Yahoo !

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Management 745
Building Effective Organizations

Case of Yahoo!
Yahoo is a company that started back in 1994 as a website directory and evolved into a very well known brand over the years buying into all sorts of new technologies while remaining cast as a search engine making money off advertising. Symptoms of Problems

There were many visible symptoms of the problems within Yahoo. First off, when the dot.com bust hit, Yahoo found itself in dire straits as far as financials are concerned. As time goes by, Yahoo is ever loosing market share to Google as a search engine. More and more people are googling things instead of resorting to Yahoo. Along with people using Yahoo less for searching, user are leaving Yahoo in favor of other sites such as Google, AOL, Facebook, MySpace, and other news/weather websites. At the same time as all of this there is seen a general decrease in Yahoo’s revenues. In an effort to expand and gain market share and realize greater profits Yahoo often goes out and acquires companies – however, they are finding out after the fact that they are paying too much. Finally, the stock price of Yahoo has plummeted and continues to remain at very low levels in comparison to other companies. Identifying the Problems

The first problem identified is that Yahoo’s only source of income is from that of advertising. Yahoo has not diversified its sources of income and is therefore very susceptible to the market’s whims. When things like the dot.com bust happen and companies cut back on advertising (or quit since they went out of business) then Yahoo feels the full force of it. Additionally, if a competitor like Google comes along and can do the advertising better, Yahoo has no other income streams to fall back on. The next problem is that Yahoo cannot seem to get on the leading edge of innovation and instead is buying into new ideas after they have been started and taken off. This inability to be innovative in-house has left yahoo with no other option than to try to buy into innovation which can be costly. Finally, Yahoo started off as a website directory fueled by advertisements. As time went by and the number of websites exploded it would only make sense for Yahoo to move into the search engine business as this is what customers view to be their core competency. However, shortly after inception Yahoo began outsourcing its Search capabilities to third party companies including Google, and now Bing, which is run by Microsoft. This essentially leaves them paying their competitors for something they should be doing themselves. Not only has their Search Engine competency decreased, but they are also falling behind in the dynamics and innovations of online advertising. Analysis of the Causes

The causes of the problems and symptoms of Yahoo vary. First off, with the market troubles due to the dot.com bust many smaller companies reduced their advertising expenses, these smaller companies making up a large chunk of Yahoo’s advertising profits caused a cascading effect of both their income and consequentially stock price to drop. Beyond simply fewer companies desiring to advertise, as Yahoo looses search engine market share fewer and fewer people are using Yahoo to search. The fewer people use Yahoo to search the less income Yahoo gets from its would-be advertisers. This again affects the stock price negatively. As the stock price is negatively affected this decreases the amount of money Yahoo has available to acquire new companies with. This however is amplified by the fact that Yahoo is going out and finding newly innovated companies doing cool new things to bring in customers and paying them large sums of money to take them over. While this works sometimes, Yahoo is finding it is paying too much for these new companies which it also in turn fails to keep innovative. So while they are on the leading edge for a brief period of time, these new companies fall behind due to a certain level of “maintenance” being...
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