Analysis of Yahoo! Inc.’s Internal and External Environment


Entities require effective leadership to remain competitive in a dynamic environment. In modern days, advances in technology and increasing globalization have reduced the efficacy of historical factors in creating a competitive advantage for a company. Internet platforms for instance offer firms cheaper ways of marketing products thus reducing the firm’s expenditure on marketing activities. On the other hand, the Internet has given customers a greater access to information thus enhancing their choice among alternatives. Entities that are keen to succeed in such an environment must thus innovate constantly to provide products that meet the changing customer preferences.

To enhance innovation an entity must create an environment that facilitates entrepreneurial leadership throughout its chart. Cohen (2004) for instance notes that leaders can create such an environment through ways such as empowering their teams and rewarding employee initiative in addition to performance. By empowering teams, members are able to assume a higher responsibility thus remain committed to the firm’s goals. By rewarding employees initiative, leaders can encourage risk-taking which leads to innovative approaches that ensure the entity remains competitive in a dynamic environment (Cohen, 2004). This paper evaluates how Yahoo! Inc.’s (Yahoo) failure to create such an environment has transformed it from a market leader to a minority shareholder in internet marketing and communications industry.

Following the introduction, the paper presents an analysis of the company that includes the background to the company, operations from which the entity derives its revenue, the industry profile i.e. competitors for the entity and the customer base, and the performance of the entity over time. Subsequently, the conclusion will identify the core points noted about the entity and offer an opinion concerning the future prospects of the entity.

Background to the Company

Yahoo was founded in 1994 David Filo and Jerry Yang, who were Ph.D. candidates at Stanford University (Yahoo! Inc., 2005). The founders aim was to make a list of links to enable them to keep track of the websites in which they were interested. As the list grew, it became increasingly difficult to manage hence they decided to categorize it (Notess, 2009). Eventually, the categories were also becoming difficult to manage resulting into subcategories; thus, the concept upon which Yahoo was based developed (Yahoo! Inc., 2005).

Initially the Website created, intended to serve the needs for the two founders, assumed the name “Jerry and David’s Guide to the World Wide Web” (Yahoo! Inc., 2005). Eventually, inspired by a need to redefine the web site as unsophisticated information repertoire, the founders renamed the Website as “Yet Another Hierarchical Officious Oracle”, the acronym being Yahoo (Yahoo! Inc., 2005). Following its hosting, the founders discovered that more individuals were interested in their guide, initially fellow students from Stanford University but eventually the website got hits from a community of internet users who had received information about Yahoo. In the fall of 1994, the entity the entity received its millionth hit and realizing a business opportunity, the founders incorporated the entity in March 1995; subsequently they sought prospective investment from venture capitalists (Yahoo! Inc., 2005).

With initial investment from Sequoia Capital, the founders assembled a management team led by Tim Koogle who previously worked for Motorolla (Yahoo! Inc., 2005). Following a successful start, the entity attracted additional capital from Reuters Ltd and Softbank (Yahoo! Inc., 2005). Eventually, with a plan to expand its operations, Yahoo successfully completed an initial public offer in April 1996 transforming itself into a public entity (Yahoo! Inc., 2005). At this time, it had 49 employees and operated from its headquarters in Sunnyvale, California (Yahoo! Inc., 2005). At the end of 2010 fiscal year Yahoo had 13,600 full-time employees, offered services in more than 25 languages and operated in more than 50 countries and territories (Yahoo! Inc., 2011).

Yahoo popularity increased significantly before the revolution of search engines marketing by Google. It provided users with a way to access their favorite sites easily since it not only listed them hierarchically but also provided a brief description of the link (Notess, 2009). As the Web enlarged, and more advanced search engines were established, the directory approach that Yahoo used became unsustainable, thus it became more reliant on its search engine partners to provide a personalized portal to web (Notess, 2009). Eventually, Yahoo launched its own search engine in 2004 following a purchase (Notess, 2009).

Despite the initial rise of Yahoo, increasing competition and failure to innovate made it lose out to competitors in the market primarily Google Inc. While Google embarked on innovation to focus its search engine-based revenue generation and introduce new products in the market, Yahoo continued diversifying its products to the extent that it was difficult to identify its core business (Carr 2007). Its business model was not well defined unlike that of Google, which focused on search engine revenue, thus enhanced its search engine properties to attract higher traffic (Carr 2007). Although in 2003 yahoo enjoyed higher revenues than Google and its revenues continued to increase, by 2006 it had lost such leadership to Google as its traffic declined while that of Google continued on a gradual increase (Carr, 2007). By 2006, yahoo’s revenue started declining as other market players such as Google dominated the search engine market and other players such as Microsoft entered the market (Carr, 2007). Additionally, Yahoo’s challenges were compounded by frequent leadership changes that prevented it from creating a stable environment to attract core talent (Stone, 2011).

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