MGP 708XA: Strategy Implementation
(Yet Another Hierarchical Officious Oracle)
Prepared for
Professor Dr. T. Koplyay
Authors
• Art Byrnes
• Marilyn Fevrier
• Sebastien Fontaine
• Lori Woods
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University of Ottawa EMBA Program
©2002 - Byrnes, Fevrier, Fontaine, Woods
11 March, 2002
1
Yahoo.
Presentation of group members.
1
Presentation Roadmap
Magazine article
21 May 2001
Strategy Analysis
based on events since
magazine article
Yahoo life-cycle
analysis
based on article
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©2002 - Byrnes, Fevrier, Fontaine, Woods
2
Presentation of our methodological approach in the presentation
•Information gathered from business week article, then analyzed
•Yahoo life cycle analysis statement
•Strategy analysis based on all information/events since may 2001
2
Objectives
!Identify where is Yahoo! today in its
life cycle?
!What has been the past strategy for
Yahoo!? (up to 1Q-01, CEO: Koogle)
!What is the current strategy for
Yahoo!? (2Q-01 to present, CEO:
Semel)
!Is Yahoo! Aligned for this strategy?
Issues?
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Presentation of the study objectives:
•Identification of yahoo’s position in its life cycle (to understand strategic
positions & orientations of the company)
•Determine what was the strategy under the former CEO Koogle
3. Determine the current strategy since the appointment of Semel as CEO.
4. To assess the level of alignment for this strategy
3
Life Cycle Analysis Methods
!
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!
!
!
!
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Financial Profile
Leadership Analysis
SWOT Analysis
SPACE
Portfolio Analysis
Growth Vector Analysis
Life Cycle
©2002 - Byrnes, Fevrier, Fontaine, Woods
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The following analysis techniques were used to determine the position of Yahoo on the organizational
maturity life-cycle curve.
Financial Profile – determines firm’s capacity to survive. Main focus is on historical information,
particularly ratios. Useful to determine company’s financial position relative to competitors in industry
and to project the company’s probable future financial position.
Portfolio Analysis – examines the firm’s products and where they are in their life cycle, examining the
contribution or drain they pose on the company’s assets and revenues.
SWOT – examines the companies internal and external environment and identifies Strength and
Opportunities that can be used to increase the company’s profitability. It helps to find best match
between the environment trends and company’s internal capabilities.
SPACE – Analysis will be conducted on the Yahoo organization.
Leadership – examines the leadership styles of CEOs Koogle and Semel, and evaluates them against
the requirements of Yahoo.
Growth Vector Analysis - this is a technique that indicates the strategy of the organization in terms of
market options and product alternatives. Plotting out the implementation of strategy will indicate where
the organization is in the organizational life-cycle. This analysis can also be used to explore future
market-product strategies.
4
What is Yahoo!?
A Portal - Content as well as Internet Access
"
"
"
Portals are the first sites customers see
when they go on-line (see backup slide)
Goal of portal is to earn $ through:
" advertising
" taking % of sale of goods sold at the
portal
Start-up Strategy:
" attract large numbers of users and keep
them there (Casino strategy), by
" gearing content to target market
segment
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Like AOL, Yahoo is a portal that provides both horizontal content and services (e.g. e-mail,
community services) and access to a variety of vertical portals (including, finance, health,
entertainment, etc.) and shopping. Since it’s founding in 1995, Yahoo’s strategy has been to
establish close, long-term relationships with a large audience of Web users. During
December 1999, the company’s global audience grew to more that 120 million unique users
(100 million registered users), double the number during the same period in 1998.
Embarking on an aggressive globalization strategy, Yahoo’s user base outside the United
States exceeded 40 million at year-end 1999, and its non-US operations represented 13
percent of total consolidated revenues during fourth quarter. During 1999, the company also
significantly expanded its media business, launching audio and video content services.
1. Definition of what Yahoo is, in terms of portal: characteristics
•Portals are specific applications written to track specific information about users and their
preferences (page layout, access to applications from application servers).
•Portals are a special case of an application running inside any application server.
•A portal provides frames for content layout. The content in each frame is referenced by URL
and is unique to users. The URL in the frame can be content inside the portal or content from
any other web site or any other portal.
2. Presentation of Yahoo start-up strategy
5
Current Situation – Yahoo!
Magazine article, 21 May 2001
"
Current shake-out in Internet Portal industry
"
"
"
Over-reliance on free services to users
Declining revenues from Internet advertising
"
"
"
"
"
"
"
Yahoo! is #1 Global Internet Search site
New revenues being pursued -premium transaction services
Challenge - convince people to pay for services they have
always gotten for free
integration happening - vertical or horizontal?
partnerships & acquisitions
Vanishing profits (cost structure out of hand)
Stock depreciation (-92%) - end of Koogle’s rein, 1Q-2001
Dysfunctional management (aloof CEO)
"
Internal leadership conflicts and mismatches
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-Explain what shake-out in internet portal industry means: instability, too fast growing
internet industry, high level of speculation in new economy …
-Over-reliance on free services to users: to focus on free services (start-up patterns )
3. Big issue: declining revenues from dot com advertising ; need for new revenues sources
Involves big challenge : convince people …
At 21 May 2001: integration, nature = vertical integration
Vanishing profits: linked to 42 BU (dispersion)
Stock depreciation: illustrates
Dysfunctional management: too conservative top managers vs absolute need for change
‘Over reliance on free services users’ is related to ‘clicks’ on a site translating into a top line
performance figure for Yahoo.
The ‘vanishing profits’ is related to a shift in focus from the aforementioned top line
performance to a bottom line focus. The lesson is that it is never too early to practise
economy and efficiency.
6
1Q-2001 Portal
Market Reach
70
217M
users
Shakeout
60
3 major
players
50
40
No 4th
Portal
in sight!
30
20
(Yahoo- 10
9 content 0
acquistions) Yahoo!
Vertical
integration
(2001)
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MSN
AOL
(AOL-TW)
% of World’s at home Internet population
Average minutes per month per consumer
Vertical
integration (2000)
©2002 - Byrnes, Fevrier, Fontaine, Woods
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Yahoo is an example that you don’t need robust technology to win. It is an example that if you are
first in a field and you stake out a leadership position, then the advantage of being the first to move
will win. Yahoo is now 7 years old as a corporation.
In 2000, AOL merged with Time-Warner; AOL is a portal like Yahoo, and TW is a media giant that
represents the content for AOL. Yahoo stayed the course as a portal/content assembler, and even so,
remained the #1 Internet destination for the past 18 consecutive months.
A shakeout is underway, per se, leaving but three major contenders as portals - Yahoo, MSN, and
AOL. The intriguing thing is that the market reach between the #1 and #3 portals is about 10%
market reach. Any of these portals are contenders to be the lead portal.
Indeed, Yahoo was profitable in 1999 – a claim that few pure-play dot-com businesses could make.
Revenues for 1999 were $589 million, and income from operations was $67 million, up from $245
million and a loss of $13 million, respectively, in 1998. 1999 operating expenses were $420 million
(sales and marketing, $209 million; product development, $64 million; and general and
administrative, $35 million).
“We exited 1999 as one of the top three global branded networks,” said Yahoo chair and CEO, Tim
Koogle. “Throughout the year, we leveraged the inherent scale in our business carefully managed
our business model to deliver superior results to our users, clients, partners and stockholders. We are
well-positioned to continue our leadership position in the year ahead, and will continue growing our
business on all fronts.”
Branding is an excellent strategy as the mass markets will eventually simplify their lives with just a
single portal. It appears that the market space has reached the functionality stage, so Yahoo should be
able to hold its lead if it does not stumble in its execution of strategy.
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2001 Revenue Distribution
50%
Transactions & Business
Services
~ 25%
50%
•Advertising
•Sponsorships
2004 Objective
•Key Words
Reduce exposure to declining advertising
~ 75%
revenues - diversify portfolio.
Transaction Services
Advertising, Sponsorships, Key Words
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Presentation of 2001 revenue distribution :
- 75 % revenues generated through the sale of advertisements,
promotions and through sponsorships.
- 25 % through transaction services (fees on transactions)
This distribution illustrates the level of reliance on advertising. As
budgets for Internet advertising within the dot.com industry declined or
dried up with disappearance of dot.com ad-placing customers (2001), it
will be crucial that Yahoo develops others sources of revenues.
If alternative sources of revenue are not secured, then Yahoo’s 75:25
revenue split represents a significant exposure for it.
So: 2004 objective. Yahoo intends to reduce strong exposure to
advertising revenues. Objective of a 50:50 ad:transaction revenue
distribution will be pursued. Notwithstanding this initiative, Yahoo
intends to increase its ad revenues beyond earlier levels realized prior to
the dot.com bust in 2001.
