Business Case Study: Yahoo. Inc!
Background
This paper seeks to examine Yahoo Inc. and give an in-depth analysis into the business financial, market, and general performances on the years 2010 and 2011. It further identifies the strengths, weaknesses, opportunities and threats facing the business in its operations and finally gives recommendations that could induce improvement of the business processes and approaches in a bid to increase its competitiveness, performance and stability in the market. It’s purely an objective compilation based on factual information derived from the company’s annual reports and an analysis of the same in the global market context.
Stakeholders and customer need
Yahoo is a top player in global online marketing through advertisement space and portals among other online marketing tools. Later, the company diversified its activities to include music, photo sharing, and blogging. Diversification of activities for the company was aimed at achieving increased customer service and satisfaction. In fact, in the year, 2012Yahoo was ranked third in terms of market shareholding and some online visits as illustrated in the figure below.
Figure 1: Internet use traffic data
The company has over the period faced serious management investment challenges that might jeopardize its return on investments and attractiveness to global investors (ROE declined from 0.1 in 2010 to 0.08 in 2011). The dire blunt was felt in 2008 when it laid off its staff because of economic slowdown. Yahoo also lost its senior executives leaders and that led to a management crisis. Additionally, the replacement of those senior executive would cause challenges owing to the change resistance to implementing new goals stipulated by the new management team. For instance, stakeholders were of the opinion that the company should be a technology oriented and not an advertisement venture. Still, the company had many investments in the major international corporations such as Alibaba; however, investment challenges led to a reduction in corporate investments (p. 30-1). Shareholders’ wrangles and over-control of top boards members resulted in the resignation of key executive and board members. These challenges prompted Yahoo board to embark on replacing the CEO, who was picked from the leading online marketing company Google. Despite the fact that the board settled on a highly performer turning the company around, corporation culture mix poses a new challenge to the business (p. 30-10) yet. Notably, incorporating Google culture in Yahoo would lead to a conflict of interests; change resistance and agency conflict since a CEO is substantially influential. Additionally, there are too high expectations from the stakeholders such as employees, investors, and Yahoo board. Failure to deliver on these expectations would lead negative perception.
Competition rivalry power
In the case of competition, force is stronger; the company has to make a strategic decision to curb it. Here, Yahoo is facing fierce competition from Google and Microsoft. Indeed, Bing, Microsoft subsidiary, launched in 2009 substantially cut Yahoo market size; however, Google managed to retain its market size and leadership (p. 30-2). As such, Yahoo had to partner with Bing to reduce the competition rivalry because it would lead to huge operation expenses due to marketing expense. Additionally, since the products offered in online marketing are substitutes, Yahoo would have lost brand, and customers had it engaged in price wars. Still, social media platform such as Facebook and Twitter became more desirable and effective in online marketing since their users spend more time on these sites than on other sites. Specifically, users in Facebook spend 405 hours in a month, which translates to 15 percent of the time spent online. On the other hand, users spend 10.6 and 8.6 percent on Google and Yahoo respectively (p. 30-3). Implied, Yahoo had less exposure to potential buyers in comparison to social media. This shrunk its marketing revenue, which explains the partnership with Bing and plans to turn around the company by hiring a new CEO.The emergence and growth of Smartphone’s market also played a part in reducing the influence of Yahoo as an online marketing tool. Notably, Internet connectivity of mobile users led to the growth of social media use; therefore, companies opted to spend their money on sites that prospective customers spend most of their time.
Revolution of online marketing
The future of online marketing has been changing fast and assuming least suspected directions. This was the case when the number of websites grew drastically from 285 million in 2011 to 603 million websites in 2012 (p. 30-3). Web sites opened up the vast arena for online marketing, which lowered the price of content space and portals. Consequently, Yahoo revenues shrunk drastically and it to come up with a strategic plan to remain profitable. Presumably, the board opted to have a new crop of leaders at company helm.
Management
The company has changed its CEOs several times, both permanent and interim (p. 30-6). This has brought upheavals and varied management approaches, which partially explains the challenge of turning it around as was planned. At one instance, its management turned down an acquisition proposal by Microsoft on account of undervaluation (p. 30-5). Still, under of the CEOs it scrapped non-profitable products, sold nonperforming acquisitions and bought others that were projected to generate revenue to Yahoo. Again, Yahoo entered into a search engine partnership with Microsoft (p. 30-7). It is also clear that activists among other investors had due influence in the company that interfered with the independence and autonomy of the topmost management in making strategic decisions.
