MIE 480
Business Policy and Strategy
Dr. Washington
Shelby Westbrook
Matt Dupree
Chrissy Zirpolo
Jessica Chew
Introduction
Yahoo! started as a search engine and directory developed by two Stanford
University students in 1994. Their main objective was to optimize market share and “get
big fast” by building up their audience and brand. They also felt advertising could be
their target and in 1999, 90% of its revenues came from advertising alone. However, in
the early 2000s, Yahoo! began experiencing difficulties with their original strategy. In
April 2001, Terry Semel, former Warner Brothers CEO, was hired to replace Tim
Koogle, former CEO at Yahoo!. Semel was quoted saying, “I love building things and I
will look forward to building those assets into a much larger and more diversified
company throughout the world.”
Semel’s new vision was to expand the company, improve the products, and provide
essential services to the customers. He wanted to align the business model around two
key customer groups; their audience, advertisers, and publishers, along with innovative
technology. Semel posted on the Yahoo! blog titled, ‘Taking Yahoo forward’, back in
2006, that this was necessary “to increase our strategic focus and accountability, speed
decision-making, emphasize scalable platforms and improve resource allocation.” He
also strongly believed there was a need to emphasize putting the right people in the right
jobs, and they needed to continue to hire ‘great talent’ to progress the company’s growth.
For example, he asked the CFO, Sue Decker, to be the leader of the new Advertiser &
Publisher Group; where he believed she would be a valuable contributor to the business
strategy. This strategy also included working with other sites to become advertising
affiliates with companies such as; eBay, Vodafone, and the newspaper consortium.
To support his new strategy, Semel took several steps to get Yahoo! back in the
right direction. He first had to address the organization of employees at Yahoo!’s
headquarters. What used to be made up of a room full of cubicles with employees
dressed in jeans and extensive departments, Semel tried to centralize by decreasing what
was previously 44 departments into 5 and trying to create vision within the company.
During this process he laid off 400 employees which was 13% of Yahoo!’s workforce
(Hu). Semel knew that 90% of Yahoo!’s revenue came from advertising, and because of
this he wanted to boost the demand for advertising on Yahoo!. To do this Semel wanted
to create an experience for the users that would create the greatest amount of value for
advertisers, both on and off the Yahoo! network (Semel).
To create the “experience” he wanted, Semel added many different functions to
the site to try to make it into an internet “theme park.” To do this he added elements such
as Yahoo360, Y!Q, Yahoo Mindset, MyWeb 2.0, and Yahoo answers to try and tie
together the virtual community (Siklos). All of these things that he had done increased
the attractiveness of Yahoo! to potential advertisers, and had increased overall revenue,
but that wasn’t enough for Semel. He wanted additional revenue streams so that Yahoo!
would not be so reliant on advertising. To do this he added paid services to Yahoo!’s
already robust repertoire. He added additional capabilities that ranged from digital music
and online games to job listings and premium e-mail accounts with loads of extra storage
(businessweek). After the addition of these new services, Semel realized that most of the
services required Broadband service. He then partnered Yahoo! with the telephone giant
SBC and launched Yahoo! into the business of selling broadband access to millions of
American homes (businessweek). In Semel’s view, Yahoo! should be a place that is able
to meet every need of every internet user and an internet community where people never
have to exit.
Former Yahoo! CEO Terry Semel was considered a great leader. He had a strong
vision of where he wanted the company to go and most importantly he wanted all of his
employees to be treated equally. He demonstrated his belief in equality by moving toplevel management into cubicles with all the other levels of employees. Having previously
worked for Warner Bros., Semel had a great sense of what to do with Yahoo! in regards
to entertainment. He wanted to penetrate the media market and essentially make Yahoo! a
place where people could do absolutely everything whether it be news, searching,
weather, media and much more. He wanted users to become more deeply engaged than
they already were. Essentially bringing Yahoo! and the internet into a new era.