The means to achieve that : portfolio diversification will be necessary,
ie will seek out more traditional businesses for advertising, and
diversify its transaction services (see later portfolio analysis)
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Sales & Assets Growth
2500
"
$M
2000
Forecast:
"
1500
1000
"
500
2000
1999
1998
1997
Net Revenues
Gross Profit
Total Assets
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FY 2002 Market
Growth
"
1996
0
"
"
Earnings less than
projections 1Q-02
Decline in online
advertising
Increase in
commerce,
enterprize services
85% of revenues
US-based
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©2002 - Byrnes, Fevrier, Fontaine, Woods
Assets are mainly technological know-how (brilliant engineers…). In internet
industry (high tech industry), most assets that count are non physical : know-how,
knowledge, skills & competencies (but still has huge global physical asset base).
Over the period (1996-2000), Yahoo has increased its 1. Assets, 2. Gross profit, 3.
Net revenues, enjoying of the boom of high tech industry and its first to market
position.
However, earnings are less than projections for first quarter 2002.
2002 market forecasted evolution : decline in online advertizing while increase in
commerce and entreprize services (B2B, business solutions).
Interesting point: 85% of Yahoo revenues are US-based. Suggests market potential
from a worldwide point of view.
Q: What compelling factor will drive consolidation in the portal business? The masses (of
users) go for brand; they are switching to one portal instead of many to make their lives simpler.
Only the market leader can brand, everyone else plays catchup. After a shakeout, it is key to
retain customers; if can’t get new customers then have to buy them from the competition, ergo
consolidation will happen.
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Financial Ratio Profile
Industry Norm
Profitability
-21%
-1%
(Net Profit Margin - TTM)
Very Low
Liquidity
Average
Very High
1.52
3.18
(Current Ratio)
Very Tight
Leverage
0.31
(LT Debt to Equity)
Too Much Debt
Activity
(Sales 5 yr Growth Rate)
(Sales (MRQ) vs.
Qtr 1 yr ago)
Too slow
- 39%
Too Low
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About Right
Too Much Slack
0.0
Balanced
Too Much Equity
33%
279%
About Right
Too Fast
12%
About Right
©2002 - Byrnes, Fevrier, Fontaine, Woods
Too High
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Profitability - This measures allocation of resources in relation to income generated - a measurement of
management’s ability to control expenses, pay taxes and result in reasonable profit margin on sales. Poor cost
controls have contributed to this poor profit showing. Customers are not willing to pay as much as they used
to for advertising on the Internet and so Yahoo margins, ergo profitability, have had a dramatic drop.
Advertising amounts to almost 75% of Yahoo revenues, a reliance that must be reduced. Yahoo must quickly
establish itself in other value-add services with higher margins to re-establish profitability. Profitability is
sacrificed for market share.
Liquidity - This reflects the ability to pay bills. By rule of thumb,it should be 2 to 1 (higher is better). In the
high tech sector, one requires lots of cash to sustain product development, or diversify, since there is usually
a long period between product kick-off and initial revenues. Yahoo appears to be in a reasonable financial
position compared to the industry norm (Cash reserves = $1.7B; Market capitalization = $8.4B) . Without
prudent management of its P&L statement, i.e runs a tight ship, this positioning could quickly reverse itself.
Leverage - Compares amount invested in business by creditors with that invested by owners. A higher ratio
indicates more of a creditors claim. This reflects how operations are financed. Yahoo has little leveraging
and high liquidity. Suggests owners are too conservative and are not letting business realize its potential.
Growth Activity - Provides measure of business growth potential. Yahoo sales were far in advance of
industry norms, clearly they were an industry leader. Of recent, sales fortunes have abruptly reversed with
the burst bubble of the dot.com industry. The market has reversed, the market is shifting to more traditional
bricks and mortar clients (with different needs) and Yahoo was slow to react, and/or Yahoo’s market share
has dropped.
Price/Earnings (P/E) ratio is 181, whereas industry segment P/E = 32, and S&P 500 has a P/E = 21. There is
a high performance expectation in Yahoo; or put another way, it will take a long time to repay investors
money.
All in all, this analysis suggests a company that was clearly an upstart and is now transitioning up the growth
curve and having to deal with a shake-out situation. It has deep pockets to under-right diversification and
could survive a shakeout.
10
(Cash Use)
High
Low
Industry Growth Rate
The Future
since May 2001.
Cost centres change
to revenue centres.
MVA created here.
Portfolio Analysis
Secure Enterprize
Portals, web-hosting
- Health care
program admin
- Retirement program
admin
Broadcast svcs:
Audio & video
2001
1-to-1
Database
Marketing
?
Business
E-mail
1999
Consumer Transaction
Services - Shopping,
Auctions, Finance, Travel,
Document Downloads
On-line
Market
Research
Mobile Services:
B2B
Pagers, PDAs,
Phones, Trains,
Taxis
Personal
E-mail - Free
Transaction
& Business
Services
Revenues
25%
Media Services:
News, Sports
Games, music
Movies
1995
Advertising
Sponsorships
Key Words
Advertising
Sponsorship
Key Word
Revenues
75%
Web Navigational Guide
- Free (search engine)
Low
Relative Market Share
(Cash Generation)
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EVA created on
right side of table.
High
Flagship ‘www.yahoo.com’
Pays for the Future
©2002 - Byrnes, Fevrier, Fontaine, Woods
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•Yahoo’s product portfolio includes products in 3 of 4 quadrants. Yahoo has pursued a limited acquisition strategy and
has mostly home grown products/services.
•Its flagship, www.Yahoo.com, is very much a “cow” and is paying for the future by providing horizontal services of
email and community sites. The issue with the flagship is that its revenues are associated with dot.com advertising, a
revenue source that turned south with the bursting of the dot.com bubble in 2001. Reactive measures are in order to
prop up revenues in this domain (from other advertising sources) if the flagship is to prevent becoming a “dog”, i.e. low
revenues.
•Since 1999, Yahoo has leveraged its large installed base to be the “world’s largest enabler of transactions”. This is in
part reflected by the products/services in the “stars” quadrant. During 1999, more that 9,000 merchants sold
merchandise on Yahoo shopping, and during the 1999 X-mas holiday season, Yahoo was one of the leading shopping
destinations, with a weekly average of more than three million shoppers.
•Unlike AOL, which in recent years has extended its ownership of digital infrastructure and provision of digital
infrastructure portal services, Yahoo favoured partnership arrangements with ISPs hardware and software providers,
personal digital assistant (PDA) providers, and wireless infrastructure portals. Yahoo touts that its status as an
independent distribution platform as a major focus of differentiation and a key to its success.
•The current aggregation of products/services reflects a strategy of moving closer to the customer with services that
are clearly transaction focused and which build on Yahoo’s foundation of being THE quality Internet destination, both
in terms of technology and trusted content. The strategic focus of Yahoo today is on the high-growth areas:
transaction services, outsourcing services, and replacing dot.com ad clients with traditional business clients. This
strategy will reduce exposure to Yahoo’s dot.com ad revenue base, which is shrinking.
•Yahoo owns a huge installed asset base of global portals (26 countries, 55 subsidiaries). Yahoo clearly wants to
remain as the number one Internet destination as it has been for the past 18 months. The goal here is to attract users
and to keep them on the site (the Casino strategy - keep gamblers in the building, whether eating or entertaining,and
they will spend (gamble)). Yahoo has very capable technology to track user preferences and customizes the portal
experience for EACH user, for EACH visit. They must learn to leverage this knowledge and turn it into revenues, such
as through its 1-to-1 database partnerships with marketing agencies that use such information to prosecute on-line
loyalty programs.
•There has been a push into international markets, but it has been quite limited when one considers that 85% of
revenues originate from the U.S.. There is much potential to exploit the global market. One area that is leverages the
global market is the customization of local portal to reflect local issues, preferences and culture.
•Yahoo has begun to offer Internet outsourcing services and access to its user database to corporate clients. In this
fashion, Yahoo is turning what were formerly cost centres into revenue centres.
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Life Cycle
Development
Introduction
Growth
(Early Growth)
(Accelerated
Development)
Fee-Based User Services
Maturity
Decline
Free User Services
Growth
Consumer TransactionServices - Shopping,
Auctions, Finance, Travel, Document
Downloads
Post
1Q-01
On-line
Market
Research
1-to1 Database
Marketing
Media Services:
News, Sports
Games, music
Movies
B2B
Secure
Enterprize
Portals
Broadcast svcs:
svcs:
Audio & video
Personal
E-mail - Free
Web Navigational Guide
Free (search engine)
Business
E-mail
Mobile Services:
Pagers, PDAs,
Phones, Trains,
Taxis
Advertising
Sponsorships
Key Words
Maturity
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©2002 - Byrnes, Fevrier, Fontaine, Woods
12
Yahoo’s product portfolio suggests that Yahoo is in the growth domain, just before the industry
shakeout, and that its next move should be towards diversification.
