Problem 5: The Search Engine Dilemma

Yahoo’s environment analysis

Task environment

Customers

In our case customers are Internet users. Considering customers’ satisfaction, we estimate it highly:

– In 1996 18 Yahoo’s portals could be accessed by users in twelve languages;

– Yahoo contributed to the development of e-commerce;

– They continuously developed and expanded the range of content and services such as email, instant messaging, news, stock alerts, and job placement services that attracted more users;

– It often acquired well-known Internet companies to increase the value of its portal to users;

But at the same time customers have low brand loyalty, therefore the company has to offer content which meets the user’s needs to a very high degree.

Competitors

In the 2000s Yahoo’s competitors like Monster.com, MySpace, and YouTube emerged and in a few years became dominant portals in providing a particular kind of online application. The strongest competitor is Google. Nowadays Google is still winning Yahoo users over to use its web search and other services. 

Suppliers

– Netscape. Yahoo had limited hosting capacity and borrowed server space from Netscape;

– Google. Yahoo cooperated with Google and paid it for the volume of search questions;

– Inktomi. Yahoo dropped Google’s search engine service and rolled out its own by Inktomi.

Distributors

– ISP (Internet Service Provider) - ISP provide population with Internet access;

– Software producers;

– EBay. In 2006 Yahoo and EBay formed a marketing advertising alliance.

General environment

Demographic forces

Yahoo increased its value by advertising message considering specific demographic groups like sport fans, teens, or investors. It also customized to the tastes and needs of local users.

Technological forces

– First analog of directory allowed to search for the information faster;

– 18 portals operating outside the US;

– 200,000 individual websites in over 20,000 different categories;

– Internet shopping portal Yiaweb - Yahoo Stores in 1998.

Economic Forces

– Due to economic recession stock prices fall;

– Decrease in price of Internet services leads to high amount of users. 

Problems:

Problem 1: Dramatic fall in stock price

In 2002 Yahoo's stock had plummeted to just $9 a share from 237$ in 2000. It happened due to dot.com bust, which sent many e-companies into bankruptcy. The second major cause is that Yahoo’s business model was mostly based on advertising. For instance, Ebay’s stock price didn’t fall during this economic downturn, because its business model wasn’t totally dependent on advertising.

Problem 2: Acquisitions are not efficient and effective

Another mistake of top management was that many acquisitions of Yahoo (GeoCities, eGroups, Yahoo’s video service) weren’t efficient. The problem is that all these companies were dependant on Internet advertising. Internet is constantly widening, and everyday thousands of new web-sites are being created. Technological advances allowed to provide similar Internet services as Yahoo did, so web-sites, such as Monster.com, MySpace.com, YouTube.com became more popular than Yahoo’s similar services.

Problem 3: Constant losing of market share

Google shows modest gains, while Yahoo continues to lose the ground. Google invests a lot into search engine technology, which gives new applications that makes user’s life much easier. Google’s search engine outperforms other search engines and that is why Yahoo is losing the search engine war.

Problem 4: Problems with a Content-Driven Strategy

Yahoo’s content-driven strategy is becoming less productive with time, because social networking portals (Facebook, MySpace) and Google are taking away Yahoo’s users. Yahoo’s strategy is described as “spreading peanut butter” across opportunities. They don’t focus on nothing in particular and have wide range of different services. Investments are spread among numerous services and that is why are not efficient. Nevertheless, Yahoo’s services covering sport, entertainment and finance are very popular. Even Google can’t compete with Yahoo in these fields.

Problem 5: The Search Engine Dilemma

Top management of Yahoo made a major mistake with search engine issue. Yahoo was always searching for the best search engine. They started with AltaVista, then gave a contract to Inktomi, and finally, they used services of Google. Yahoo’s management lacked forecasting skills. Yahoo had a wonderful chance to buy Google, when its stock prices soared amazingly. But it didn’t use this chance. At least, Yahoo could create its own search engine to eliminate all possible threats.