Yahoo
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www.yahoo.com
In January 2009, Carol Bartz replaced Jerry Yang as Yahoo!’s CEO. Yahoo! has resumed discussions with Microsoft about search and advertising partnerships as both firms struggle to compete with Google. Yahoo! in 2008 had rejected Microsoft’s unsolicited $44.6 billion offer and then rejected that firm’s attempt to acquire just Yahoo!’s Internet-search business, which is second behind Google in market share. Headquartered in Sunnyvale, California, Yahoo! has offices in more than 25 countries, provinces, or territories. Yahoo!’s revenues from 2007 to 2008 increased by 3.4 percent to $7.2 billion. However, net income decreased by 35.7 percent to $424 million. Yahoo! is the second leading global Internet brand and one of the most trafficked Internet destinations worldwide. Together with its owned and operated online properties and services, it also provides its advertising offerings and access to Internet users beyond Yahoo! through its distribution network of third-party entities, who have integrated its advertising offerings into their Web sites. Yahoo! generates revenues by providing marketing services to advertisers across hundreds of Web sites. Although many of the services Yahoo! Provides to users are free, it does charge fees for a range of premium services. The core of Yahoo!’s strategy and operations is to become the starting point for Internet users; to provide must-buy marketing solutions for the world’s largest advertisers; and to deliver industryleading open platforms that attract developers and publishers. Yahoo! posted a 78 percent first quarter 2009 profit decline and reacted by eliminating another 675 jobs, or 5 percent of its workforce on top of 2,500 jobs cut in 2008. For that quarter, Yahoo!’s revenues dropped 13 percent to $1.58 billion. Yahoo!’s online advertising business is also deteriorating rapidly as the firm’s overall revenue fell 13 percent in the second quarter of 2009 compared to the prior year. For that second quarter, aggressive cost cutting allowed Yahoo! to post a 7 percent increase in profit up to $141.4 million, but the firm laid off another 700 employees to end with 13,000 employees. In July 2009, Yahoo! closed its third video property, Maven Networks, based in Cambridge, Massachusetts. Yahoo! plans to close twenty video services, including its social network site Yahoo! 360 and its Web hosting service GeoCities. The company needs an excellent strategic plan to negotiate a deal with Microsoft or to continue alone.
History
Yahoo! began as a student hobby and evolved into a global brand that has changed the way people communicate with each other, find and access information, and purchase things. The two founders of Yahoo!, David Filo and Jerry Yang, were PhD candidates in electrical engineering at Stanford University when they started this company in a campus trailer in 1994 as a way to keep track of their personal interests on the Internet. Soon these two men were spending more time on their homebrewed lists of favorite links than on their doctoral dissertations. Eventually, Jerry and David’s lists became too long and unwieldy, and they broke them out into categories. When the categories became too full, they developed subcategories and the core concept behind Yahoo! was born. The Web site started out as “Jerry and David’s Guide to the World Wide Web” but eventually received a new moniker with the help of a dictionary. The name Yahoo! is an acronym for “Yet Another Hierarchical Officious Oracle,” but Filo and Yang insist they selected the name because they liked the general definition of a yahoo: “rude, unsophisticated, uncouth.” Yahoo! itself first resided on Yang’s student workstation, “Akebono,” while the software was lodged on Filo’s computer, “Konishiki”—both named after legendary sumo wrestlers. Yahoo! was incorporated in 1995 in Delaware and launched a highly successful initial public offering IPO in April 1996 with a total of 49 employees. Its stock rose to the high of $120 in 2000 but for most of 2009 has been trading under $14.