The Yahoo product portfolio spans the entire life cycle - products are all over the map. As
expected, those products which launched Yahoo as an ad-dominated portal are clearly at the
mature end of the life cycle spectrum, while the transaction and outsourcing products are in the
introduction and growth sectors of the life-cycle.
With its full spectrum of products and services, Yahoo is able to offer integrated solutions to its
customers. It can combine products and services into a seamless offering to address a pressing
customer need in the areas from information management to Internet services to communications.
This full spectrum offering, and emphasis on end-to-end solutions is indicative of later stage lifecycle behaviour. The product has been commoditized and one-stop-shopping is the result.
The threat of such a broad-based portfolio offering is that the book-end products, ie introduction
and mature products, are at risk of being relatively ignored, or being eliminated out of hand. By
structuring the company into fewer SBUs, some of which are focused on growth and others
managing a mature product portfolio, the product scope is narrowed, each group’s centre of gravity
becomes consistent with each group’s respective product portfolio, which makes it easier to protect
the book-end products of each group.
Are Yahoo’s borders defensible? No, so diversify from niche strategy.
It will be important for Yahoo to stabilize its technology as it moves along the life cycle. Such a
move would stabilize its cost structure, and simplicity is best for a ‘one-stop-shopping’ strategy,
which Yahoo is adopting (see later strategy slides).
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Growth Vector Analysis
Non-Reversible, High Risk
Late life cycle behaviour
Change own Centre of Gravity
1Q-01
Post 1Q-01
Product Alternatives
Present Products
Market Options
Reversible, Low Risk
Early life-cycle behaviouir
Shift of Centre of Gravity
Market penetration
Public portal:
Existing
Market
•Fast, reliable, trusted
search & directory
service
•Basic free
communications
•customer behaviour
research
Aggressive promotion
Expanding
Market
US, Japan, UK,
Germany, France
Asia, etc
Market development
New
Market
Improved Products
Product variants;
Limitations
Public portal:
•Media services
•Mobile services
•Consumer transaction
services: shopping,
auctions, store, etc.
Market segmentation,
product differentiation
•B2B portal
•Enterprise portal
•B2E portal
Market extension
•Multiple language services
•Local on-line properties
New Products
Product line extension
•Non-PC access services
•Off-line print media
•Buyer protection program
•1-to-1 marketing database
Vertical diversification
•9 Content acquisitions (upstream)
•Partnerships (downstream Distribution channels)
• ISPs, Wireless networks, Hispeed cable - SBC
•Broadcast services
•video conferencing
•on-line training
Conglomerate
diversification
Global presence
55 Subsidiaries, 26 Countries
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©2002 - Byrnes, Fevrier, Fontaine, Woods
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Our growth vector analysis of Yahoo’s product and market opportunities reflects the strategy routes that Yahoo has
taken since its incorporation in 1995. This analysis also highlights the course of action that the company recently
selected as its objective.
Beginning in the market penetration sector, Yahoo started off with a bit of a shot-gun strategy moving quickly into
aggressive promotion. That was followed by transitioning into product variants (personal to business customers) and
pushing harder into the global market of market development and market extension. and product line extension, market
development, and market extension almost simultaneously. Implementation of strategy to this point reflects the core
competency of Yahoo, that being a global Internet portal.
Outsourcing services began with a move into product differentiation, specifically B2B opportunities. This was followed
by other outsourcing initiatives in the realm of Entreprize portal and B2E portal.
Yahoo had been focused on PC-centric services, it is now moving into product line extension by looking to non-PC
services like PDAs, providing buyer protection programs and partnering in offline print media. It is also leveraging its
user tracking database and engaging in a 1-to-1 database partnerships with marketers.
The Buyer Protection service, a financial service, is one of the initial indicators of corporation maturation.
Of note, the products in the quadrants Product Line Extension and Market Segmentation, Product Differentiation, are
products that have been converted from cost centres to revenue centres.
As Yahoo develops content, or acquires or partners with content owners, it positions itself to advance into vertical
diversification. Yahoo is leveraging the breadth and depth of its core competency, its global portal, to help global
corporations take advantage of the growing opportunities in data and Internet communications.
Building out its portal reach globally represents Yahoo’s core competency, which would be early stage behaviour on the
organizational maturity life-cycle. The moves along the product alternatives axis represents Yahoo’s core capabilities a late stage behaviour mode. The conclusion to be drawn from Yahoo’s recent move into market segmentation, vertical
diversification, and product line extension is that Yahoo is diversifying and is moving up towards the mature position on
the organization life cycle curve.
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SPACE Analysis
Financial
Strength (FS)
Conservative
6.0
Competitive
Advantage (CA)
2.3
3.9
4.1
6.0
-6.0
‘Narrow’ the Company, 1Q1Q-01
-6.0
Defensive
- 3.6
Industry
Strength (IS)
NOW, ‘Narrow’ the Market
Mergers
Competitive
Turnaround
Environmental
Stability (ES)
See Back-Up Slides
for Details
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Aggressive
©2002 - Byrnes, Fevrier, Fontaine, Woods
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The indicator arrow is very short and near the centre of the SPACE grid. This indicates a point of indecision.
As the market converges, one does not know who holds the high ground and so SPACE could potentially
point different directions on different days - a very fickle market situation to be in. This scenario indicates
that the market is at its shakeout point.
With that in mind, with slight changes in the industry or with Yahoo’s competitive advantage, Yahoo could
easily swing between a Defensive position to a Competitive position, ergo Yahoo must get its strategy right
and execute that strategy with finesse.
Which company is Yahoo?
Defensive: The defensive posture alludes to an unattractive industry in which the company lacks a
competitive product and financial strength. The critical factor is competitiveness. Firms in this situation
should prepare to retreat from the market, discontinue marginally profitable products (which it has done dropped unprofitable, unpromising LOBs and restructured from 42 SBUs to 6 SBUs), reduce costs
aggressively, cut capacity, and defer or minimize investments.
Competitive: The industry is attractive (see AOL-TW). The company enjoys a competitive advantage in a
relatively unstable environment. The critical factor is financial strength. Yahoo should acquire financial
resources to increase market thrust (it has deep pockets - $1.7B in cash reserves and $8.4B in market
capitalization), add to sales force (which it is doing - replacing less experienced with more experienced
sales/marketing personnel), extend or improve the product line (which it is doing - own its content), invest in
productivity, reduce costs (yes - it is happening), protect competitive advantage in a declining market, and
attempt to merge with a cash-rich company (AOL did this with TW).
Summary: Yahoo has pursued both Defensive and Competitive behaviours. Suggest that at end 1Q-01 that
Yahoo was in a Defensive position. In response to the shakeout, the new CEO, Semel, first narrowed the
company (internal looking, cost control), and then focused externally to narrow the market, to focus the
company with a view to a turnaround. Semel acted to realize a more Competitive position for Yahoo.
Yahoo is at the shakeout point of the life cylce.
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SWOT: Yahoo!
Strengths
Opportunities
- 1st worldwide internet portal
- Existing business solutions
(B2B …)
- Incredible technology strength
in its people
- Up selling to existing customer
base
- Attract new customers
- Develop services for non-PC
Internet access devices
- Develop compelling products
- Adaptable
Threats
Weaknesses
- Dependency on ad revenues
- Turnover and staffing
- Network architecture limits
(not designed for today’s load)
- CRM and poor competitive
intelligence
- Lack of direct-billing
relationship with user, as does
AOL and MSN.
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- Financial sensitivity
- Stockholders pressure
- Endangered management of
change
- Loss of market
- Market KSF identification
- Customers and market
expectations
- Dependence upon
communications companies for all
Internet access (telecom shakeout
today)
©2002 - Byrnes, Fevrier, Fontaine, Woods
15
2001
Strengths - opportunity: yahoo! has to benefit from its huge audience (54 millions of visitors each month).
This large visibility has to be well managed to generate new sources of revenues throughout value-added
packages of services for customers. Potential customers are very numerous and yahoo have to exploit its core
competencies (technological know-how, value-creative ideas - delivery info) by focusing on them (B2C
value chain).
Also, Yahoo has to exploit its presence on the B2B segment by developing and supplying business portal,
corporate solutions, integrated solutions. Indeed, companies’ future strategic management (internal and
external, stakeholders management …) will have obligatory a virtual side (for example ”web public image”
of a company …). It is a huge potential market. Cf 2004 objective
Weaknesses – threats: yahoo’ revenue structures is very representative of its current strategic position, that is
to say too dependant on ad market and not enough focus on its existing customers- and new customers (B2B
and B2C) expectations. As a result, financial sensitivity, potential difficulty to raise money on financial
market (stockholders) to finance investment in strategic acquisitions or alliances. Yahoo has to prove its
ability to turnaround its revenues, what involves to define new strategies based on the integration of core
competencies in new and diversified business formula.
