-Average Returns Yahoo invented the internet portal industry. In 1994, the external environment of the industry was void of economies of exceed and barriers to market entry.There was no need for diversification or product differentiation, and there were no other firms to compete with. Yahoo had a simpl e strategy that capitalized on its first-mover advantage, its access to top engineering talent in Silicon Valley, and its vision that focused on creating a user-friendly entry point for the internet. This simple strategy was sufficient for above-average returns in the early days of the industry, but as the internet evolved and industry competition increased, Yahoo realized it needed to reevaluate their position in the industry in order to continue enjoying the same above-average returns. External Environment Several mergers and acquisitions had consolidated ISPs, portals, media companies, and content providers. Yahoo had was the only portal not in talks with a major partner. Attractive Industry Yahoo is still the largest portal in the industry. This position makes the industry attractive, however the growing competition makes the position unsecure. Strategy Formulation Yahoo can no longer survive on its own. Its partnership with telecommunication giant AT&T is losing strength as A T&T looks to provide customers with web content, no longer needing the content provided by Yahoo.Yahoo needs to partner with traditional media companies, secure more distribution deals with computer companies, improve technologies that would enhance the speed and usability of their search engine. Assets and Skills Yahoo has a reputation for independence and tough negotiations. Moving forward, executives will need to be able to work up and maintain relationships with potential partners. Yahoo currently has access to the top engineering and management talent in Silicon Valley. Strategy Implementation Meet with executives from telecommunication, traditional media, and personal computer companies with the goal of creating exclusive partnerships. This will tramp brand recognition, increase customer base, increase market share and profitability. Building and maintaining these relationships will lead to future growth. Resource-Based Model of Above-Average Returns It was necessary for Ya hoo to also evaluate their internal environment. Resources and capabilities were essential for the success of the company, as well as a competitive advantage, strategy formulation and implementation, and an attractive industry. Resources Yahoo has the top engineering and management talent in Silicon Valley. It has a popular product with a loyal customer base. It has financial resources, a market capitalization wanted at $30 billion. Capabilities Yahoo was able to secure the position of industry leader, secure distribution deals and valuable partnerships, and create an internet portal that customers widely valued over the competition. Competitive Advantage Internally, Yahoos resources and capabilities exceeds that of its competitors.Superior talent, better vision of what a portal should offer, and effective execution all contributed to Yahoos early success. However it needs to combine its resources and capabilities through strategic partnerships in order to maintain its competitiv e advantage. Attractive Industry As the leader in the internet portal industry, Yahoo executives can exploit opportunities to merge or form partnerships with any number of major industry companies. Strategy Formulation and Implementation Yahoos early success is attributed to its executives utilizing its talent, industry position, partnerships and financial resources.Management needs to direct these resources and capabilities toward strategic partnerships with traditional media and personal computer companies in order to create value-adding partnerships, boost brand recognition, increase customer base, and increase market share and profitability. Building and maintaining these relationships will lead to future growth. The use of both the I/O model and the Resource Based Model are crucial for Yahoo to analyze and use as they formulate their strategy for earning high profits. SWOT Analysis When analyzing Yahoo, it is clear that they have many strengths.One of their main strengths is their strong brand image compared to their competition. Yahoo is currently the second biggest business in the industry both in the United States and globally after Google. Also, Yahoo was the first business to enter into this new industry, with its portals, commonly known as search engines now. In addition, Yahoo strengthened many strategic partnerships. These strategic partnerships were negotiated by the business development staff at Yahoo. One example of a strong strategic partnership was teaming up wit AT&T in order to combine Yahoo s services with access to the Internet. Yahoo also had a few weaknesses. Yahoo was lacking a long-term strategy, and their unwillingness to embrace the changes in the industry. They also did not offer Internet access like other portals such as AOL and MSN. The company had many opportunities. For instance, they had the opportunity to do strategic acquisitions or partnerships with other companies in order to ensure that their leadership will not be int erpreted away by other companies that were involved in mergers and acquisitions. Additionally, Yahoo had the opportunity of the growing online advertising market.Expenditures for online advertising grew from $0 in 1994 to $2 billion in 1998, and they were expected to keep growing exponentially. A trinity opportunity that Yahoo had is to keep expanding to more countries. Yahoo had international properties in 18 countries, but there are many other countries where Yahoo can keep expanding. The threats that Yahoo was facing were the very intense competition and government regulations. As the Internet industry evolved, regulations became more strict and the government becomes more involved. References Cnet. Feb-21-2011. http//news. cnet. com/2100-1033-273689. hypertext markup language