Critical Issues
However, over time Terry Semel failed to satisfy shareholders on several different
levels and was ultimately forced out of his position as Yahoo!’s CEO. The main reason
behind the dissatisfaction was the extravagant salary of $71.7 million he continued to
receive, while Yahoo!’s shares had dropped 10 percent and in the last four quarters the
revenue growth was dropping consistently as well (Yahoo!, 246). Not only did their
grievances stem from monetary issues, but also, Semel’s inability to make decisions
quickly, ultimately missing out on purchases such as Facebook and YouTube. Even
though Semel entered the company with big ideas and great aspirations it appears that he
tried to tackle too many different areas. As quoted by Dr. Washington, “If you’re
everything to everyone, you’re nobody to no one,” Yahoo! was not able to set themselves
apart from all their difference competitors. Currently this is one the main struggles
Yahoo! seems to be fighting against. Not only are they lacking a centralized vision, but
Yahoo! must revamp their advertising and boost company morale if they have any hope
of continuing to be a competitor in this market.
Recommendation #1: Advertisting
Currently Yahoo! spends over 20% of their annual revenue on advertising. This
adds up to be 1.3 billion dollars (Thaeler, 2007). Since Yahoo! is keen on comparing
themselves to Google, we will. Google spent 188 million dollars on advertising, which is
over a billion dollars less than Yahoo!. Even with that much of a difference in
advertising Google still processes 67% of the worlds search requests while Yahoo! only
processes 7.4%. These numbers tell us that Yahoo! is doing something seriously wrong.
According to btobonline, the top 10 advertisers have a variety of different
advertising media. In this variety 54% of their mix was print media, with 19% of the
overall media being magazine ads and 35% being newspaper ads. Since Yahoo! must
compete on a global level, they would have to put their ads in newspapers around the
world. The World Association of Newspapers has a list of the 100 largest newspapers in
the world (WAN, 2005). This would be a good starting point for Yahoo! to begin their
newspaper advertising campaign. They could pick the top 3 newspapers from each
country on the list and advertise with them. Doing this would give them about 40
different newspapers that they would be advertising in. Their advertisements would be in
over 79 billion newspapers daily. They could run half page ads in each of these large
newspapers and get their brand recognized. The cost of running these ads in world
renowned newspapers would be on average $20,000 per newspaper per day; assuming
that ever one of these newspapers comes out daily(gaebler.com). This sounds like a lot at
first but after doing the numbers, this would be a little over $290 million per year, or 22%
of Yahoo!’s current advertising expenditures. Since newspaper advertising should add
up to 35% of the total advertising, this gives Yahoo! $150 million to also go into local
newspapers and advertise using a full page add that would only cost $1000 per ad and
would increase Yahoo!’s outreach even more. Doing this would get Yahoo! on the minds
of billions of people and would keep Yahoo! on their mind every day.
They would also need to expand their advertising to magazines. The top five
business magazines according to btobonline are Forbes, Fortune, Business Week, Inc.,
and The Economist. The average price of a one page ad in one of their magazines is
$100,000 which was found by going to the magazine websites and formulating an
average for a full page ad. Advertising in these magazines monthly would cost Yahoo! a
total of six million dollars. This would be less than half of a percent of their total
advertising expenditures. Yahoo! would also need to advertise in consumer magazines
such as AARP the magazine, Reader’s Digest, Time and others in order to hit all
demographics. They could advertise in about 40 consumer magazines at a rate of about
$300,000 per run which was found by going to major consumer magazines and looking at
the cost to advertise a full page ad. Consumer magazine advertising would cost Yahoo!
$144 million and would bring the total cost of magazine advertising to $150 million, and
12% of Yahoo!’s total advertising expenditures.
Now that they are in the heads of billions of people through print advertising,
Yahoo! must turn some of its focus on Television. Btobonline claims that it is most
effective to use about 37% of your total advertising costs on this type of media. Yahoo!
already had many great ads that tell who they are and we would allow them $100 million
to come up more great advertising that would fit their new condensed strategy. So
Yahoo! has the advertisements, now they just have to put them in the right time slots on
the right stations. Without going into the big networks like ABC and CBS, you can get a
30 second slot on a cable network like ESPN for $25 dollars (4hb.com). If Yahoo! did
this kind of advertising all the time on cable networks, which are still shown nationally,
and reserved their ABC and CBS advertising to prime time and 11 PM when the news is
on, they could reach millions of people for a relatively small cost. Ads on ABC and CBS
during prime time cost on average $300,000 each. Yahoo! would run an ad two times
during prime time on week nights. Doing this on just CBS and ABC would expand the
outreach of Yahoo!’s brand dramatically. The cost of advertising during prime time for
Yahoo! would total $312 million. Advertising with the top 10 cable networks 24 times
per day at an average cost of $30 per ad would cost Yahoo! $2.7 million per year. Then
adding in the cost to create new advertisements of 100 million, the total cost of Yahoo!’s
television advertising would be $415 million and 32% of their advertising expenditures.
