Yahoo!, founded in 1995, created the first successful Internet search engine. Like other Internet companies, it used a business model based on traditional broadcast media. More than 85% of its revenues came from the sale of banners and sponsorship advertising with the remaining coming from business services and e commerce transactions. The company grew rapidly through acquisitions. By 2001, however, online ad sales declined, forcing out Yahoo’s CEO. Google, a new entrant into the Internet search engine business with superior search engine technology, had begun to eat into Yahoo’s market share. Yahoo was losing its identity. Was it a search engine, a portal, or a media company? Yahoo was still the most visited web site on the Internet with 500 million visitors monthly with revenues of $4.5 billion for the first three quarters of 2006. Google, in contrast, had 380 million visitors with revenues of $7.2 billion for the same period. To better compete with Google’s popular AdWords ranking model, Yahoo launched its new algorithm and ranking model, Panama. Nevertheless, Yahoo’s share of total online searches declined from 30.5% in July 2005 to 28.8% in July 2006. Net income declined in 2006. Yahoo’s problems were compounded by its complex matrix structure. The company’s top down approach stifled creativity. Overlapping responsibilities were slowing down the decision making process and creating conflict. On December 5, 2006, Yahoo’s CEO announced a reorganization of the company into three groups. It was hoped that a new mission statement and a new structure would make Yahoo leaner and more responsive to customers. Would this be enough to turnaround the company? Decision Date: January 2007 2006 FY Sales: $6,426 million 2006 FY Net Income: $751 million DISCUSSION QUESTIONS 1. What are the strengths and weaknesses of Yahoo. 2. What are the opportunities and threats facing Yahoo. 3. What are the strategic factors facing Yahoo. 4. Does Yahoo have any core competencies? If ‘yes’, what are they? 5. Does Yahoo have a distinctive competency? If ‘yes’, what is it? 6. How can Yahoo develop a sustainable strategy for the future? 7. How important is it to Yahoo that its 2 new launched products be successful.
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