Reorganizing Yahoo!

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Case Details:

Case Code : BSTR258
Case Length : 24 Pages
Period : 2000-07
Pub Date : 2007
Teaching Note :Not Available
Organization : Yahoo!
Industry : Internet Portal
Countries : US

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For delivery in electronic format: Rs. 400 (Approx. 9.1 $/4.6 £ /7 €)(Jan '07);
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"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."¹

- 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."²

- Jordan Rohan, Analyst RBC Capital Markets³ 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's⁴ more popular AdWords⁵.

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.

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According to Marianne Wolk, analyst at Susquehanna Financial Group⁶, "The early feedback on Panama is strong. Click-through rates are better than expected."⁷

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).

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1] "Yahoo! Re-Aligns Organization to More Effectively Focus on Key Customer Segments and Capture Future Growth Opportunities," Yahoo Press Release, December 05, 2006.

2] "Yahoo Shake-up to Take on Rivals," http://news.bbc.co.uk, December 06, 2006.

3] RBC Capital Markets, a part of Royal Bank of Canada, is a corporate and investment bank providing a wide range of services and products catering to institutions, corporations, and governments across the world.

4] US-based Google has specialized in Internet search and online advertising. As of December 2006, the company's revenue was at US$ 10.604 billion and net income stood at US$ 3.077 billion.

5] Adwords allows advertisers to place their advertisements in Google's search results. It provides pay-per-click advertising and site-targeted advertising for text and banner ads.

6] The Susquehanna Financial Group is a part of Susquehanna International Group of companies or SIG, which comprises several trading and investment related companies. The company's primary focus is on investment banking, trading, and institutional sales and research.

7] Paul R. La Monica, "Yahoo! Thumps Google on Wall Street," CNNMoney.com, March 05, 2007.