Yahoo! Segments
Yahoo! offerings include Yahoo! Groups, Yahoo! Answers, and Flickr and are generally provided to users free of charge. Revenue in Communities’ offerings is primarily generated through display advertising. Yahoo! search offerings include Yahoo! Search, Yahoo! Local, Yahoo! Yellow Pages and Yahoo! Maps and are available free to users and are often the starting point for users navigating the Internet and searching for information. Yahoo! generates revenues through its Search offerings from search and display advertising. The Yahoo! Communications segment include Yahoo! Mail, Zimbra Mail, and Yahoo! Messenger and provides a wide range of communication services to users. Yahoo! generates display advertising revenues from these offerings. Yahoo!’s vision and/or mission statement is “Yahoo! powers and delights our
communities of users, advertisers, and publishers —all of us united in creating indispensable experiences, and fueled by trust.” Yahoo!’s code of ethics is embedded in its six values: Excellence, Innovation, Customer Fixation, Teamwork, Community, and Fun. Yahoo! lost 1 percent in rich media revenue, 1 percent in sponsorship, and 2 percent in classified ads in 2008 as compared to 2007. Although the revenue from search increased by 3 percent in 2008 compared to 2007, the increase was due to growth in the entire Internet business rather than a shift to Yahoo!
External Issues
According to technology research firm IDC, there were 1.1 billion Internet users around the world and 211 million in the United States as of the end of 2006 (latest data available). To offer some perspective, the size of the worldwide population of Internet users is comparable to the population of India (estimated at 1.1 billion as of mid-2008, according to the U.S. Central Intelligence Agency), and the size of the U.S. population of Internet users is comparable to the population of Brazil (191 million). Economic growth in the United States and around the world has slowed amid crisis in the housing and credit markets. The prices of consumables, from fuel to food commodities, are near all-time highs, yet the values of personal assets, like homes and property, have fallen dramatically. Add rising unemployment and problematic geopolitics to the mix, and we have a difficult economic backdrop, to say the least. Although Internet-related businesses have perhaps held up better than their non digital counterparts, they have still suffered from macroeconomic malaise. In 2009, a number of Internet content and advertising companies (including Bankrate Inc., Knot Inc., ValueClick Inc., WebMD Health Corp., and Yahoo! Inc.) reported disappointing financial results and lowered their forward financial outlooks. Even Google Inc. expressed economic-related caution in conjunction with its second quarter results, and Internet media and market research firm comScore Inc. expressed concerns about deceleration in online spending growth. Internet advertising revenues in the United States remain strong, topping $23 billion, according to the 2008 Internet Advertising Revenue Report, released by the Interactive Advertising Bureau and PricewaterhouseCoopers LLP (PwC). Despite a difficult U.S. economy, as illustrated in Exhibit 1 to 5, Internet advertising continues to grow, albeit at a slower pace. This trend confirms marketers’ increased recognition that consumers spend more and more of their time online. Yahoo!’s full-year 2008 revenues totaled a record $23.4 billion, exceeding 2007’s performance, itself the former record of $21.2 billion, by $2.2 billion or 10.6 percent. By comparison, a variety of sources indicate weakness in overall advertising spending. The Nielsen Company, for example, reported that U.S. advertising for the full year 2008 was down 2.6 percent compared to the full year 2007. • Fourth-quarter revenues of $6.1 billion mark the first time the interactive (Internet) advertising industry achieved, and surpassed, $6 billion in a single quarter. The figures represent a $154 million or 2.6 percent increase from 2007’s fourth quarter, which had revenues of $5.9 billion. • This is the fifth consecutive year of record results.
Competition
Yahoo! operates in the Internet products, services, and content markets, which are characterized by rapid change, converging technologies, and increasing competition. Yahoo!’s most significant competition, as demonstrated in Exhibit 6, is from Google Inc., Microsoft Corporation, and Time Warner Inc.’s America Online business. Each of these firms offer an integrated variety of Internet products and services. During 2008, Google had 72 percent of Internet traffic while Yahoo! only possessed 17 percent followed by MSN at 6 percent and IACI at 4 percent.
Microsoft
Both a friend and foe of Yahoo! in many ways, Microsoft’s $6 billion acquisition of Quantive Inc., an advertising solutions company, in August 2007 marked an important change. Microsoft lost out in a bidding war for privately held DoubleClick Inc., a digital marketing technology and services company, Microsoft recommitted itself to the category, offering to acquire aQuantive at a massive premium and valuation to ensure that the deal would be consummated. In October 2007, Microsoft purchased a 2 percent stake in social networking firm Facebook Inc., valuing the private company at an astounding $15 billion. Microsoft has an obvious and strong desire to increase its Internet presence.