Appropriate incentives policy has to be implemented. Yahoo faces necessary strategic changes, so an
appropriate management of change is required. So top management has to create a new confident atmosphere
within the company to succeed crucial strategic change. Medium and long term view.
Yahoo has absolutely to avoid arrogance to success in the future.It means a better understanding and taking
into account of customers and market expectations throughout pro active competitive intelligence. Internet is
a field where change occurs very fast. To be in phase with existing market and market trends.
Need for vertical integration (threats if not occurred)
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SWOT Summary – Yahoo!
Threats
Organizational
evolution
Not mature
Not start-up
Confront
Customer Relations
Management
Staffing
External
Factors
Opportunities
Dependency on ad
revenues
Avoid
Staff turnover
Corporate
Upstart leadership
Core
-management
competencies services
Revenues
Exploit
Search
diversification
Strategic Better competitive and
B2B
alliances marketing intelligence
Weaknesses
Strengths
Smaller architecture
adjustments
required to fix issues
Version 0.8
Internal Factors
©2002 - Byrnes, Fevrier, Fontaine, Woods
Bigger tasks required
to fix issues
16
SWOT analysis indicates yahoo is not mature, but it is not a start up any more.
Main issues : Be closer to customers, appropriate HRM, leverage is core
competencies (technological know-how), organizational evolution is required
to match market and customers evolution, branding, revenues diversification.
16
Life Cycle: Leadership
70% of strategy is?
Marketing
Product
Effectiveness
Production
Efficiency
•Management by persuasion
•Lack of control
•Snail-paced decision-making
•Analytical
•Impatient
•Product focused
•Engineer
Semel
Mallett
•Strategist
•Marketer
•Patient but decisive
•Organization performance
focus
•Brass tacks management
style - controller
Koogle
Transformational
Transactional
(revolutionary)
(evolutionary)
Version 0.8
©2002 - Byrnes, Fevrier, Fontaine, Woods
17
Semel is attractive to Yahoo board of directors because he has the following experience:
- he is a marketer; selects appropriate strategies for success
- global business - a Yahoo strategy is to deploy more properties in international markets
- good at managing people - Yahoo has been suffering from dysfunctional leadership
- has created brands - Yahoo is a brand, and that brand must continue to be leveraged
- developed multiple revenue streams - Yahoo has been principally dependent upon ad revenues, which
represents a huge exposure for the company. Diversity in revenue streams is the strategy.
- has an appreciation for creativity - Yahoo is more than technology. It a medium that must support online
communities if it is to grow its market share and revenues
- is directive in his management style; prefers tight control, but is patient for turnaround results (recognizes
need for culture shift)
- focus is continued growth of previous phase of organization - increase customer base (even if different
customer base)
- establish sustainable competitive edge
Yahoo is focused on quality of their product. Such a culture should ideally be lead by someone with logical
leadership traits - more Semel than Koogle or Semel.
Koogle is too distant from the organization, didn’t keep track of Mallett when Mallett was CEO, manages by
persuasion and exercises snail-paced decision-making, which is not fast enough for a growth company. He is
a risk avoider which is more in tune with a mature organization, which Yahoo is not. Koogle is a clear misfit
for Yahoo.
Q: Why can misfits such as Koogle survive as long as he did? Because outsiders tend to look at the top line,
not the bottom line, during market growth periods - the market is rushing to Yahoo. So early market
conditions forgive non-performing CEOs.
Mallet is an engineer; very product focused; suitable for start-up.
17
Analysis Summary
#Financial
#Leadership
#SWOT
#SPACE
#Portfolio
#GVA
Indicates
indecisiveness
Development
Mallett
Semel
Koogle
MVA ↑
EVA ↓
$GVA
SWOT
Fee-Based Services
Introduction
Growth
Free Services
Maturity
Differentiation Focus Niche Cost Focus Cost leadership
Version 0.8
©2002 - Byrnes, Fevrier, Fontaine, Woods
Decline
18
Yahoo is in the Growth stage of the organizational life cycle (not a start-up anymore, nor is it mature):
Marketing: Heavy emphasis on branding of Yahoo properties; works only when products are climbing the
quality curve. If clients did not take advertising offer, Yahoo moved on; ad revenues plummeted. Marketing
and sales are major expenditures (36% of net revenues). Focus is on competitors, i.e. AOL-TW and MSN.
Production: Always focused on users (from R&D perspective, have a quality product). Have array of
standards for their technology and its performance from view of user. Offering an increasingly wide array of
products and services (some through acquisition process).
Finance: Lots of cash. EVA is poor (loss). MVA is rising as market has high expectations later in life cycle;
didn’t anticipate the market shift. Post introduction phase, in growth phase, not yet mature.
Personnel: Have strategy to retain key tech and business personnel through initial stock option offerings;
expect to retain best folks for stock vesting period of 4 years, the length of the turnaround strategy.
R&D:Products are differentiators - many free communications services. Few companies can sell technology
to Yahoo, although Yahoo acquired a dozen or so companies (see back up slides). Is a trusted site, with high
quality technology and similarly high quality content.
Strategy Focus: Still a fast mover; can shift with the market forces (if it anticipates them and takes
appropriate strategic action - Semel has proven to be correct in his thinking but too slow to act).
Competition. Shifted to increasing instability with merger of AOL-TW. High competitive pressure since did
not pursue a parallel merger strategy.
Leadership. Koogle - risk avoider (late cycle), Semel - marketer (mid-cycle), Mallet - product focused
(engineer - early cycle). Koogle and Mallet are poor CEO fits for growth activity.
GVA. Has already pushed into global markets with its core competencies. Is exercising core capabilities
working external to Yahoo to provide and distribute content. Exhibiting later cycle behaviour.
Products. Its flagship product ‘www.yahoo.com’ is currently a cash cow (75% of revenues from ads). With
declining ad revenues could evolve to be a dog. Focus is on establishing other revenue channels.
18
Strategy - May 2000
under CEO - Koogle - Singular Strategy
"
Strategic
Alternative
Status Quo
"
"
"
"
"
"
"
"
"
Concentration
Horizontal Integration
Vertical Integration
Diversification
Joint Venture
Retrenchment
Divestiture or
Liquidation
Innovation
Restructuring
Version 0.8
Focus
"
"
"
Internal
Stability
Continue in
present
products/markets
•Yahoo response
to AOL-Time Warner merger:
Remain an independent
assembler of news and
entertainment provided
by others.
©2002 - Byrnes, Fevrier, Fontaine, Woods
19
In mid-2000, AOL and Time-Warner merged. AOL is a portal, like Yahoo,
and TW is a media giant that represent content for AOL.
In response to this merger, Yahoo decided to stay the course, to remain an
independent assembler of news and entertainment provided by others, and not
follow the AOL-TW model.
19
Pre-May 2001 Strategies
(SEC ‘K-10’ Filing)
"
"
"
"
"
"
Provide a marketplace for commerce
on the web
Content aggregation with best of
breed third parties
Extend Yahoo brand and create
demand for online properties through
offline media
Increase visibility and awareness for
Yahoo through sponsorship positions
for high-profile promotions
Strategic relationships to provide
content and distribute content
Distribute Yahoo services through
non-PC means, eg wireless providers
"
"
"
"
Generate advertising
revenues through sponsored
services and placements by
third parties in Yahoo online
media properties in addition
to banner advertising
Continue to provide new
communications applications
which are compelling to users
Develop Yahoo-branded
online properties in
international markets
Acquisition for content and
technology
Problem? - Execution, Execution, Execution
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©2002 - Byrnes, Fevrier, Fontaine, Woods
20
The SEC ‘K-10’ filing of Yahoo includes these many strategies. Of note, some
of these strategies are those that have been accepted by the new CEO, Semel.
It would appear that Yahoo had the right idea for itself (in part), but lacked in
its ability to execute on those strategies. This is reflective of the softer side of
the organization, its organization, its leadership and its culture.
Since arrival of new CEO, Semel, the subordinate strategies have included:
- Stabilize key metrics - measurement
- SBC partnership to share risk
- Experience in functional areas is enhanced through changing the guard,
particularly in sales and marketing
- Vertical integration through partnerships and acquisitions is occurring, eg
pharmaceuticals, computers, 9 content acquisitions, SBC
- Trusted info site
- Wholesale change in culture is being pursued as company learns to sell
content rather than process incoming orders.
20
Post 1Q-2001 Strategies
Actions - Behaviours
"
"
"
"
"
New, more experienced
management team Sales/marketing
Restructuring - 40 to 6 “SBUs”
Up-down vertical integration
Acquisitions & partnerships
Culture change being actively
pursued - learn to sell content
versus be assembler of
Internet content only
Strategies
"
Diversification
Joint Venture
Restructuring
"
By 2004:
"
"
"
"
Version 0.8
©2002 - Byrnes, Fevrier, Fontaine, Woods
50:50
Ad:Transaction
revenue split
Increase ad
revenues
21
Clearly there is a shift in focus for Yahoo. Still a high quality technology portal powerhouse, it is now
shifting to an emphasis on sales and marketing, with a view to making money from its core competency
and managing its customer relationships. Evidence the initiative to replace/bolster its sales/marketing
team with folks with more experience than the incumbents and who have the contacts to grow the
market for Yahoo.