Market and prospective customers
Yahoo expansion plan in online marketing is coupled with serious challenges. For instance, the prospects in online marketing are gaining strength from Africa due to drastically grow in internet connection. However, Yahoo has a little market share in African countries; this implies that the company would have to invest on platforms and brand awareness. As such, it will consume resources that are already limited by the low stream of income.
Corporate and brand identity
Though Yahoo started as a technology company, most of its income streams from advertisement. This has caused confusion among the employees and attracted varied approach from the executive. Unclear brand identity obscures the vision of a company, which affects company growth and employees’ productivity. Consequently, customers find it difficult to associate with the company products; this has been the challenge in the global expansion of plan of Yahoo. Lastly, the projected sale on Yahoo! Japan will avail liquid cash to the company; however, the board and the management have not availed an investment plan to absorb the free cash. This is critical since the delay in investment decision have adverse effects on returns. As such, the strategic decisions made and those pending need to adhere to certain accepted procedures. The discussion below provides recommendations that will provide alternative approaches to the strategic decision in Yahoo. Inc!
SWOT ANALYSIS
This is an examination and analysis of Yahoo to evaluate the strengths, weaknesses, opportunities and threats facing the business in its operations.
Strengths
Yahoo Inc. takes pride in its wide geographical coverage where its services are enjoyed. The company is notably present in the Americas, Asia pacific and EMEA regions. The wide market base is crucial for the generation of business revenues. Success of the company can also be accredited to the exclusive marketing strategy employed in its operations. The market reach is further strengthened by the availability of Yahoo products in 45 languages across 60 countries. The marketing team is divided into three categories, the field advertising sales channel, the mid market channel and the reseller channel, a strategy which enables the business to reach maximum market segments as well as enter new markets. (p. 30-8).
Yahoo business is also powered by the wide range of products offered by the business in all areas of its operation. Such products include yahoo mail, finance, sports, and games. The clients enjoy a wide range of services under one provider hence making Yahoo a convenient service provider. The entry of the company into a ten year agreement with Microsoft to provide the requisite technology for its search engine also provides the company with a competitive advantage because it enjoys market independence from its competitor Google. The entity also enjoys a highly skilled team of 12,000 employees, who possess extensive skills and knowledge in such fields as operations, marketing, administration and technology. (p. 30-9). A good example of the highly skilled individuals at Yahoo is Larissa Meyer whose previous tenure at Google is acknowledged for the launch of over 100 products. (p. 30- 11).
Weaknesses
Despite the existence of various strengths, the company is faced by numerous challenges that have hindered its optimal performance. Financial performance for the company seems to be on the decline for these two years in review. Total assets decreased from $ 14,782,786 in 2010 to $ 14,928,104 in 2011. Total revenues also seem declined from $ 6,324, 651 in 2010 to $ 4,984, 199 in 2011.
This poor financial health has served as a discouragement for investors who fear losing their investments in the company. The constant changes of top management also seems to be detrimental to the company’s performance since each CEO often comes with different strategies that may not necessarily match those of the predecessor. Share price for the company stocks in the capital markets have declined continuously since 2008 to 2012 an indication for dismal performance. Unlike other service providers like Google, most of Yahoo’s products are not yet known in the market. This renders them unrewarding yet they are costly to institute. Despite gradual growth in the gross and net profit margins for the two years, the company’s return on equity has declined from 0.1 to 0.08, an indication for dismal business performance.
Opportunities
With the present numerous technological developments all over the world, the company can expand its operations and services to diversify its income sources. Currently, the main source of its income is advertising. It could implement other online services such as social media presence. The company can also venture into new markets and invest heavily into the emerging markets of Africa, Asia and Mediterranean regions. This would tap the potential for future revenue maximization and client retention. This can also be fostered by entering into partnerships and acquisition agreements with other companies such as Alibaba. (p. 30- 12). Financially, Yahoo can institute various options to minimize its overheads. Such initiatives like cutting down the wage bill by laying off the unnecessary staff would save the business’ profits from further declining. The management also has an opportunity to minimize the cost of long term borrowing where it’s unnecessary. Long term borrowing is costly due to the interest charged and the effects of inflation.