Google
In early 2009, Google is in talks with the popular micro-blogging site, Twitter, about a possible partnership. Google has expanded well beyond search-related functions into areas such as e-mail (Gmail), mapping (Google Earth and Google Maps), Web-based productivity applications (Google
Apps), video (Google Video and YouTube Inc., which Google acquired in November 2006), a finance offering (Google Finance), a payment service (Google Checkout), a personalized portal offering (iGoogle), a mobile Internet software platform (Android), and browser software (Google Chrome). Google’s pursuit of mobile Internet opportunities has made it one of the main application providers for Apple Inc.’s iPhone. Perhaps more importantly, Google has successfully pushed for more open standards in the mobile space, which will eventually allow users to choose more easily the carriers and handsets they want. As a result of Google’s efforts, the Federal Communications Commission (FCC) adopted flexible access rules for users and wireless resellers in conjunction with the agency’s early 2008 wireless spectrum auction. As illustrated in Exhibit 7, Google commands a good portion of the revenue in the industry and is a formidable competitor to Yahoo! in particular. From its first year of operation as a public company (2004), Google has increased its operating profit to $6.7 billion from a modest $852 million.
Industry Trends
As broadband prices fall, ISPs are pursuing new business strategies, such as bundling Internet access with voice and video services. AOL LLC, a division of Time Warner Inc., shifted its business model from paid subscriptions to a free, advertiser-based portal that is similar to those offered by Yahoo! Inc. and Google Inc. In early 2008, Time Warner indicated that it might look to sell its AOL access business. EarthLink Inc. has indicated that it wants to be a segment consolidator. Each company is committed to attract as many visitors (as Exhibit 8 demonstrates) as possible. The industry, due to its low barrier entry— technical and regulatory—makes the projection of its business viability for existing companies difficult. Due to changes in legislative requirements concerning technology sharing, patent rights, and information security, future expenses and profitability of the companies operating within this industry are harder to predict. Future innovations and shifts in technology also make long-term strategies regarding the Internet and software services industry difficult.
In January 2009, Carol Bartz replaced Jerry Yang as Yahoo!’s CEO. Yahoo! has resumed discussions with Microsoft about search and advertising partnerships as both firms struggle to compete with Google. Yahoo! in 2008 had rejected Microsoft’s unsolicited $44.6 billion offer and then rejected that firm’s attempt to acquire just Yahoo!’s Internet-search business, which is second behind Google in market share. Headquartered in Sunnyvale, California, Yahoo! has offices in more than 25 countries, provinces, or territories. Yahoo!’s revenues from 2007 to 2008 increased by 3.4 percent to $7.2 billion. However, net income decreased by 35.7 percent to $424 million. Yahoo! is the second leading global Internet brand and one of the most trafficked Internet destinations worldwide. Together with its owned and operated online properties and services, it also provides its advertising offerings and access to Internet users beyond Yahoo! through its distribution network of third-party entities, who have integrated its advertising offerings into their Web sites. Yahoo! generates revenues by providing marketing services to advertisers across hundreds of Web sites. Although many of the services Yahoo! Provides to users are free, it does charge fees for a range of premium services. The core of Yahoo!’s strategy and operations is to become the starting point for Internet users; to provide must-buy marketing solutions for the world’s largest advertisers; and to deliver industryleading open platforms that attract developers and publishers. Yahoo! posted a 78 percent first quarter 2009 profit decline and reacted by eliminating another 675 jobs, or 5 percent of its workforce on top of 2,500 jobs cut in 2008. For that quarter, Yahoo!’s revenues dropped 13 percent to $1.58 billion. Yahoo!’s online advertising business is also deteriorating rapidly as the firm’s overall revenue fell 13 percent in the second quarter of 2009 compared to the prior year. For that second quarter, aggressive cost cutting allowed Yahoo! to post a 7 percent increase in profit up to $141.4 million, but the firm laid off another 700 employees to end with 13,000 employees. In July 2009, Yahoo! closed its third video property, Maven Networks, based in Cambridge, Massachusetts. Yahoo! plans to close twenty video services, including its social network site Yahoo! 360 and its Web hosting service GeoCities. The company needs an excellent strategic plan to negotiate a deal with Microsoft or to continue alone.
