SWOT, SPACE, and QSPM Matrix Analysis of Yahoo! Inc.

Introduction to Yahoo! Inc.

Yahoo! Incorporated is a multinational internet corporation operating in the computer integrated system designs industry. Headquartered in Sunnyvale, California, the company was founded by Jerry Yang and David Filo in 1994 while they were students at Stanford University. Initially, the search engine started as a hobby for the two founders and was referred to as "Jerry and Yang's Guide to the World Wide Web," after which the name was changed to Yahoo! — an abbreviation for "Yet Another Hierarchical Officious Oracle" (Yahoo! Inc., 2015). The company provides online properties and services to users and affiliates, and its major income-generating activities are display advertising and search advertising.

The company's products include communication tools, search, digital magazines, and video. In the communication category, the main products are Yahoo Messenger, Yahoo Mail, and Yahoo Groups, while search is represented by Yahoo Answers and Yahoo Search, both of which help consumers discover new information, share knowledge, and navigate the internet (Yahoo! Inc., 2015). Video offerings include Yahoo Smart TV and Yahoo Screen, while My Yahoo, Yahoo Weather, and Yahoo Sports fall under digital magazines. Yahoo! Inc. also operates Tumblr, which offers mobile applications and web services, and Flickr, used for sharing and storing photos.

The company's major competitors are Microsoft, Google, AOL, and DoubleClick Ad Exchange. As of 2014, Yahoo! reported a net income of $1,253,070,000 in the last quarter, with earnings per share of $0.173 (Yahoo! Inc., 2015). This paper evaluates the performance of Yahoo! Inc. using three comprehensive strategic frameworks: the SWOT matrix, the SPACE matrix, and the QSPM matrix.

SWOT Analysis

The SWOT analysis evaluates a company's internal business environment — highlighted by its strengths and weaknesses — as well as its external environment, which is revealed by the opportunities it can exploit in the market and the threats that can negatively affect its performance (Bohm, 2009).

S1) Yahoo! is the second-largest internet brand in the world.
S2) Revenues amounting to $1.2 billion in 2014.
S3) Huge revenues from marketing.
S4) Has many products to offer.
S5) Has offices in more than 20 countries.
S6) Has partnerships with NSL, Visa, and MLB.

W1) Lower revenues than competitors.
W2) Stock price is falling.
W3) Huge declines in advertising revenues.
W4) Outperformed in search results by Google.
W5) Yearly declines in Yahoo! Image Search.

O1) Falls in the price of broadband.
O2) Merger offers from Microsoft.
O3) Over 1 billion internet users globally.
O4) Increase in internet advertisement.
O5) A highly trafficked internet destination.
O6) Large number of consumers online.
O7) Internet business outperforms non-digital business.

SO1) Invite more companies to advertise on Yahoo! (S1, S3, O5, O6).
SO2) Collaborate with social networks for more publicity and diversification (S2, S4, O5, O6).
SO3) Acquire small search engine companies to increase revenue (O5, O7, O2, S1, S2).
SO4) Improve service marketing to increase market share (S1, S2, S3, O3, O6).

WO1) Negotiate a merger with Microsoft to improve revenues (O2, W1, W2, W4).
WO2) Implement improved marketing strategies to increase advertising revenues (O1, O4, O6, W1, W4).
WO3) Reduce service charges (O1, O5, W4, W3).
WO4) Raise their public offering to gain more investors (O3, W4, W5).

T1) Slow economic growth in the U.S.
T2) Unstable economy affects internet business.
T3) Reduced online growth.
T4) Competitors are too powerful.
T5) Numerous changes in legislation.
T6) Dynamic technological changes.

ST1) Increase research and development to develop new products (T2, T3, T4, T6, S1, S2, S4, S6).
ST2) Expand to developing countries (T2, S5, S6).
ST3) Collaborate with smartphone manufacturers (T4, T6, S4, S6).
ST4) Acquire smaller tech companies to increase market share (T4, T6, S1, S4, S6).

