Reorganizing Yahoo!
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Case Code: BSTR258 Case Length: 24 Pages Period: 2000-07 Pub Date: 2007 Teaching Note: Not Available |
Price: Rs.400 Organization: Yahoo! Industry: Internet and E-Commerce Countries: US Themes: Corporate Restructuring |
Abstract Case Intro 1 Case Intro 2 Excerpts
"We're putting the right people in the right places to execute our focused growth strategy. Yahoo! has an extraordinarily skilled and experienced group of senior executives, and we're adding outside senior talent to this already strong team. Our new structure gives us the opportunity to draw more fully on Yahoo!'s deep bench of talent, both at the new group level and down through the organization, while also increasing accountability, reducing bottlenecks and speeding decision-making. We'll also continue to drive sustained innovation by recruiting, developing and retaining the best talent in our industry."
- Terry Semel, Chairman & CEO, Yahoo, on the company's reorganization program announced in 2006.
"This is just the beginning of what Yahoo! needs to do. It may take all of 2007. Change like this is evolutionary, not revolutionary. The new division heads will need time to grasp the enormity of the task at hand."
- Jordan Rohan, Analyst RBC Capital Markets on Yahoo's reorganization, in 2006.
Introduction
On February 05, 2006, US-based Internet services company, Yahoo! Inc. (Yahoo) moved all its advertisers to a new ranking model called 'Panama,' in order to regain customers, who had shifted to the Google's more popular AdWords. Yahoo's new algorithm and ranking model would rank the advertisements based on the highest bid on search keywords by the advertiser and the number of clicks. Industry analysts opined that with the new model, Yahoo would be in a better position to challenge Google. Panama received encouraging reviews from the customers and the advertisers.
According to Marianne Wolk, analyst at Susquehanna Financial Group, "The early feedback on Panama is strong. Click-through rates are better than expected." In December 2006, prior to the launch of Panama, Yahoo had announced that it was reorganizing the company. The reorganization became necessary as Yahoo found itself unable to generate enough revenues from search related advertising despite being the most visited website on the Internet. Between July 2005 and July 2006, Yahoo's share in total online searches in the US went down from 30.5% to 28.8% (Refer to Table I for share of online searches by engine in July 2005 and July 2006).
In spite of total revenues going up from US$ 5257.67 million in 2005 to US$ 6425.68 million in 2006, Yahoo's net income fell from US$ 1896.2 million to US$ 751 million (Refer to Exhibit I for Yahoo's Income Statement between 2001 and 2006). According to analysts, the problem was that Yahoo was not focusing on any particular product, but was trying instead to cater to different customers through a single portal. Though Yahoo acquired several companies, it failed to integrate them. Even in search-related advertising, which had emerged as a major revenue generator in the Internet business, Yahoo fell behind its competitor Google, which was generating twice as much revenue on each search ad.
The challenges that Yahoo was facing externally were further compounded by the internal turmoil in the company brought about by the complex organization structure and slow decision-making process. Yahoo delayed several product launches as it wanted to focus on Panama, which had been delayed by more than two quarters. Panama was to be launched in the second quarter of 2006 but was not launched even at the end of 2006. Yahoo's problems were reported widely in the media. At the same time, The Wall Street Journal8 published an internal memo that was circulated by a Senior Vice-president at Yahoo, about the lack of focus in the company due to which its resources were thinly spread across several business segments. Within a month, Yahoo introduced a new organization structure, under which the company was reorganized into three operating units, namely the Audience Group, the Advertiser & Publisher Group, and the Technology Group with the focus on the customers, advertisers, and technology. The heads of the three units reported directly to Terry Semel (Semel), Chairman & CEO of Yahoo. Analysts opined that with the reorganization and Panama in place, Yahoo could well be on its way to regaining its lost glory...
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