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Yahoo, Inc.

- 2009
Prepared by
Group 3

Tran Viet Cuong Bui Huy Hoang Pham Hoang Lan Dao Hoang Tung Nguyen Van Bui Thi Hoang Yen

Strategic Management

Content
Summary Problems Analysis Recommendation Implementation

Summary

MACROECONOMIC MALAISE

GOVERMENT

Internet Products & Services Communications services: Yahoo mail, Zimbra mail, Yahoo messenger, Social network Content Markets Internet access with voice & video

SUPPLIER

INPUT

PROCESS

OUTPUT

CLIENTS

Free of charge users Innovations & shifts in Technology

Marketing solutions (online advertising business, search & display advertising Charge fee for Premium services
COMPETITORS

Users Advertisers Publishers

Microsoft Google Time Warner

Case issues: Yahoo! Inc 2009 needs an excelent strategic plan to negotiate a deal with Microsoft or to continue alone???
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Problems
1. The net income decreased by 35.7 percent to $424 million.
2.

Overall advertising revenue dropped by 13 percent in the 2nd quarter of 2009 compare to the prior year

3. Yahoo! closed several of its video properties and is planning to close twenty video services including its social network site Yahoo! 360 and its Web hosting service GeoCities 4. Companys capital lease and other long-term liabilities increased by over $48 million 5. Microsoft has tried to acquire Yahoo! twice for the last three years. 6. Yahoo! has not many allies. 7. Although many of the services Yahoo! provides to users are free, it does charge fees for a range of premium services. 8. Yahoo! posted a 78% first quarter 2009 profit decline & reacted by eliminating another 675 jobs, or 5% of its workforce on top of 2,500 jobs cut in 2008.
9. 10.

1st quarter 2009 : Yahoo! revenues dropped 13% to $1.58 billion. Yahoo! online advertising business is deteriorating rapidly as the firms overall revenue fell 13% in 2nd quarter of 2009 compare to the prior year. In this quarter, aggressive cost cutting allowed Yahoo! to post a 7% increase in profit up to $141.4 million, but firm laid off another 7000 employees to end with 13,000 employees.

11. Yahoo! stock rose to the high of $120 in 2000 but dropped to under $14 for most of 2009.

12. Yahoo! lost 1% in rich media revenue, 1% in sponsorship, & 2% in classified ads in 2008 compared to 2007. Although the revenue from search increased by 3% in 2008 compared to 2007, the increase was due to growth in the entire Internet business rather than a shift to Yahoo!

Analysis
5 FORCES ANALYSIS
New Entrants: low entry barriers low investment, new technologies can be easily developed, anyone can entry

Suppliers: Microsoft is both a supplier and a foe. There are quite many suppliers for Yahoo in the market, so this a low threat.

Competition: High threat from rivals such as Google, Microsoft, Facebook etc

Buyers: have many options to choose

Substitute products: There is a high threat coming from the substitute products as there are many substitute products in the market such as Google, Facebook, Skype etc

SWOT ANALYSIS Strengths 1. Increase in revenue from 2007 to 2008 by 3.4 percent to $7.2 billion 2. Yahoo is the second leading global Internet brand 3. Other than offering advertising and online properties, the company offers Internet access through third-party entities 4. Other than advertising fees, Yahoo generates additional revenue by charging fees for a range of premium services 5. With additional lay-offs, the company anticipating to have a better profitability for the next few years 6. Within Internet base service, Yahoo! has several revenue generated segments such as Search, Display Related, Classified, Referrals / Lead Generation and Email. 7. Companys quick ratio is 2.54, above industry average Weaknesses 1. The net income decreased by 35.7 percent to $424 million.
2.

Overall advertising revenue dropped by 13 percent in the 2nd quarter of 2009 compare to the prior year

3. Yahoo! closed several of its video properties and is planning to close twenty video services including its social network site Yahoo! 360 and its Web hosting service GeoCities 4. Companys capital lease and other long-term liabilities increased by over $48 million 5. Microsoft has tried to acquire Yahoo! twice for the last three years Opportunities 1. 1.1 billion Internet users around the world as of 2006 and it is still growing
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2. Internet advertising revenues in the U.S. remains strong, topping $23 billion in 2008 3. Consumers are spending more of their time online 4. New business strategies such as bundling Internet access with voice and video services are increasing 5. Innovativeness in technology is the driving force in Internet-based businesses 6. Many businesses overseas are finding advertising on Internet less expensive and more responsive 7. Countries such as China and India have stronger economic status and accordingly, the companies are able to spend more advertising dollars via Internet Threats 1. Due to weak economic conditions, Internet related businesses also have suffered 2. In 2009, a number of Internet content and advertising companies reported disappointing financial results and lowered their forward financial outlooks 3. Low entry barrier makes the viability of existing Internet based businesses difficult 4. Changes in legislative requirements concerning technology sharing, patent rights and information security could increase future expenses and lower profitability 5. Constant technology changes causes difficulty to be up-to-date all the time 6. Consolidations among Internet-based providers could make the competition to be strong