WT1) Outsource some activities to concentrate more on primary activities (T1, T2, T3, T4, T6, W3, W4, W5).
WT2) Consider a Microsoft merger to survive hard economic times (T1, T2, T3, T4, T6, W1, W2, W3, W4, W5).
WT3) Implement improved marketing strategies (T3, T4, T5, T6, W1, W2, W3, W4).

Yahoo! Inc.'s SWOT analysis reveals that its most predominant strength is its brand recognition. This is particularly important because the company offers a wide range of products, which enables it to generate strong revenues, establish valuable partnerships, and explore new markets. However, revenues have been declining, and the company needs to leverage its strengths in order to seize new opportunities and address imminent threats.

SPACE Matrix Analysis

The Strategic Position and Action Evaluation (SPACE) matrix is used to evaluate different variables, each of which is given a score according to its importance to a given company (Thompson and Martin, 2010). The internal and external environments of Yahoo! Inc. are analyzed across four dimensions: Financial Strength (FS), Environmental Stability (ES), Competitive Advantage (CA), and Industry Strength (IS). Based on these scores, the company is advised whether to follow conservative, defensive, aggressive, or competitive strategies.

Had revenues totaling $1.2 billion in the last quarter of 2014 — Rating: 1
Current ratio of more than one at 2.14 — Rating: 1
Low asset turnover ratio at 0.12 — Rating: 3
Debt-to-equity ratio at 3.39 — Rating: 1
Earnings per share at 0.173 — Rating: 3
Growth ratio at 77.75 — Rating: 4
FS Total: 13

Advertising services and access to internet users — Rating: −2
Product variety — Rating: −2
High traffic — Rating: −1
Offices in more than 24 countries — Rating: −2
Many visitors to the Yahoo! site — Rating: −2
CA Total: −8

Internet products and services change rapidly and increase competition — Rating: −4
High rates of inflation — Rating: −3
Increased unemployment rates — Rating: −4
Macroeconomic malaise — Rating: −3
High competition from Google — Rating: −1
ES Total: −15

More time online by consumers — Rating: 5
Increased internet advertising in the U.S. — Rating: 4
Lower broadband prices — Rating: 4
Legislation bars new entry — Rating: 3
More than 1 billion internet users — Rating: 7
IS Total: 23

ES average: −15 ÷ 5 = −3.00
IS average: 23 ÷ 5 = 4.60
CA average: −8 ÷ 5 = −1.60
FS average: 13 ÷ 6 = 2.17

X-axis (CA + IS): −1.60 + 4.60 = 3.00
Y-axis (ES + FS): −3.00 + 2.17 = −0.83

Since the score is higher on the X-axis, Yahoo! Inc.'s competitive advantage and industry strength quadrant scores indicate that the company should employ competitive strategies.

Conclusion and Strategic Recommendations

From the SWOT, SPACE, and QSPM matrices, it is clear that Yahoo! Inc. needs to develop strategies that will enable it to compete effectively against dominant rivals such as Google. The main reasons for its declining revenues are Google's superior search performance and falling advertising rates. This implies that Yahoo! needs to improve its search capabilities, as search represents the area with the greatest potential for revenue recovery.

The company should also consider merging with or acquiring smaller companies, improving its technology infrastructure, diversifying its product offerings, and outsourcing non-primary activities. Taken together, these measures will strengthen Yahoo!'s competitive advantage, increase revenues, and better position the company to withstand the threats that are bound to emerge in the rapidly evolving internet industry.

Bohm, A. (2009). The SWOT Analysis. Norderstedt: Books on Demand.

Thompson, J. L., & Martin, F. (2010). Strategic Management: Awareness & Change (6th ed.). Hampshire: Cengage Learning.

Yahoo! Incorporated. (2015). Company information. Yahoo! Retrieved 26 March 2015 from http://info.yahoo.com/company