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Yahoo! in Trouble

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Case Details:

Case Code : BSTR025
Case Length : 9 Pages
Period : 1994 - 2001
Organization : Yahoo
Pub Date : 2002
Teaching Note : Available
Countries : Japan
Industry : IT

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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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"At the height of the dot-com frenzy in 1999, it would have been impossible to imagine the humbled Yahoo! of today."

- BusinessWeek, May 14, 2001.

The Problems

In November 2000, the top management at the world's most successful Internet portal Yahoo! (Yahoo) was shocked to notice that advertisers on its site were not willing to pay the same rates for the banner advertisements1 as before. Tension mounted further when sources at Morgan Stanley (an investment banking firm and Yahoo's erstwhile supporter) released a report predicting bleak prospects for the company.

In the report, Morgan Stanley downgraded Yahoo's stock from 'buy' to 'outperform' and hinted that the portal badly needed to tone up its management. The same day, Yahoo's share price fell by 15%. By January 2001, Yahoo's board of directors started contemplating a change in leadership in order to tackle the company's problems. However, things only got worse. Yahoo's main source of revenue i.e. advertisement sales were dropping so quickly that Yahoo eventually had to cut its first-quarter forecast from $ 230 million to $ 175 million. Yahoo also began losing key international executives in quick succession. Within weeks six international executives left the company. Prominent among these were European chief Fabiola Arredondo and Savio Chow, the director of Yahoo Asia.

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In the board meeting of February 27, 2001, Yahoo's board of directors unanimously decided that CEO Timothy A. Koogle (Koogle) must step down. However, they agreed to let him stay on as the chairman of the company.

On March 7, 2001, Koogle announced his resignation. Soon, more bad news followed. On April 11, 2001, Yahoo announced that its first quarter (quarter ended March 30, 2001) revenues had fallen by 42% to $ 180 million (Refer Table I). On the same day, Heather Killen, head of international operations put in her papers. By mid May 2001, Yahoo's (once the most sought-after stock at Wall Street) share price had fallen 92% from its all time high of $237.50 on January 3, 2000. To make things worse, the company announced to lay-off 400 people from its 3,500 strong workforce. Investors across the globe wondered what went wrong with Yahoo, which once had a market capitalization of $128 billion - almost double that of media giant Walt Disney.

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1] Banner advertisements appear on web pages within various Yahoo channels. Hypertext links were embedded in each banner advertisement to give users instant access to the advertiser's website, to obtain additional information, or to purchase products and services.


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