Growth of both ad revenues and transaction revenues is a mainstay of this strategy - building on the
customer base of the previous strategy. Brand development is a continuing action.
They will also be building (through partnership) channels to customers, and will build, partner, or
acquire products, or content, to fill those channels.
Diversification makes sense as the dot.com ad market has contracted significantly since its melt-down
in 2001. Yahoo must find other revenue streams. Yahoo can afford to diversify given its deep pockets.
Cost control is wrapped up in the strategies of re-structuring and joint ventures. Re-structuring is a
means to reduce Yahoo’s cost structure, witness the lay off of almost 10% of the workforce in Nov
2001 (300 positions). Also, the number of SBUs was reduced from 42 to 6 SBUs. Synergies (cost
savings) resulted as well as focusing on those products/services that have high future revenue potential.
Intrinsic to this collection of strategies is turning cost centres into revenue centres. The out-sourcing
strategy for B2B, B2E, video-conferencing, 1-to-1 database, and on-line training are all examples of
such a strategy.
Bottom line is that the strategies must realize an increase in ad revenues (relates to core competency of
Yahoo, and the ratio of ad revenues to transaction revenues must shift to 50:50 from today’s 75:25
ratio, with a view to reduce Yahoo’s exposure.
It is difficult to differentiate on strategy (as everyone eventually does the same thing). So the real
differentiator will be on execution of the strategy, which has been a past failing during Koogle’s tenure.
21
Strategy - May 2001
under new CEO - Semel- Trifurcation
"
"
"
"
"
Diversification
"
"
"
"
"
Retrenchment
Divestiture or Liquidation
Innovation
Restructuring
Version 0.8
"
"
Joint Venture
"
"
"
"
"
External or Internal
Broadening of product line
Reduce competitive
pressure; gain greater
profitability; spread risk
External
Complementary benefits
Spread risk; create synergy
Internal
Cost reduction, Growth
potential
Concentrate on products &
divisions with high potential
©2002 - Byrnes, Fevrier, Fontaine, Woods
Cost Control
"
Status Quo
Concentration
Horizontal Integration
Vertical Integration
Focus
"
Diversification
Strategic
Alternative
22
The Strategy which Semel embarked on in May 2001 was one of Diversification,
Joint Ventures and Restructuring. To this end he has been actively seeking to
expand the product offerings of Yahoo through Diversification and Joint Venture
activities. Examples of these are the Enterprise Portal Market and the Top 10
Hits Joint Venture. The B2B, B2E and B2C pressures coupled with Yahoo’s
proven track record in classification systems make them a natural for hosting
outsourced Enterprise Portals. With the court action with respect to MP3s in
March 2001, the additional of a subscription based music listening service
coupled with a licensed download fills a market niche. Finally, massive
restructuring has taken place as we will see when Marilyn discusses the new
Yahoo management team.
The choice for a trifurcated strategy is a bit of a surprise; the SPACE analysis
indicates that a status quo strategy would be a best option, since little is known
about where the industry is going. Yahoo has gone against the SPACE indicator
and has chosen a tri-furcated strategy .
22
Post-May 2001Strategy
(Semel interview)
Revenue buckets are:
" Brand advertising & awareness
" Promotions
" Research
" Outsourcing of Internet function
" One-to-one database marketing
"
Version 0.8
aid marketers to deploy online
loyalty programs
©2002 - Byrnes, Fevrier, Fontaine, Woods
23
Strategy implementation for Yahoo divides up the revenues into 5 buckets; three of which were
carried over from Koogle’s tenure, and two of which are new.
This is a reasonable approach for Yahoo since it is still in the growth sector of the life cycle:
- branding is a strong emphasis. It works in Low to High quality product vector
- is still a fast mover in responding to the market; early cycle
- EVA (poor,loss), MVA is declining due to burst bubble, suggests early cycle (later in cycle, the
future is behind you as indicated by a declining MVA)
- focus has shifted from market pull (dot.com frenzy) to market push (having to adapt to traditional
client needs and advertisers will not pay high prices
- focus is on competitors (AOL-TW) and customers (both users and paying customers)
- in the focus zone since are spending lots on sales and marketing (approx 36% of gross revenues)
- competition is shifting to increasing stable with mergers of AOL-TW; high competitive pressure
Growth is a mainstay of this strategy - building on the customer base of the previous strategy.
The strategy focus will be on sales, production capacity and production technologies; increase
sales, manage delivery of products without growing organization (cost management), and evolving
technology so can pick up outsourcing Internet business (need predictability in technology).
They will also be building (through partnership with distribution agents like SBC) channels to
customers, and will build (or acquire) products, or content, to fill those channels (9 acquisitions
since May 2001).
The one-to-one database marketing is an excellent strategy; it plays into the need for customer
retention later in the cycle (must either buy customers from competition or attract a customer who
has not yet entered the market space, and there are few of them later in the cycle).
23
The Strategy Question
"
Do:
culture/leadership
" information/decision making
" incentives
" structure
"
follow the strategy of
diversification and cost control?
(diversification, JV, & restructuring)
Version 0.8
©2002 - Byrnes, Fevrier, Fontaine, Woods
24
24
Information/Decision making
follows Strategy
Reactive
Inductive
Informal
External focus
Spontaneous
Sporadic
Widely shared
Cost leadership
Yahoo
Cost
focus
Niche
Focus
Product differentiation
Proactive
Deductive
Structured process
System based
Internal focus
Deliberate
Continuous
Compartmentalized
Organizational Life Cycle
Version 0.8
©2002 - Byrnes, Fevrier, Fontaine, Woods
25
Yahoo is still demonstrating some of the information/decision making style of a startup - most
particularly, reactive, external focus, sporadic. However, some of the attributes of a more mature
company are emerging wrt decisions. They are making some delegated decisions (compartmentalized)
and are increasingly deliberate in their approach to decision making, however, they have a long way to go.
Major influences of the decision making style are inherent in the leadership style and the culture which
currently exists. The great variance in the three past leaders have hampered the evolution of the decision
making process. As well, the market is still evolving with market share to be had in a growing market so
while some product offerings in certain areas may warrant a more mature approach to decision making,
others are still playing catch up in their particular areas. All this to say that there are no standardized
decision making mechanisms in evidence but it is clear that the responses (marketplace) to certain
decisions are being monitored as a first step in developing some metrics on which to base decisions.
Semel:
Experience/success in media industry as co-CEO of TW-AOL’s TW. Increased several fold the value of
TW during his tenure there.
Indicated would take 60 days to set out a strategy, a way forward for Yahoo.
Moved quickly into new markets, clearly an external focus.
Moved quickly to deal with profit and loss statement (layoffs) and abandoning LOBs with poor profit
potential; an internal focus.
Koogle:
Snail-paced decision-making. Principally used concensus style decion-making which is more appropriate
with a mature organization.
Lost touch with market space, was too internal and futures focused; too much visioning and not enough
business action.
Q: Why is it that deductive reasoning does not work early in the life cycle? Because there is no early cycle
experience on which to base analysis - every day is a different experience.
25
Strategy Performance Dashboard
"
"
"
"
"
"
Sales volume (by
ad/transaction and total)
compared to baseline data
Growth $ (by
ad/transaction)
New Customers
Customer Retention
Revenue per employee
ROI,ROA,ROE – Incr Mgmt
Effectiveness (managing
margins)
Version 0.8
Are we increasing
Ad revenues?
Are we moving
towards 50-50
ad/transaction
revenue split?
©2002 - Byrnes, Fevrier, Fontaine, Woods
26
Yahoo has a variety of products that are mature with established customer –
both computer users and business advertisers. They are seeking to make these
offerings more efficient and to retain the customers that they have. This is
reflected in the key performance indicators which monitor this type of activity
such as (refer to slide above). They are also developing new sources of
revenue which would require a different key indicators such as the take up of
product offerings by new customers and relative market share in new areas.
The monitoring of the product mix will be important since they have an
opportunity to cross sell their products within their market space. It would be
interesting to monitor this activity in order to fine tune their strategy. Some
metrics are applicable to both categories of products such as sales volumes,
growth and margins. These can be used to examine the overall health of the
company in comparison with the market.
In the end, the performance dashboard must provide indicators that the
strategies being followed are resulting in:
1. An increase in ad revenues (these were falling with the dot.com decline, and
Yahoo wants to backfill lost dot.com ad accounts with accounts from more
traditional businesses)
2. The ratio of ad revenues to transaction revenues must shift from its current
75:25 ratio to 50:50 ratio with a view to reducing exposure.
