Yahoo!'s case history would be presented to the class by Prof. Rangarajan at IIFT. The questions given underneath are a class's exercise. Herein, is my humble attempt to solve the questions as a Pre-work.
1. To what extent was the evolution of strategy at Yahoo
planned? To what extent was it an emergent response to unforeseen events?
Jerry Yang and David Filo, who were Electrical Engineering graduate students at
Stanford University, created a website named "Jerry and David's Guide to
the World Wide Web” in Jan 1994.
By the end of 1994 Yahoo! had already received one
million hits. Yang and Filo realized their
website had massive business potential, and on March 2, 1995, Yahoo! was
incorporated.
=> An emergent strategic
experiment, whose success prompted Yahoo!’s incorporation
On April 5, 1995, Michael Moritz of Sequoia Capital
provided Yahoo! with two rounds of venture capital, raising approximately $3
million. But as part of the investment package, Sequoia required Yahoo to hire
an experienced CEO.
=> A very wise strategy (planned) from Sequoia, to let engineers
handle core functionality, and let the running of a company in the hands of
someone experienced
Kroogle crafted a vision for Yahoo! – a global media company,
whose principal asset would be a major Internet gateway, or portal, that would
enable anyone to connect with anything or anybody
=> A
nice plan, but like all strategic experiments, subject to massive successes or
failures. The threat of substitutes, however, was not present, as Yahoo! was
embarking on a Green Field Deployment (a.k.a. blue ocean strategy)
To make this vision a reality, Yahoo! had to become one
of the most useful and well-known locations on the Web – in short, it had to
become a mega-brand
=> Sure,
but here I somewhat disagree. The company played safe – it didn’t experiment
with something unique – like chip designing or HW design (like Qualcomm), nor
in different types of servers, or algorithms.
In not creating something unique, the company was left prey to substitutes.
Therefore, when Google came out with a different method of search, Yahoo!
search along with AOL, and all different search engines was doomed! Also, the
company could experiment with optimizing the traffic online – it could reshape
the very way internet is accessed (through routers) – Cisco & Juniper.
(Samsung is also big into patent
filing, second only to IBM. Patents are strange; make some adaptations, and
file a new patent J. I
wonder, why Yahoo! didn‘t see this logic? ToDo: A case analysis on Samsung)
It also made many high-profile acquisitions. Its stock price
skyrocketed during the dot-com bubble, Yahoo stocks closing at an all-time high
of $118.75 a share on January 3, 2000. However, after the dot-com bubble burst,
it reached a post-bubble low of $8.11 on September 26, 2001. [Wiki]
=>This
is a downside of acquisitions – you eliminate competition, but that competition
is low profile – i.e., cross-elasticity between you and the competitive product
is low. But, you pay dearly for the human capital. This is especially true for
firms working in dot-com!
=> The strategy to discontinue major services (like Geocities, for $3.57
in stock), and over 50 others,
reflected poorly on Yahoo!’s brand image. Geocities, for instance, was making a
loss of $8 million even in 2001. When you acquire a company, you also acquire
its culture, its way of functioning, etc., and you have to keep lifting its
weight (at least for sometime) even when you decide that it is a burden
=> The
point which I wish to make here is that, no company should blindly begin
acquiring other companies, especially those, which do not fit in the vision
& mission of the acquiring company.
All in all, the strategy seemed more
emergent than planned – roughly 60:40, where one would question the extent of
the planning process. For
instance, Yahoo! board should have addressed changes happening across them –
giving more emphasis on mobile, which should have figured in their corporate
dossier back in 2001. Also, it must think of innovative strategies, so that it
may be able to retain its fortunes beyond the next stock-market crisis.
In recent years, however, there seems to be more
planning & stricter decision making, but that is further…
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?
With
great power, comes great responsibility…
Yahoo board could have done some out-of-the-box
thinking, Brainstorming, Product (or rather Service) Focus Group meetings, etc.
to determine its SWOT matrix, and gain more insights into different aspects of
business.
