I. Case Background and Executive Summary
A. Synopsis of Case Situation
This case discusses the many challenges Yahoo! has been facing since the dot.com crash in the early 2000’s. After a duration of strong growth in the mid to late 1990’s, Yahoo experienced a steep fall in revenues and profits due to advertisers cutting back on their spending. Under the company’s first appointed CEO, Tim Koogle, Yahoo had relied heavily on the sale of advertisements to bring in profits. Koogle failed to catch on to the idea that advertisers weren’t planning to increase their spending any time soon and his actions, or lack there of, caused a steep decline in Yahoo’s stock price. Due to this decline, “Koogle was replaced in April 2001 by Terry Semel, an experienced Hollywood media executive who had once controlled Warner Brothers” (pg. C55 in Yahoo! Case Study). Upon accepting the position, Semel devised a plan to lure traditional advertisers back to his site. He began to pursue both the small and large companies that Yahoo had pushed away in previous years by implementing technology that offered “eye-catching animation, videos, and other rich-media formats” (pg. C55 in Yahoo! Case Study). This new technology, along with an increase in advertisement spending for the market as a whole, allowed Yahoo to be successful in their quest for increasing advertising revenues.
Unlike Koogle, Semel decided to take an approach that did not rely on advertising for its revenues. Yahoo began to make acquisitions of companies that offered premium services that customers would be willing to pay for. Some of these companies included HotJobs.com, Musicmatch Inc., Flickr, and Del.icio.us. By acquiring these businesses for a good deal, Semel was able to develop the site into one that offered a broad range of services that consumers were willing to pay a small fee for. Semel was in hopes that the revenue from these newly acquired services would continue to increase over the next few years, which would allow Yahoo to slowly get away from relying on advertising. One of Semel’s biggest moves came in 2002 when he purchased Inktomi, who Yahoo had worked with in the past and who was a strong player in search engines. The company had been looking to Google for these services, but Semel thought it was time to strengthen Yahoo’s own position in the search arena. Shortly after, Yahoo also purchased Overture Services, who specialized in identifying and ranking the popularity of websites and in helping advertisers find the prime sites to advertise on. Overall, Semel had a vision to build Yahoo into a “Digital Disneyland”. The idea was that customers would find themselves in a world full of appealing and somewhat irresistible offers that kept them wanting more. This idea, drastically different from anything Yahoo had worked for in the past, focused on bringing the firm together as a whole to work towards one cohesive site. Before, employees were able to push hard for their own independent ideas, which would not always benefit other aspects of the company, or even the company as a whole. He accomplished this goal by cutting the forty-four business units that Yahoo was currently running, into only five. He also only accepted proposals that were not only going to be profitable, but that would feed into Yahoo’s other units. In the end, in spite of Semel’s great efforts, he had spread the company too thin and had made it extremely difficult to make quick and bold decisions. Yahoo was once again loosing advertising revenues to big players like Google and Facebook.
In July 2007, Semel stepped down as CEO and Yahoo’s cofounder and current “Chief Yahoo!,” Jerry Yang, stepped up to the plate in hopes of increasing earnings and profits. Yang promised to implement a new plan after a quick 100 days of reviewing every aspect of the company and its operations. “As part of this plan, Yang announced a three-pronged new direction for Yahoo. He wanted his...