Since Yahoo! has such a large presence on the internet already, it should not back
away from internet advertising. If you think about Google’s advertising, where ever they
put advertisements for their customers, like within other websites, Google’s names comes
up their customers add letting everyone know that this add was provided by Google. This
is not only advertising for Google’s customers but also for Google. This is something
that Yahoo! should take into account. Internet advertising is cheap compared to other
forms of media. Since Yahoo! is able to put so much money into advertising
expenditures, they will be able to flood the internet with Yahoo! ads. 10% of Yahoo!’s
total advertising expenses, or $130 million, would be spent on internet media advertising.
Yahoo! would form relation ships with their advertisers and have ads on their websites
from other of their customers. For example if Yahoo! sold advertising space to Eastbay
and Sprint. Eastbay could have Sprint ads on their website brought their by Yahoo!.
Yahoo! could also come up with some viral videos and hold contests to see which of their
users could make the best viral marketing video for them. Having this amount of money
to put into internet marketing would really get Yahoo!’s name even further out on the
internet.
Lastly, with 10%, or $130 million, they would be able to hold events that would
be sponsored by Yahoo! as additional advertising. They could hold events on college
campuses where over 33% of the college population spends over 10 hours per week on
the internet (Burst Media, 2007). They could hold events on campuses around the globe
that show what all Yahoo! has to offer them. They could also sponsor concerts and
events where their name would be the main sponsor. At all of these events they would
pass out T-shirts, water bottles, magnets, and buttons all plastered with the Yahoo!
emblem. Yahoo! would be bringing themselves to their users and giving them the feel of
the culture that they want to create virtually on the internet.
Advertising Media
Newspaper
Magazine
Television
Internet
Event
Total
Savings
$Costs$ (Percentage of Total
Advertising)
440 million (34%)
150 million (12%)
415 million (32%)
130 million (10%)
130 million (10%)
1.265 billon
$35 million (2%)
Recommendation #2: Finding the "Right" People
Right now at Yahoo! employees are concerned with the status of their jobs. They
are unsure and weary about who is being laid off and why they are being laid off.
Management is currently doing a poor job of communicating to employees exactly what
is going on within the organization. Because employees are unsure of their status, they
are much less productive than in the past. Employee morale is low and in order to
improve production and productivity, Yahoo is going to need to implement a clear,
concise communication plan as well as a new set of criteria for hiring the "right" people
with the "right" work ethic and drive.
Many organizations, Yahoo included, fail to establish a clear set of criteria for
hiring the right employees. Often, employers base hiring decisions on whether or not the
individual has a master’s degree, previous work experience and other resume related
criteria. However, what an employer cannot find in a resume is whether or not the
candidate is actually the "right" person for the job.
Yahoo! needs to implement a strategy much like that of Southwest Airlines.
Southwest Airlines does not go after candidates with master’s degrees or necessarily
strong resumes and work experience. Southwest Airlines seeks out candidates that will be
the best fit for their specific role within the organization. For a flight attendant, they may
look for people who go above and beyond the call of duty, someone with a personable
personality who believes that the customer is always right, and someone who wants your
flight on Southwest to be an "experience".
The first step for Yahoo! to implement a strategy like this one is to create a strong
communication program much like the one Semel established where top level managers
and lower level managers both worked in cubicles right near each other. This established
a clear channel of communication and gave lower level employees the opportunity to
communicate easily with upper level employees, giving them a voice and a sense of
power. It also allowed upper level management to easily overlook lower level employees
enabled them to make sure tasks were being done properly and in a timely manner. We
recommend going back to this set up and doing a focus group to see if productivity
increases. The first focus group will be out of the corporate headquarters located in
Sunnyvale, California. We will have Yahoo! implement this strategy within the next
month. This particular strategy will continue to be evaluated throughout the year. At the
end of the year we will determine how successful the strategy was and how much
productivity and employee morale increased. If the strategy is a success, we will
implement the open office strategy world-wide within eighteen months.
