Yahoo Business Model: Yahoo was co-founded in 1994 by two Stanford University graduates, Jerry Yang and David Filo (Yahoo Inc. ). The Yahoo business model was to be an information provider and internet search engine, making money from display (banner) and search ads. Was this business model a success? It certainly would appear that this business model has been a success, a company that started out as a hobby for two Stanford students became a recognized global brand, changing the way people communicate with each other, as well as the way they find and access information online.
The company was able to experience rapid growth and secured $2 million of funding from Sequoia Capital in 1995. By 2010 Yahoo attracted approximately half a billion users, or 1 in every 2 people online. The company had 13,600 full-time employees as of December 31st 2010 and 84% of total revenue was generated by display and search advertising. The company has posted in excess of $6 billion in revenue every year since 2006 (Yahoo 2010 Annual Report). The key reasons why the Yahoo business model appears to have been a success: 1. Yahoo provided an extremely simple platform for users to search the internet. . The Yahoo platform was technologically superior to anything that existed at that time. 3. Yahoo was able to secure funding at a very early stage in order to invest in further product development and improvements. 4. The company was able to make a significant amount of money from display based advertising. 5. Yahoo has a strong and talented employee base. 6. Partnerships with MLB, VISA and NFL. External factors likely to have contributed to Yahoo’s success: The founders of Yahoo were certainly helped by the explosion of the internet, the “dot. om bubble” and technology at the time they launched the company; however it could be argued that they had the foresight to see what opportunity the internet would provide in the immediate years following 1994. The explosion of internet use and the technological advancements that brought increased access, faster speeds and the necessary devices to a wide variety of user’s homes certainly would have contributed to Yahoo’s success. Also social changes in attitude towards internet use are likely to have contributed positively to their early growth rates.
The role of the CEO / upper management in contributing to the company’s success: Yahoo’s two founders appear to have contributed to the company’s early success in two key ways. Firstly they incorporated the company in March 1995 and hired Tim Koogle as CEO. Secondly they secured $2 million of investment from Sequoia Capital. However as the business was founded by two engineers, not business students, it appears that they may have grown so rapidly in the early days that they were not ready for the position that they found themselves in.
Yahoo has had a history of changing their CEO and leadership team on a fairly regular basis, appearing to react to shareholder pressure. Terry Semel was the CEO of Yahoo during a period from mid-2005 to 2007 that included Google’s increased presence in this market place and the reduction in the value of Yahoo stock. In June 2007, co-founder Jerry Yang was reinstated as CEO. During this time the President of the company was Susan Decker, who despite agreeing advertising deal with eBay Inc. and playing a major role in Yahoo’s purchase of Right Media Inc. s seen as someone who found it very difficult to implement strategy decisions, made some poor management decisions, as well as advising the Yahoo board to reject a $45 billion bid from Microsoft Corp. to buy the company in January 2008. Finally in 2009 the company instated Carol Bartz as CEO, a position in which she remains today, despite several high profile shareholders and industry insiders describing her as a “lame-duck CEO. ” In recent years the company has continued to face increasing challenges from corporations such as Google and Facebook in terms of competition for online advertising spend.
The recession in 2008/09 also lead to an overall reduction in online ad spend (IAB 2010) which naturally impacted Yahoo. The company also continues to be rumored to a merger with AOL in the press and the long term future for the company certainly appears to be uncertain. What if I had been Yahoo CEO? One of the things I would have tried to achieve as Yahoo CEO was to find a public face for the organization. Companies within the computer industry that have had success appear to have benefitted significantly by having a strong public face of the company.
Examples include Bill Gates at Microsoft, Mark Zukerberg at Facebook and Steve Jobs at Apple. The other thing that I would have tried to address is the ongoing issue of whether Yahoo is actually a consumer or advertising business. If I were Yahoo CEO I would have developed the packages and the services that Yahoo offers. They are also offered by other services providers such as MSN and Google. I think the Mail Box is so important to attract new potential users and it has to be developed with advertising and new services.
Technology plays a vital role; Yahoo should adapt to the changes and innovate considering the trend of the new generation that is going mobile. (mobile softwares and directories etc. ). Moreover, Yahoo has to expand to newer markets such as India and China. The future for Yahoo: The business model for Yahoo has been copied successfully by a number of similar corporations in the past 10-15 years. It could be argued that Google has done a better job of providing internet users with a search engine and have therefore taken more of the search ad spend.
Also Facebook continues to improve its advertising revenue as internet users spend more time on social networking sites. Twitter too is a relatively recent addition to this arena, and is likely to continue to grow in the coming years, giving advertisers another option as to where to spend their money. The increasing use of mobile communication, smart phones and also applications through tablet devices will also change the way that advertisers can reach potential consumers.
I believe that the Yahoo business model will continue to be a success, however the company will continue to feel pressure from their competitors and further technological advances. Sources: 1. IAB Internet Advertising Revenue Report 2010 2. Wall Street Journal, Wednesday January 14th 2009 “Departing Yahoo President Has History of Missteps” Jessica E. Vascellaro & Joann S. Lublin. 3. www. searchenginewatch. com “Yahoo CEO Bartz Survives 2011 Shareholder Meeting” Rob D. Young, June 27th 2011. 4. Yahoo. com 5. 2010 Yahoo Annual Report