INDUSTRY ANALYSIS FINANCIAL RATIO ANALYSIS (October 2009) Growth Rates % Sales (Qtr vs year ago qtr) Net Income (YTD vs YTD) Net Income (Qtr vs year ago qtr) Sales (5-Year Annual Avg.) Net Income (5-Year Annual Avg.) Dividends (5-Year Annual Avg.) Price Ratios Sales (Qtr vs year ago qtr) Net Income (YTD vs YTD) Net Income (Qtr vs year ago qtr) Sales (5-Year Annual Avg.) Net Income (5-Year Annual Avg.) Dividends (5-Year Annual Avg.) Profit Margins % Gross Margin Pre-Tax Margin Net Profit Margin 5Yr Gross Margin (5-Year Avg.) 5Yr PreTax Margin (5-Year Avg.) 5Yr Net Profit Margin (5-Year Avg.) Financial Condition Yahoo! -11.80 -55.30 242.70 34.71 12.27 NA Yahoo! -11.80 -55.30 242.70 34.71 12.27 NA Yahoo! 56.3 3.0 -1.4 59.3 19.6 11.9 Yahoo!
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Industry 7.60 13.20 46.30 69.97 87.09 NA Industry 7.60 13.20 46.30 69.97 87.09 NA Industry 62.2 27.1 20.6 60.7 30.4 22.9 Industry

S&P 500 -5.20 -8.10 24.70 12.97 12.30 11.88 S&P 500 -5.20 -8.10 24.70 12.97 12.30 11.88 S&P 500 38.2 9.9 6.9 38.1 16.5 11.5 S&P 500

Debt/Equity Ratio Current Ratio Quick Ratio Interest Coverage Leverage Ratio Book Value/Share

0.01 3.4 3.4 NA 1.2 8.69

0.01 9.7 9.7 0.0 1.1 85.16

1.11 1.5 1.2 27.2 3.5 21.58

Affected by the worlds economic crisis starting from at the end of 2008, sales of 2009 as well as net income decreased sharply. However, other ratios of Yahoo seemed to be quite good. The current ratio is also a good indicator of creditworthiness of a company while Yahoos current ratio is 3.4 which was not so good compared to other rivals such as Google and the average ratio of the industry. The debt ratio indicates the level of assets financed using debt or liabilities , in 2009 the ratio was 0.11 for yahoo and 0.11 for the industry, this indicates that yahoo is financing its assets using liabilities at a moderate average, this means that the net worth yahoo is quite good in the market. In 2009, Yahoo net profits fell to -1.4 while the ratio of the industry remained high, this could be an alarm on the profitability of Yahoo in 2009. From yahoo finance yahoo shares cost $15.58, this indicates that Yahoo shares cost is not quite high compared with other rivals in the market such as Google. In 2005, yahoo had a price earnings ratio of 12 in 2005 and this ratio increased to 31 in 2009. This increase can be explained by an increase in the demand for Yahoo shares.

Recommendations
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Yahoo is being challenged on four fronts, all tied closely to search. These include lower revenues in the advertising networks due to competitors, Googles dominance in the search and advertising space, inefficient search results, and the changing face of portals. The company needs to come to the realization that search is their future, with advertising intertwined. Once their core competencies have shifted successfully from a portal strategy to a company relying on its search algorithm, they can begin to implement the advertising strategies that have proven useful in banner ad integration, for the contextual advertising market. The first step is refining their search algorithm, though. Yahoo may even combine their intense focus on portals to deliver more focused results in their queries. For instance, they can leverage the power of social networks and blogs, quantifying the links and keywords in a format that Google has yet to recognize. In short, Yahoo can be the dominant search engine by applying a new age search algorithm to its rankings. Coupled with this algorithm, they can deliver smarter text advertising. Yahoo is the only search engine that not only quantifies the linking text, or anchor words which transport you to another site, but also the surrounding keywords. For example, if a user is reading an article about spyware removal, and the link is placed in the word spyware, then Yahoo would be able to distinguish that three words before spyware removal was the brand name of a piece of software. Then, if a user clicked on the link, they would instantaneously be served an ad for that spyware solution. This new advertising structure will need to be expanded to meet the demands of the independent webmasters in charge of various, niche sites. Payouts should be slightly higher because they are breaking into Googles area. By Yahoo focusing on improving its search algorithm, they will be directly addressing their diminishing user base. People are leaving because the search results arent as relevant as Googles. So change the algorithm to account for more factors than Googles does. Advertisers are advertising with Yahoo because their implementation is faulty; their search engine is flawed. Clean up the search results, and that problem will disappear. In the end, Yahoo needs to deliver a more value added product. Not in the form of more portal pages or more section to their website, but a more flawless search engine. The rest can be harnessed from that.