The costs associated with this strategy are very few and are not directly associated
with monetary costs. The costs that Yahoo will incur during this time period are very
few. Top level managers will be moving out of their closed-door offices and into cubicles
with their fellow lower level employees. This may take a day or so to get everything
moved out and set-up. Other than the cost of a day’s pay for each top level manager in
the Sunnyvale office, there are not any other monetary costs.
The next step Yahoo needs to do to turn around employee morale and production
is to establish a clear set of criteria. Like Southwest, Yahoo needs to establish a set of
criteria that will help employers hire the "right" people for the job in which they are
applying for. Traits such as personal skills, computer skills, work ethic skills as well as
many other skills need to be evaluated in-person for the specific job opening. To do this,
Yahoo! should conduct several in-person interviews with different people, from top level
management to lower level management, within the organization. The interviewers
should look beyond the resume and see whether or not the individual would be well
suited for the organization based on other factors such as interpersonal skills, how well
the individual thinks on their feet, as well as anyone other personality traits that pertain to
the job specifications that may not necessarily be recognizable on paper.
The cost of implementing this strategy will again be that top level management
for each division will be taking time out of their day to meet, discuss, and establish a
clear set of criteria. This set of criteria needs to be clear and specific for each division
within Yahoo!. However, management also needs to recognize that although criteria
should be tailored specifically to each division, there also needs to be a common principle
that remains constant throughout all hiring decisions. As previously stated, there is not
necessarily a monetary cost associated with this recommendation. However it is expected
to take a lot of brainstorming and planning by top executives to come up with a clear set
of criteria for their futures hires who will surely be expected to turn Yahoo! around.
In conclusion, it is evident that people can make or break an organization. This
means that it is important to hire the “right” people to work in a particular job. It is also
important that employee morale is high to ensure efficient productivity. It is also
important to have a clear communication program from top management to lower
management so that all employees are on the same page and contribute to the success of
an organization such as Yahoo!.
Recommendation #3: Central Vision
Currently Yahoo is still operating under the same mindset of Terry Semel and
trying to tackle every aspect of every industry. However, in doing so they are failing to
stand out in any one area. Time after time they fall short to competitors that specialize in
these particular areas. Semel’s idea was to create a web based “theme park” that would
have consumers never wanting to leave. However due to the lack of specialization he has
viewers doing the exact opposite and it is time for change. The idea of a central vision
containing only a few areas of specialization has already been on the minds of Yahoo!
employees, as it was stated by vice president, Brad Garlinghouse, “the firm needs to
focus on a few areas, this would allow the web site to make heavier investments in
activities in which it thinks it can excel and move away from others that it does not
regard as essential (Yahoo!, 250).” It comes as no surprise that Google is Yahoo!’s main
competitor.
References
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http://www.wan-press.org/article2825.html
http://www.gaebler.com/Newspaper-Advertising-Costs.htm
“Cost for Advertising in Newspapers”
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Where the Top 10 Business Advertisers Advertise
by Doug Glenn
October 8, 2006
(http://www.pollutionengineering.com/Articles/Column/e8a64b25c542e010VgnV
CM100000f932a8c0____)
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How to Advertise Your Business on Cable TV--Big Results, Low Cost
By Dr. Kevin Nunley (http://www.4hb.com/0131wwiobiz64adcable.html)
Burst media online insights July 2007-( Looking to reach college students- look online)
http://www.burstmedia.com/pdfs/research/2007_07_01.pdf
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Tuesday, October 16th, 2007 by Janet Thaeler
What Top Brands Spend on Advertising
(http://www.marketingpilgrim.com/2007/10/what-top-brands-spend-onadvertising.html)
Yahoo-Microsoft deal set, taking aim at Google
Feb 18, 2010 at 8:07 AM PST
By MICHAEL LIEDTKE
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http://www.kcby.com/news/business/84703992.html
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'Desperate Housewives' Keeps Sunday Rates Competitive
By Claire Atkinson
Published: September 21, 2006 (http://www.frankwbaker.com/2006_2007_ad_rates.htm)