Yahoo! Critical Analysis: Strategy, Competition & Decline

Introduction

Yahoo!'s mission statement reads: "Yahoo! creates deeply personal digital experiences that keep more than half a billion people connected to what matters most to them, across devices and around the globe. That's how we deliver your world, your way. And Yahoo!'s unique combination of Science + Art + Scale connects advertisers to the consumers who build their businesses."

This mission statement appears highly powerful; however, it is critical to understand whether Yahoo! has been following its own ideology. Since its inception, Yahoo! has preferred to be known as a media company rather than an IT company. Its core business is to provide digital content that can be expanded and utilized on a global scale. The company provides online properties and services to users, as well as a range of marketing services designed to reach and connect with those users on Yahoo! and through a distribution network of third-party entities (Affiliates). These Affiliates integrate Yahoo!'s advertising offerings into their websites or other offerings.

Yahoo! is a clear example of how companies lose their market position when they fail to respond to market norms and consumer requirements. Once the market leader of the internet world, Yahoo! has been struggling to retain a stable position, let alone recapture the former glory it enjoyed for several years. It is also a classic case study illustrating how a lack of decisiveness and insight in a company's leadership causes the organization and its stakeholders to suffer in the long run. There should be only two motives of an enterprise: satisfy and retain customers, and generate business. Unfortunately, Yahoo! has struggled to perform both.

Yahoo! History

Yahoo! is one of the pioneers of what the virtual internet world looks like today. Incorporated with the sole objective of providing internet service to both end-users and businesses, Yahoo! has transformed into much more than that. It was founded by David Filo and Jerry Yang in 1995. Initially started as a mere hobby of two PhD students, it later transformed into a brand that captured millions of users around the globe with its multifaceted services. It became the largest online integrated service provider and one of the major search engines on the World Wide Web.

Yahoo! currently has over 700 million users visiting the site on a monthly basis. Its success came from providing user-friendly service available in more than twenty languages, satisfying users globally. It is located in Europe, the Asia Pacific, Latin America, Canada, and the United States, with its headquarters in Sunnyvale, California.

Formed in California in March 1995, Yahoo! made its first public appearance on the NASDAQ exchange (Yahoo!, 2012). Initially, Yahoo! announced a per-share price of USD 13.00; however, by the end of its first closing day, the price had risen to USD 33.00. The company started with a team of forty-nine members and was later reincorporated in 1999 (Yahoo!, 2012), after which it was added to the S&P 500.

Beyond changes in stock listings, Yahoo! entered into a joint venture with SoftBank along with other strategic alliances with content partners (SoftBank, 2012). This venture was Yahoo!'s first step into the Japanese market, leading to the creation of Yahoo! Japan. The association later expanded into the German, French, UK, and Korean markets and also resulted in the formation of Geocities Japan (Marketwatch, 1998).

In 2006, Yahoo! and Seven Networks Ltd., an Australian media management firm, entered into another venture that contributed to Australian internet business. Yahoo! owns fifty percent equity in this company and operates under the name Yahoo!7. This entity owns Australian online assets, television content, and magazine content through Pacific Magazines. In addition, Yahoo! also operates Flickr, an image management and sharing website.

Yahoo! began using Google's search services in 2000; however, over the following four years it began developing its own search technology, which became operational in 2004. It also redefined its email service in 2007 in competition with Google's Gmail. Yahoo! had been a pioneer of today's technology-driven web world; however, once the dot-com bubble burst, Yahoo! began to lose its worth. In 2008, Microsoft offered Yahoo! USD 44.8 billion, but the offer was declined by the then-CEO, co-founder Jerry Yang (Ovide, 2012).

Three years later, Yahoo! had a market value of USD 22.24 billion. Jerry Yang, despite being the company's co-founder, was often criticized for following a vision that was not adaptive to changing circumstances and was not in the best interest of investors. As a result of mounting criticism, Yang left the CEO's office and handed the role to Carol Bartz in 2009, who held a strong portfolio in similar senior roles. However, Bartz's aggressive approach also failed to deliver results, and she was ultimately let go in 2011. Yang himself later resigned, though his parting note was notably positive. In his resignation, Yang wrote:

"My time at Yahoo!, from its founding to the present, has encompassed some of the most exciting and rewarding experiences of my life. However, the time has come for me to pursue other interests outside of Yahoo! As I leave the company I co-founded nearly 17 years ago, I am enthusiastic about the appointment of Scott Thompson as Chief Executive Officer and his ability, along with the entire Yahoo! leadership team, to guide Yahoo! into an exciting and successful future."

In 2012, Scott Thompson, ex-CEO of eBay's PayPal unit, was appointed to the position. During his tenure a workforce reduction of approximately 14% was announced, expected to achieve cost savings of around USD 375 million. Thompson initially projected a positive outlook for the business, but he too was unable to continue after failing to satisfy the board of directors regarding misstatements in his academic record. Following Thompson's departure, the CEO role was offered to and accepted by Marissa Mayer, a former Google Vice President.

With over thirteen years of experience at Google, Mayer appeared well-versed in operating within a robust and demanding environment. While Yahoo! employees were experiencing great uncertainty — having seen five CEOs in four years alongside numerous layoffs — Mayer's initiatives such as free food and iPhones for all employees proved rather appealing.

In addition to its internal controversies, Yahoo! attracted significant media attention through a lawsuit filed against Facebook in March 2012. The suit claimed infringement of patents covering advertising, privacy controls, and social networking. Yahoo!, now a shadow of its former self, demanded that Facebook acquire licenses for its patents. Facebook responded with an aggressive counter-position, calling Yahoo!'s actions "puzzling." Facebook issued a statement: "We're disappointed that Yahoo, a longtime business partner of Facebook and a company that has substantially benefited from its association with Facebook, has decided to resort to litigation." The lawsuit carried consequences for both parties: while Facebook — which held only fifty-six U.S. patents compared to Yahoo!'s more than 1,000 — faced legal exposure, Yahoo! also risked losing advertising revenues derived from Facebook-directed traffic (Arthur, 2012).

Constant management changes, declining sales, layoffs, a demotivated workforce, frustrated investors, straying customers, and this ongoing lawsuit represent just a few of the many problems Yahoo! was facing. It fell to Mayer's leadership to determine the future of the company.