Their main source of revenue was (and still is) online
advertising, and that too from a concentrated bunch of tech savvy companies,
directed towards a similar audience. Yahoo! placed all its eggs in one basket,
where it should have diversified.
They could possibly have invested some of their revenues
in billboard advertisement, digital signage, etc. (where they may have found a
different set of competitors, but it is an option worth exploring)
3. Does Yahoo have a source of potential long-term
competitive advantage? Where does this come from?
Competitive Advantage stems from 3 areas – Cost,
Differentiation & Focus.
Cost – for the users, there is no perceived cost.
However, they can be paid per click, or something similar, but this would sound
like a gimmick in Yahoo!’s world
Differentiation-Focus – yes, they could have an
advantage here. Think of a link in Yahoo!’s page, which brings you to Yahoo!
marketplace. Here, you get an in-depth investment news, focused on your
geographical area (local stock market). This ‘marketplace’ must really provide some sort of focused insider news,
and perhaps excellent brokerage service, and only then would people be enticed
to pay a subscription.
As such, you have created differentiation and focus both
in one place.
In particular, for Yahoo!, the company can leverage its
brand power, to get certain advantages – users in the Internet industry are
very fickle – they would return to Yahoo! (from Google) provided Yahoo! offers
Differentiation advantages in terms of e-mail. Free space, alas, is not a
factor!
Once e-mail is secured, foot fall (click fall J) for yahoo would definitely increase. Also, it must
look at Google’s Differentiation advantage – how Google pioneered the idea of
text paced (non-intrusive) advertisements. Also, for the mobile world, Google’s
simple interface is very nice. Yahoo, can also try something along these lines.
Ø If one tries to
identify long-term competitive advantages, perhaps Yahoo! can be termed a global
brand, which deals in
online advertising
Ø Yahoo! has deployed a
lot of infrastructure towards servers and network equipment. Though the
infrastructure itself would grow old, the Competitive Advantage may come from “Been
There, Done That”,
which is reassuring
How
can Yahoo! grow Competitive?
ØBy
being innovative
For instance, a video-chatting service built into Yahoo
Messenger. This is akin to Skype, and must be improved in terms of performance…
revenue can be generated by introducing offers & advertisement superimposed
over video. Dare I say, it can automatically tap into the video, and collect various
cues by sensing the scenery & words, and present relevant advertisements
Ø By
diversifying
Ø By
taking the team along
Ø Rethink
on the Acquisitions way of doing business. For once, a JV with a technological
firm may prove advantageous
Ø Concentrate
on the Mobile business
Ø Making
friends with Competitors
Ø Build
expertise in new verticals
4. What does Koogle’s resignation in May 2001 tell you
about the role of a CEO in a public company?
On the face of it, I can think of 2 reasons for Koogle’s departure – first
being pressure from within the company, from
stakeholders & investors to be a ‘man’ enough and resign (be a
scapegoat). Second, more subtle reason could be that he resigned on moral
grounds. Fortunately, or not, this sort of resignation is relatively unheard of
in the US.
Since CEOs have been given the complete responsibility
(and authority) over the Company’s workings, it depends on how well s/he can channel everyone to
strategize, collaborate & innovate. Then they is the duty of building
culture. Third duty is Team building. She sets direction by communicating the strategy and vision
of where the company is going. And the scale for judgment of all this is year-end
performance. With slumping
performance, the CEO has to take up the responsibility. The only way this can
be avoided is to involve every board member in the decision making process – so
that it appears as unanimous decision. This is prevalent in East Asia (but fast
disappearing), but not in the US.
Since, Koogle was able to keep Yahoo! afloat in the wake of slowdown,
in my opinions, he shouldn't have given up the battlefront so easily. But it
also depends on ‘his’ culture, and determining it is beyond the present scope.