26
New Experienced Team
No ‘20-something’
Yahoos here, BUT…
…”Hesitation increases
in relation to risk in
equal proportion to
age.”
- Ernest Hemingway
Chairman-CEO
Semel 58
Accountable for strategy &
corporate performance
President-COO
Mallett 37
Accountable for strategy
implementation
6 SBUs
R&D
Exec-VP
NA Operations 47
Chief Advertising
Sales Officer 47
VP - Sales
Western Region 37
VP - Sales
Eastern Region 48
Version 0.8
VP - Sales
Central Region
Chief Global
Marketing Officer 54
43
VP-Brand
Marketing 59
Chief Solutions Officer
Customer acquisition
Sales strategies
Partner relations 40
©2002 - Byrnes, Fevrier, Fontaine, Woods
27
The fact there is a Chief Solutions Officer is indicative of an organization that
it is moving towards maturity through a period of diversity. “Solutions”
suggests that Yahoo is integrating its many products.
Each member of this team has at least 10 years experience, much more so than
the previous incumbents who had 3-5 years experience. They have plenty of
contacts in the market place and have been very successful in their past
careers. CRM is a major focus with this team - they are focused on keeping
their market share, to leverage their branding initiative.
Key success factors for strategy implementation.
ADDITIONAL NOTES FOR CULTURE SLIDE:
Leverage current quality culture as an opportunity (refer to SWOT) - is a site
trusted by users for its integrity of content.
The new team, which is much more experienced and older than its
predecessors, could impact the culture of Yahoo. This more risk averse group
will drag the Yahoo culture up the life cycle curve. This new team of veterans
has breadth and experience in the industries of hi-tech, media, but mostly with
traditional markets (not dot.com industry). This fits with the bifurcated
revenue strategy of splitting the ad:transaction revenues 50:50 (from 75:25),
and to increase ad revenues above current levels.
27
Staffing follows Strategy
Generalists
Risk takers
Reactive
Improvisers
Results motivated
Change accepting
Undisciplined
HR
Cost leadership
Yahoo
Cost
focus
Niche
Focus
Specialists
Risk avoiders
Anticipative
Process motivated
Predictable
Change resistant
Disciplined
Product differentiation
Organizational Life Cycle
Version 0.8
©2002 - Byrnes, Fevrier, Fontaine, Woods
28
Focus on market after products are established.
Requires highly qualified technical and management personnel; quality culture.
Generalist vs specialist: Employed young personnel in its earlier 7 years as a start-up. Now it replacing the management team with
folks with much more corporate experience, particularly in marketing and sales - definitely a seasoned team in terms of experience.
Expertise comes with experience. Fit Semel’s strategy.
Risk taker vs risk avoider: Yahoo! does have the right for doing mistake in its current life-cycle position, especially Semel
(stakeholder pressure). So staffs do slowly what they have to do but in the good way. It corresponds to a move to more maturity:
positive and controlled risk taking (better rationality). Experts. See partnerships, joint ventures … (spread risk, complementary
staffs benefits)
Reactive vs anticipative: more and more anticipative. After years of reactive style due to start up phase, the company is closer to
the market, customers, stakeholders … So, staff’s closer look on those key elements means logically anticipations about what they
have to deal with.
Improvisers vs process motivated: better rationality of actions and behaviors means process motivated patterns. By reducing the
number of SBU, Semel wants to have closer control so there is a need to control processes. Maybe experienced executives and
mid-management will fasten and improve the transition from may 2001.
Results motivated vs predictable: perfect mid-cycle position (growth phase), that is to say staffing focused on the future (see
incentives) but also on short term results (for the success of diversification, restructuring and joint venture). Short term results are
favored, but linked with medium or long term view (ex: 2004 objectives of revenue repartition). Ex: Mallet has to outline a
succession plan before he leaves (testify the new approach of more control and prediction).
Change accepting vs change resistant: after difficult beginning, Semel succeeded to inspire a dynamic for change. Staffing is very
important for change. Staffs are well aware of the need to change, evolve …Change seems to be well accepted internally. Mallet’s
quit supports this idea : he was a emblematic character of the company. So with its departure, strong signal. Required to make
strategic change (cultural issue also). Still start up phase. No feedbacks about employees’ unhappiness.
Undisciplined vs disciplined: more and more disciplined. With the arrival of new and experienced executives, greater discipline
and control. More reflexion about the way to recruit the good people regarding strategic issues (expert in alliances, up-down
integration...).
Fit the strategy. Allows better control, strategy implementation. Yahoo is reinforcing its mid-management team with experts or
high qualified people since strategy implementation requires closer and stronger follow-up (mistakes not possible). New start for
the company.
The risk in bringing on more specialists into the organization is that it may encumber issue resolution as each specialist brings their
own perspective to the decision making table, which drags down the speed of decision making - CEO needs to actively manage this
28
issue.
Incentives Follows Strategy
Rewards tied to
corporate
performance
•Will influence
decision making
•Could promote
short term
strategies
•Turnarounds
take time
•Information
management
may follow
•New, mature
experienced
team; measured
risk taking.
Yahoo
Long term
Output oriented
Team based
Uniform
Subjective
Risk promoting
Informal
Cost
Focus
Niche
Focus
Executives:
≈ $300k salary
+ stock
options; 25%
vesting in first
Cost Leadership
year,
incremental
Short term vesting up to 4
years
Process oriented
Individual based
Differentiated
Objective
Risk Avoiding
Formalized
Product
Differentiation
Organization Life Cycle
Version 0.8
©2002 - Byrnes, Fevrier, Fontaine, Woods
Staff: Salary +
limited stock
options. Same
vesting profile
as execs.
29
Heavy equity package for Semel (and other executive staff); focus on long term company performance.
Semel and Executives receive about $300k per year in remuneration plus stock options. Stock options
fully vest to individual only after four years on the job.
This incentive package has both long and short term components, which is a good fit with the strategy
needs of Yahoo.
Yahoo has short term turnaround needs - get cost structure under control, and focus its product/service
offerings to generate revenues. It also has long term objectives of increasing ad revenues while
concurrently reducing dependence on these revenues, I.e. 50:50 revenue split between ads and
transaction revenues by 2004.
This is a mid life-cycle incentive strategy with its salary (near term) and stock option (long term
component). Yahoo is at the mid life-cycle point, so this incentive package works for it.
The remuneration package is a mix of short term and long term incentives.
Stock options reinforce positive risk taking behaviour.
Executive rewards tied to corporate performance
- has new, mature experienced team; more risk averse
- will influence decision making
- Could promote short term strategies
(turnarounds take time)
- information management may follow
29
Structure - then & now
"
"
"
"
"
"
THEN - Functional
Restricted view of
goals - note ‘stay the
course’ response to
AOL-TW merger
Slow response time
Centralized decisionmaking - delayed
Technical quality
emphasis
Sales growth
Conflict between
leaders
Version 0.8
"
"
"
"
"
"
NOW - Divisional
Goals: CSAT &
effectiveness
Profit-based planning
Cross product
coordination difficult
Fast change in
unstable environment
High CSAT
Decentralized
decision-making
©2002 - Byrnes, Fevrier, Fontaine, Woods
30
GVA shifted from horizontal to vertical: acquisitions & partnerships
- content
- distribution channels
⇒ Divisional strategy
Market rejuvenation ⇒ delayer
42 ‘SBUs’ to 6 ‘SBUs’
Need effectiveness to realize turnaround ⇒ shallow structure
30
Structure
Divisional/Product Firm
Compress
# Divisions
CEO
COO
Corporate Staff
Manager
Division A
"
"
"
"
Manager
Division B
Manager
Division C
Context: 6 SBUs (reduced from 42 SBUs)
Technology: Non-routine, high interdependence
Size: Large - 3500 employees
Goals: External effectiveness, adaptation, client satisfaction
Version 0.8
©2002 - Byrnes, Fevrier, Fontaine, Woods
31
Yahoo structure has changed from a strong functional organization to a divisional strucuture.
The functional structure over which Koogle presided included 42 R&D ‘SBU’s; Yahoo was
becoming unwieldy. Decision-making was slow, and there were missed market./merger
opportunities, such as eBay. Semel cut back the number of R&D SBUs from 42 to 6 SBUs to
engender a modicum of control over operations, to focus the organization on winning value
propositions. This action to reduce the number of SBUs was intended to align it with the market
opportunities.
He also shifted the corporate structure more towards a true divisional structure.
The SBU (divisional or product group structure) facilitates external effectiveness, adaptation and
client satisfaction.
Changing the corporate structure too much beyond a divisional structure would have destabilized
the company and would have put at risk any needed efficiencies, effectiveness and timely delivery
of new “product” needed for the market space.