Strategy Implementation
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Yahoo will move forward with one core competency, which is search. They will focus their resources on developing the algorithm necessary to key in on social networks and portals because of their background in the history. They will design and implement a better solution. Their ad network will be integrated into the search algorithm to pick up related keywords in linking text and content. This will be coupled with webmaster utilization so that outside publishers may benefit from Yahoos resources and advertising network. All in all, the outside influence will increase Yahoos revenue. The strategic implementation will follow this path: 1. Redirect Employees 2. Refine the Algorithm 3. Implement the Algorithm 4. Refocus the Advertising Network 5. Expand the Ad Network 6. Implement Outside Publishers Redirect Employees The strategic implementation will be such that no employees will be laid off. They will simply be redirected. The core mission of Yahoo for over a decade has been to focus as a portal. They were told to expand the network, not make it better. Their new initiative will be to forget about expansion, and refine the search capabilities of the site. Hence, forming the foundation of the new company strategy. The first thing that needs to be done is alert everyone of the change. This will take place in a top-down manner. The next step will be redirecting employees work habits. For those who will be switching groups (going from the portal philosophy to the search initiative), they will be moved to different offices. Their desks, computers, etc. will be switched. They will have a new cubicle or office with the search team. Once there, it will be possible to start separating the individuals into team so that the search strategy can be attacked. Some will work through code while others will research. Refine the Algorithm This team will then come together under the two project managers, or under their supervision to some extent. They will apply the research and programming knowledge to plan out and refine a new algorithm for Yahoo. This will entail the variables of a groups who have been tasked with research. They are the ones who will provide the ideas and thoughts on the setup. The programmers will begin to put their thoughts into something a computer can interpret, otherwise known as coding.
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After the algorithm has been coded, it will be tested thoroughly. Those same researchers will be responsible for trying to break it. They will test for the validity of the page ranking techniques and make sure that everything is on par. If there are discrepancies, they will alert the managers and the programmers and come up with a solution as soon as possible. In traditional coding projects, up to 90% of the time is put into the planning stage. Therefore, the emotionally oriented leader will be the one coaching this session. The task oriented will issue objectives, but will play a sub-crucial role in the projects development. He will instead focus on the design aspects and how they relate to the coding. He will not be pushing the researchers to extraordinary limits. After the search is sufficiently refined, it goes to the implementation phase. Implement the Algorithm This phase is simply the rollout of the new search algorithm. The algorithm should be soft launched without any real marketing behind it initially. In order to successfully work, the mass of users need to test out the algorithm before it is marketed thoroughly. This stage will call for all hands on deck to combat issues taking place in the algorithm itself. Emergency coding may be necessary as well. Once the launch has been successfully pulled off, it is necessary to market it efficiently. This can be done through online ads placed at high traffic sites, such as was done when Yahoo got their facelift six months ago. Refocus the Advertising Network With the successful product launch, it is now necessary to integrate the advertising software into the search engine. This can be done using the techniques used before the new algorithm, but using better keyword data which the new search algorithm is providing. The people who researched the algorithm will be tasked with promoting the new features on the website. They will be the soft touch of the advertisement relaunch, and led by the emotionally oriented leader. The task oriented manager will be at the helm of the advertising network relaunch. Expand the Ad Network The expansion of the ad network will include accepting new advertisers and publishers into the advertisement process. Infrastructure needs will be handled by the programmers. The researchers will be encouraging new publishers to sign up and handling the emails, while approving the new publishers. The Implementation of Outside Publishers

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As the final step in the relaunch, the coders will continue to refine the advertisement algorithms so that it ensures absolute targeting. The other employees will continue to handle the soft side of the business; getting new publishers, providing for the existing ones, and handling feedback. The Summary This search engine relaunch is a difficult and painstaking process, but it will refocus the business in the most profitable way possible. Having a good base to establish a advertising network is the best way to go forward for growth. If the search algorithm is failing, then an advertising network built on top of it will be leaking dollars.
This strategy will help Yahoo maintain the brand while allowing it to refocus the core of its business.

The end

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