History
Yahoo! began as a student hobby and evolved into a global brand that has changed the way people communicate with each other, find and access information, and purchase things. The two founders of Yahoo!, David Filo and Jerry Yang, were PhD candidates in electrical engineering at Stanford University when they started this company in a campus trailer in 1994 as a way to keep track of their personal interests on the Internet. Soon these two men were spending more time on their homebrewed lists of favorite links than on their doctoral dissertations. Eventually, Jerry and David’s lists became too long and unwieldy, and they broke them out into categories. When the categories became too full, they developed subcategories and the core concept behind Yahoo! was born. The Web site started out as “Jerry and David’s Guide to the World Wide Web” but eventually received a new moniker with the help of a dictionary. The name Yahoo! is an acronym for “Yet Another Hierarchical Officious Oracle,” but Filo and Yang insist they selected the name because they liked the general definition of a yahoo: “rude, unsophisticated, uncouth.” Yahoo! itself first resided on Yang’s student workstation, “Akebono,” while the software was lodged on Filo’s computer, “Konishiki”—both named after legendary sumo wrestlers. Yahoo! was incorporated in 1995 in Delaware and launched a highly successful initial public offering IPO in April 1996 with a total of 49 employees. Its stock rose to the high of $120 in 2000 but for most of 2009 has been trading under $14.
Yahoo! Segments
Yahoo! offerings include Yahoo! Groups, Yahoo! Answers, and Flickr and are generally provided to users free of charge. Revenue in Communities’ offerings is primarily generated through display advertising. Yahoo! search offerings include Yahoo! Search, Yahoo! Local, Yahoo! Yellow Pages and Yahoo! Maps and are available free to users and are often the starting point for users navigating the Internet and searching for information. Yahoo! generates revenues through its Search offerings from search and display advertising. The Yahoo! Communications segment include Yahoo! Mail, Zimbra Mail, and Yahoo! Messenger and provides a wide range of communication services to users. Yahoo! generates display advertising revenues from these offerings. Yahoo!’s vision and/or mission statement is “Yahoo! powers and delights our
communities of users, advertisers, and publishers —all of us united in creating indispensable experiences, and fueled by trust.” Yahoo!’s code of ethics is embedded in its six values: Excellence, Innovation, Customer Fixation, Teamwork, Community, and Fun. Yahoo! lost 1 percent in rich media revenue, 1 percent in sponsorship, and 2 percent in classified ads in 2008 as compared to 2007. Although the revenue from search increased by 3 percent in 2008 compared to 2007, the increase was due to growth in the entire Internet business rather than a shift to Yahoo!
External Issues
According to technology research firm IDC, there were 1.1 billion Internet users around the world and 211 million in the United States as of the end of 2006 (latest data available). To offer some perspective, the size of the worldwide population of Internet users is comparable to the population of India (estimated at 1.1 billion as of mid-2008, according to the U.S. Central Intelligence Agency), and the size of the U.S. population of Internet users is comparable to the population of Brazil (191 million). Economic growth in the United States and around the world has slowed amid crisis in the housing and credit markets. The prices of consumables, from fuel to food commodities, are near all-time highs, yet the values of personal assets, like homes and property, have fallen dramatically. Add rising unemployment and problematic geopolitics to the mix, and we have a difficult economic backdrop, to say the least. Although Internet-related businesses have perhaps held up better than their non digital counterparts, they have still suffered from macroeconomic malaise. In 2009, a number of Internet content and advertising companies (including Bankrate Inc., Knot Inc., ValueClick Inc., WebMD Health Corp., and Yahoo! Inc.) reported disappointing financial results and lowered their forward financial outlooks. Even Google Inc. expressed economic-related caution in conjunction with its second quarter results, and Internet media and market research firm comScore Inc. expressed concerns about deceleration in online spending growth. Internet advertising revenues in the United States remain strong, topping $23 billion, according to the 2008 Internet Advertising Revenue Report, released by the Interactive Advertising Bureau and PricewaterhouseCoopers LLP (PwC). Despite a difficult U.S. economy, as illustrated in Exhibit 1 to 5, Internet advertising continues to grow, albeit at a slower pace. This trend confirms marketers’ increased recognition that consumers spend more and more of their time online. Yahoo!’s full-year 2008 revenues totaled a record $23.4 billion, exceeding 2007’s performance, itself the former record of $21.2 billion, by $2.2 billion or 10.6 percent. By comparison, a variety of sources indicate weakness in overall advertising spending. The Nielsen Company, for example, reported that U.S. advertising for the full year 2008 was down 2.6 percent compared to the full year 2007. • Fourth-quarter revenues of $6.1 billion mark the first time the interactive (Internet) advertising industry achieved, and surpassed, $6 billion in a single quarter. The figures represent a $154 million or 2.6 percent increase from 2007’s fourth quarter, which had revenues of $5.9 billion. • This is the fifth consecutive year of record results.