31
Centre of Gravity
Customer
Content
Development
•
•
Content
Assembly
Transaction Distribution
Services
Channels
Divisional structure lends itself to an
‘omellette’ style centre of gravity (blue)
Yahoo has shifted from a single Portal
business of content assembly to a “one stop
shopping” business, expanding its business
up and down the value chain.
Version 0.8
©2002 - Byrnes, Fevrier, Fontaine, Woods
32
Centre of Gravity (CoG) of Yahoo has shifted from focus on just ‘content
assembly’, to expanding to include content development (upstream - home
built, partnerships and acquisitions), developing its transaction servicers
portfolio, and entering into partnerships with distribution channels like SBC
(downstream). In essence the CoG has spread up and down the value chain.
Each point on the value chain must be managed according to the requirements
of that part of thevalue chain, ergo a divisional organization structure would
seem to make sense.
32
Structure - follows Strategy
Yahoo has deep
pockets so it can
diversify outside
its traditional
market during
shakeout.
Can fund
emergent SBUs.
Lack of
Market Flexibility
(control)
Yahoo
Previous
Structure?
Expected
Structure
Lack of Market
Match (invent)
Entrepreneur
Lack of
Market Research
(adapt)
Lack of Market Fit
(align)
Functional
Divisional
SBU
Matrix
Matrix
Version 0.8
Outside Market
(portfolio)
©2002 - Byrnes, Fevrier, Fontaine, Woods
33
Koogle left a legacy of a stable but complex organization with 42 SBUs (R&D).
Notwithstanding the reference to SBUs, the organizational structure was a functional
organization.
Semel prefers close control, and he has achieved that by reducing the number of SBUs to 6,
resulting in a much more simple organization - easier to control and focus on corporate
objectives.
The result of Semel’s restructuring strategy is:
- concentrate on products & divisions with high potential. Probably aligned with the five
revenue streams.
- enabled cost reduction and facilitated control over a previously extremely diversified operation
- forces lots of coordination with central office regarding plans, $, technology, personnel, I.e.
efficiency and effectiveness increases. Caps pers growth (lay offs in Nov 2001).
- In short, high degree of central control and decentralized decision-making. This is needed
to meet short term goal of controlling the cost structure and the longer term 2004 objective of a
50:50 revenue split between ads and transactions.
The structure appears to be a reasonable fit with his strategy.
33
Culture/Leadership
follows strategy
Leadership style
ORGANIZATIONAL CULTURE
Directive
PRODUCTION
Yahoo
Effectiveness
Efficiency
Supportive
SUPPORTIVE
Logical
QUALITY
Inspirational (leadership style)
CREATIVE (organizational culture)
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Transformational
Transactional
(revolutionary)
(evolutionary)
©2002 - Byrnes, Fevrier, Fontaine, Woods
34
Yahoo is acting like a grown-up. They have purposefully sought out sales and marketing veterans to bring in
revenue and to compete against bigger and more diversified media companies. Since Semel’s arrival Yahoo
has recruited industry veterans who have a breath of experience in consumer, media and interactive ventures
and have access to industry decisions-makers and influencers.
New recruits to the senior executive positions include:
Terry Semel
Greg Coleman (Reader’s Digest Association/ Executive VP NA Operations). Responsible for overseeing
sales and marketing and all business units.
Wenda Harris Millard (DoubleClick/Chief Advertising Sales Officer). Directs account management, client
services and advertising sales. Her position is crucial in Yahoos efforts to court traditional advertisers. Her
background fits the job she has executive positions at Internet ventures such as DoubleClick Inc. and Ziff
Davis Media and at Traditional media operations such as Working Women Ventures Inc. and New York
Magazine.
John Costello (Sears/Chief Global Marketing Officer (newly created position)). Directs the brand marketing
organization. Costello is credited for helping to revitalize the Sears brand. He over saw Sears’ marketing,
public affairs, corporate communications, customer information, catalog, research and direct-response
operations. He also helped Sears launch their Internet and e-commerce initiatives. He was named on e the
50 most influential People in Marketing by Advertising Age and elected to the Retail Marketing Hall of
Fame in 1997, Costello has been recognized by his contemporaries as a leading marketing professional.
Tim Sanders (Victoria Secret. Chief Solutions Officer (newly created position) Oversees customer
acquisition, sales strategies and partner relationsThe average age of Yahoos senior executives is 47.
Culture of Yahoo is currently one of logical-quality (pg 474). Technical focus - value individual
performance; quality culture. Flexible in its approaches; accepts change as indicated by effective planning
and problem solving.
Where to go next? Wholesale change in culture is being pursued as company learns to sell content rather than
process incoming orders (technical focus).
34
Business Stages
Stage
Business Dynamics
Transitional Crisis
Stage 2 -
•Centralized analytical
decision making and
directive leadership
•Decision to diversify
into a multi-business
operations represents a
major shift in strategy
requiring new
management behaviour
Professional
Single Business
(Content
assembler)
(Growth Stage)
Stage 3 Professional
Multi Business
(Maturity)
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•Formalized, functional
organization structure
•Emphasis on increased
efficiency in operations
•Decentralized analytical
decision making
•Divisional or strategic
business unit (SBU)
structure
•Emphasis on portfolio
management, especially
where businesses are
unrelated
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35
Yahoo is evolving as a business as one would expect.
Under the leadership of Koogle and Mallett, Yahoo had hit the wall with
regards to business development (not a negative connotation, just a reality). It
has been a single business, per se, and should it wish to expand, survive, it
must diversify.
Under the leadership of Semel, the potential is there to transition Yahoo to
stage 3, that of a multi-business. To do so, Yahoo must diversify, control its
cost structure and retain, if not increase, its market share.
35
Summary
"
Are these factors a
good fit with the
selected Strategies?:
"
Issues with the
factors:
$Culture-Leadership
$Staffing
$Information-
"
OK
"
OK
"
OK
$Incentives
$Structure
"
OK
"
OK
Decision making
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©2002 - Byrnes, Fevrier, Fontaine, Woods
36
Yahoo is on a reasonable track to recovery. The above-noted factors seem well
aligned to the strategies that have been embraced.
Yahoo may not have carried out this analysis; nonetheless, it appears that the
leadership team has instinctively reached out to the correct combination of
factors each supporting the strategies. It seems they know how to fix
themselves.
36
Q&A
Thank You
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©2002 - Byrnes, Fevrier, Fontaine, Woods
37
37
Back Up Slides
#Corporate
Overview
#What is a Portal?
#SPACE Analysis
#Growth Strategy - Acquisition
#Thoughts on Strategy
#Internet Opportunities
#The Value of On-Line Communities
#Virtual Value Chain
38
38
Corporate Overview
"
Under the Yahoo brand, Yahoo provides broadcast media,
communications, business, enterprize and commerce services.
In Dec 2000, Yahoo’s global audience grew to 180 million unique
users who viewed an average of approximately 900 million Wed
pages per day on Yahoo-branded online properties.
Yahoo makes its properties available without charge to users, and
generates revenues primarily through the sale of advertisements,
promotions, sponsorships, merchandising and direct marketing.
The majority of advertising on Yahoo properties is sold through
Yahoo internal sales force. Approximately 3,700 customers
advertised on Yahoo Network during 4Q-2000, including 55 of the
Fortune 100.
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39
What is a Portal?
"
Portals are specific applications written to
track specific information about users and
their preferences (page layout, access to
applications from application servers). Portals
are a special case of an application running
inside any application server. A portal provides
frames for content layout. The content in each
frame is referenced by URL and is unique to
users. The URL in the frame can be content
inside the portal or content from any other
web site or any other portal.
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40
40
SPACE - Competitive Advantage
Factors determining
competitive advantage:
Market Share
Product Quality
Product Life cycle
Product replacement
cycle
Customer loyalty
Competitons capacity
utilization
Technological knowhow
Vertical integration
Speed of new prod.
Intro
Average - 6
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0
1
2
Small
Inferior
Late
3
3
4
5
6
Large
Superior
Early
4
3
Variable
Low
2
Fixed
High
4
Low
5
High
Low
Low
5
5
High
High
Slow
33
-3.7
0
2
4
Fast
6
8 15
0
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41
Market Share: has largest market reach of top 3 Internet portals. Yahoo is 4%
ahead of #2 MSN, and 12% ahead of #3 AOL-TW. Really not a large delta between
market reach of top-3 Internet portals.
Product Quality: Are customer focused. Insist on min. page times (no ‘flash’,
designed for quick down-load). Recognize that users will not tolerate long download
waits. If users have to make more than two clicks to get what they want, they
move to another sight. Users use more than one search site to get work done some like academic and business intelligence researchers use 10.
Product life cycle: Market perception - there are lots of users and the product is
“old” now. Product life cycle is rather short.
Product replacement cycle: Driven by rate of technology implementation. Line of
sight for life cycle is probably less than 1-1.5 yrs.