Threats
These are the obstructions that stand on the way to the success of the business. Competition is the main threat facing the company. Other established and well performing businesses such as Google and Apple have taken up a great share of the markets in the developed countries and are aggressively seeking to establish permanent niches in the emerging markets. This minimizes the chances of Yahoos success in the market.
Entry into foreign markets by yahoo is also challenged by the differences in global cultures. Designing unique products to suit each global culture can be a very costly affair which may not be rewarding to the company. Another form of competition is the emergence of numerous social networking platforms such as facebook which have taken up a great portion of internet advertisements. This has a direct negative impact on Yahoo whose main source of income has been advertising.
Recommendations
Stakeholders, customer needs and corporate identity
It’s evident from the previous years’ financial statements that the business has been going through a financial turmoil and declining revenues. If the company is to survive in the highly competitive technology market, there is a great need to put in place measures that will reinstate financial sanity and investor confidence. Such measures could include a reduction or abstinence from debt financing as well as raise funds from the shareholders through a rights issue. Reduced debt financing will lead to a lower debt to equity ratio and save the business the costs of debt. The company also needs to take charge of the unnecessary and avoidable costs in order to safeguard her profits.
Market expansion
Yahoo management needs to incorporate BCG-Matrix to improve the company’s balance in market expansion and growth through four quadrants. For instance, to ensure that expansion in African market is viable for stakeholders, it is rational to analyze current and expected costs as well as income. Therefore, the current portfolio covering proceeds from sales of nonperforming acquisitions as well as Yahoo! Japan should strategically apply in product development, marketing, and expansion. This will give Yahoo a solid approach in expansion programs to Africa and other developing market globally.
Venturing into new markets calls for a thorough market research to understand what each market wants and thus avoid irrelevant investments. The company further needs to evaluate her current markets and invest more in those markets where it gets maximum returns. For example the business does not need to pump more investment in the American market whose revenues are declining over the past years but should invest more in the EMEA region where there has been revenue growth and there exist a potential for growth.
The business also needs to invest in advertising its products and ensure visibility in the market. Internet users will only use online services which they are aware of.
Management and products development
Over the recent past, Yahoo board of members has continuously changed top management and yielding to numerous pressures from investors. However, frequent change of management leads to loss of corporate direction an organization. The constant change of top management denies the business the opportunity of ideological continuity and the vacuum created by the departure of a CEO takes long to be filled by a new CEO who may be of a different opinion and strategy. The continuous change of CEO’s is also aggravated by the fact that they are all sourced from outside the company yet, in my opinion, the company could have junior employees who can occupy such positions.
As such, it is important to concentrate on grooming inside employees that will assume management position to preserve Yahoo’s corporate culture and e values. Additionally, it will cut lead time in search of leaders from other competing companies. Still, Yahoo has overlooked the role of product development at the expense of management. Addressing company's challenges through diversified approaches is rational. Therefore, there should be more activity in products innovation and development. Notably, product development acts as competition tool and income generating approach. Particularly, superior products establish brand loyalty and create awareness among prospective customers. Besides, the company should evaluate its revenues based on specific products in a bid to scrap out any product with a zero or negative return.
The company also needs to keep pace with the global trends in such ventures as online marketing and technology. This is important in making strategic investments and avoiding sunk capital in nonperforming acquisitions. A combination of the analyzed recommendations will boost the revenues, brand identity and lower the stakeholders as well as employees’ conflict, which will turn the company around.
For the business to be successful in the global market there is a great need for it to invest more into product innovation, brand visibility and marketing strategies in a bid to establish a competitive niche in the market. There is also a great need to embrace financial as well as operational efficiencies and maintain a highly motivated staff team.
Financial remedy
Viability of any business and the possibility of perpetual success are measured by the ability of the entity to generate profits enough to finance its operations and reward the investors. The profit margins for the two years in review have gradually increased but the magnitude is minimal. Net income is also on the decline, having declined from $1,231,663 in 2010 to $ 1,048,827 in 2011. Return on equity as well as asset bases have declined over the two years.
Reference
Pearce, J. A., & Robinson, R. B. (2015). Strategic Management (14th ed.). New York, NY: McGraw-Hill.