Competition
Yahoo! operates in the Internet products, services, and content markets, which are characterized by rapid change, converging technologies, and increasing competition. Yahoo!’s most significant competition, as demonstrated in Exhibit 6, is from Google Inc., Microsoft Corporation, and Time Warner Inc.’s America Online business. Each of these firms offer an integrated variety of Internet products and services. During 2008, Google had 72 percent of Internet traffic while Yahoo! only possessed 17 percent followed by MSN at 6 percent and IACI at 4 percent.
Microsoft
Both a friend and foe of Yahoo! in many ways, Microsoft’s $6 billion acquisition of Quantive Inc., an advertising solutions company, in August 2007 marked an important change. Microsoft lost out in a bidding war for privately held DoubleClick Inc., a digital marketing technology and services company, Microsoft recommitted itself to the category, offering to acquire aQuantive at a massive premium and valuation to ensure that the deal would be consummated. In October 2007, Microsoft purchased a 2 percent stake in social networking firm Facebook Inc., valuing the private company at an astounding $15 billion. Microsoft has an obvious and strong desire to increase its Internet presence.
In early 2009, Google is in talks with the popular micro-blogging site, Twitter, about a possible partnership. Google has expanded well beyond search-related functions into areas such as e-mail (Gmail), mapping (Google Earth and Google Maps), Web-based productivity applications (Google
Apps), video (Google Video and YouTube Inc., which Google acquired in November 2006), a finance offering (Google Finance), a payment service (Google Checkout), a personalized portal offering (iGoogle), a mobile Internet software platform (Android), and browser software (Google Chrome). Google’s pursuit of mobile Internet opportunities has made it one of the main application providers for Apple Inc.’s iPhone. Perhaps more importantly, Google has successfully pushed for more open standards in the mobile space, which will eventually allow users to choose more easily the carriers and handsets they want. As a result of Google’s efforts, the Federal Communications Commission (FCC) adopted flexible access rules for users and wireless resellers in conjunction with the agency’s early 2008 wireless spectrum auction. As illustrated in Exhibit 7, Google commands a good portion of the revenue in the industry and is a formidable competitor to Yahoo! in particular. From its first year of operation as a public company (2004), Google has increased its operating profit to $6.7 billion from a modest $852 million.
Industry Trends
As broadband prices fall, ISPs are pursuing new business strategies, such as bundling Internet access with voice and video services. AOL LLC, a division of Time Warner Inc., shifted its business model from paid subscriptions to a free, advertiser-based portal that is similar to those offered by Yahoo! Inc. and Google Inc. In early 2008, Time Warner indicated that it might look to sell its AOL access business. EarthLink Inc. has indicated that it wants to be a segment consolidator. Each company is committed to attract as many visitors (as Exhibit 8 demonstrates) as possible. The industry, due to its low barrier entry— technical and regulatory—makes the projection of its business viability for existing companies difficult. Due to changes in legislative requirements concerning technology sharing, patent rights, and information security, future expenses and profitability of the companies operating within this industry are harder to predict. Future innovations and shifts in technology also make long-term strategies regarding the Internet and software services industry difficult.