Customer loyalty: Not likely to be more than first “too long a wait” or “can’t find
what I want” experience. Nonetheless, loyalty can be built by personalizing
interactions with customers through exploiting Internet technologies and use of
user Internet behaviours - tailoring information and options customers see at a site
to just what they want. Can use its user-tracking technology/database to tailor
portal experience for each user. Cheap way to provide high service level - displaces
traditional costs for sales, marketing and service.
Competitions capacity utilization: Unknown. Needs more detailed research.
Technological know-how: Company is full of brilliant people. Few companies are
able to sell technology to Yahoo. Either Yahoo is very good or they are self
indulgent.
Vertical integration: Is beginning to follow lead to AOL-TW who have merged an
Internet portal (AOL) with a major media company (TW).
Speed of new product intro: New products are coming on line relatively quickly.
41
SPACE - Financial Strength
Factors determining
financial strength:
Return on Investment
Leverage
Liquidity
Cap. Req. vs Cap
Available
Cash flow
Ease of exit
Risk involved in Business
Inventory turnover
Economies of scale and
experience
Average
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Low
Imbalanced
Imbalanced
0
0
1
2
3
4
5
6
High
Balanced
Solid
1
4
High
Low
Difficult
Much
Slow
2
Low
High
Easy
Little
Fast
5
1
1
Low
18
2.3
0
3
2
0
4
8
High
5
0
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42
ROI: ROI is currently negative, -4.5% TTM, and -8.9% 5 yr average.
Leverage: “= 0”. This low ratio indicates owner is too conservative and is
not letting business realize its potential.
Liquidity: Rule of thumb, should be ≅ 2:1. Is at 3.18, implying deep
pockets to weather bad times and/or to pursue M&A strategy.
Cap. Req. vs Cap available: Very high 5 yr cap spending rate: 245%,
compared to industry 5 yr cap spending rate of -37%. Cap is not as freely
available as just a year ago. This is key as cap will be required for M&A
strategy re: vertical integration.
Cashflow: ???????
Ease of exit: Lots invested in Portal sites, and support infrastructure for
soft assets, globally.
Risk involved in business: Relatively high.
Inventory turnover: N/A
Economies of scale and experience: One of industries first Internet
Portals - good experience base.
42
SPACE - Environmental Stability
Factors determining
environmental stability:
Technological changes
Rate of inflation
Demand variability
Price range of competing
products
Barrier to entry into
market
Competitive
pressure/rivalry
0
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2
2
3
4
5
6
5
Few
6 Low
Small
Wide
5
Narrow
Few
5
Many
High
0
Price elasticity of demand Elastic
Pressure from substitute
products
High
Average - 6
1
Many
High
Large
Low
5
Inelastic
1
29
-3.6
1
Low
2
0
0 20
6
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43
Technological changes: Constant - search engines are always improving,
as example
Rate of inflation: low
Demand variability:Don’t think it is too variable (what indicator do we
use?).
Price range of competing products: (need to check this out with AOL
and MSN) Assume is similar amongst top three. There is likely a price war
to erupt as companies vy for volume leadership to avoid having to lay off
personnel in response to lower market demands. Eventually, shakeout
ensues followed by consolidation, after which capacities are brought back
in line with market demand.
Barrier to entry into market: Likely is high cost - need to better
understand this.High asset costs (high tech) and high cost knowledge
workers to keep it evolving.
Competitive pressure: There is a fair bit of competitive pressure. There
is only a 4% delta in market reach between the number 1 and the number
2 portal, and 12% for the number 3 portal.
Price elasticity of demand: demand of users has clearly risen, but
demand by advertisers has declined. Will be hard to convince users to pay
for what they have always gotten for free. Price elasticity with advertisers
declining.
Pressure from substitute products: I am not aware of substitutes other
than non-online research services.
43
SPACE - Industry Strength
Factors determining
industry strength:
Growth potential
Profit potential
Financial Stability
Technological Knowhow
Resource Utilization
Capital Intensity
Ease of entry into
market
Productivity, capacity
utilization
Manufacturers bargain
power
0
2
3
4
4
4
5
6
High
High
High
2
Simple
Inefficient
Low
5
5
5
Complex
Efficient
High
Easy
5
Difficult
Low
5
High
Low
37
4.1
Average
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1
Low
Low
Low
0
2
4
High
0
8 25
0
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44
Growth potential: Has 52% of global market reach. Could theoretically
double in size.
Profit potential: If is able to untrain its user base to pay for what it used
to get for free, or up-sell users to purchase content, profit potential could
be enormous. Since 9-11, online transactions has skyrocketed.
Financial stability: Industry appears strong. Internet use is not going
away, but means to generate revenues is evolving. Internet is way to do
business, and industry is getting better at that. Industry is nearing
shakeout (instability) which will then lead to stability.
Technological know-how: This is a core competency of Yahoo.
Resource utilization: Unknown
Capital intensity: Business is capital intensive.
Ease of entry into market: Not particularly easy. High capital costs.
Productivity, capacity utilization: Yahoo is less productive than industry
norms would suggest it could be. Indicators include: (1) Asset Turnover:
0.3 vs industry 0.63, S&P 500 0.96; (2) Revenue per employee: $220k vs
Industry - $298k. S&P 500 - $534K.
Manufacturers bargain power: Don’t think there is much bargaining
power, as users and clients can easily go to competition such as MSN and
AOL-TW.
44
SPACE Analysis - Yahoo!
2.3
Status Quo
FS
Conglomerate
Diversification
Concentric
Diversification
Concentration
Overall
Cost
Leadership
Focus
Vertical
Integration
Diversification
- 3.9
Conservative
Aggressive
CA
Divestment
Defensive
Gamesmanship
4.1
IS Concentric
Differentiation
Merger
Competitive
Liquidation
Conglomerate
Merger
ES
Retrenchment
- 3.6
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Turnaround
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45
Growth Strategy - Acquisitions
1997
" Four11
1998
" WebCal Corp
" Yoyodyne Entertainment,Inc
" Viaweb, Inc
" HyperParallel, Inc
1999
" Encompass, Inc
" GeoCities
" Online Anywhere
Broadcast.com Inc
" Log-Me-On.com
" LLC
" Yahoo!Canada
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1999 (continued)
Innovative Systems
" Services Group, Inc
" Broadcast.com
2000
" Arthas.com
" eGroups, Inc
2001
" VivaSmart,Inc
" SOLD.com.au
" Launch Media, Inc.
" HotJobs
2002
" Cadê
"
©2002 - Byrnes, Fevrier, Fontaine, Woods
46
46
Structure Evolution
"
GVA shifted from horizontal to vertical:
acquisitions & partnerships
• content
• distribution channels
⇒ Divisional strategy
" Market rejuvenation ⇒ delayer
"
"
42 ‘SBUs’ to 6 ‘SBUs’
Need effectiveness to realize turnaround
⇒ shallow structure
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47
47
Thoughts on Strategy
"
See next slides
Internet opportunites
The value of on-line communities
" The virtual value chain
Semel is slashing the number of business units from 42 to 6,
replacing key executives, and trying to change the company’s
relationship with many corporate clients and its customer base
- can Yahoo! Be successful on so many fronts?
The management changes will require a wholesale change to
the entire corporate culture, as the company learns to sell
content rather than process incoming orders.
"
"
"
"
*after Can Yahoo! Change its stripes, D. Sterman, 2001-12-11
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48
48
Internet Opportunities
"
"
"
"
Links companies directly to customers
Lets companies bypass other players in
an industry’s value chain
It is a tool for developing and delivering
new products and services to new
customers
Enables certain companies to dominate
the electronic channel of an entire
industry or segment, control access to
customers, and set business rules
* after Making Business Sense of the Internet, S. Ghosh, 1998
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49
The Value of On-Line Communities
"
"
Real value of on-line communities will come from providing
people with the ability to interact with one another - from
satisfying their multiple social needs as well as their
commercial needs. Create strong on-line communities to
create customer loyalty.
Types of communities. Communities of:
"
"
"
"
"
Incorporate as many as
possible in on-line community
Ways to generate economic value (returns ):
"
"
"
"
*
transaction
interest
fantasy
relationship
usage fees
content fees
transactions and advertising
synergies with other parts of its business
after The Real Value of On-Line Communities, A. Armstrong, J. Hagel III, 1996
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50
Virtual Value Chain
"
"
The value chain in the physical world is a model that describes
a series of value-adding activities connecting a company’s
supply side with its demand side. This value chain treats
information as a supporting element of the value-adding
process, not as a source of value itself.
The value adding processes that companies must employ to
turn raw information into new market-space services and
products are unique to the information world. The valueadding steps are virtual in that they are performed through
and with information. Creating value in any stage of a virtual
value chain involves a sequence of five activities: gathering,
organizing, selecting, synthesizing, and distributing
information.
* after Exploiting the Virtual Value Chain, J. Rayport, J. Sviokla, 1995
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