Yahoo!’s Rise to Fame, Case Study Example

The earliest symptom that pointed towards a potential problem with Yahoo!’s business strategy was declining traffic. The root cause was better products by the competitors. Yahoo! never evaluated its acquisitions for their core competencies and whether those core competencies could be imitated or even improved upon by the competitors. The management overestimated the power of brand and first-mover advantages and underestimated the importance of user experience. The company itself made the same mistake by forgetting the reason for its own rise in the very first place which was a better search engine than the competitors. Instead of focusing on its strong points and building long term core competencies, the company spread itself too thin. Rather than providing the best services, the company’s goal became the provider of all services under one roof. The company overestimated its ability to leverage the brand into non-search related services and thus, it didn’t pay much attention to user experience, just the user convenience.

The solution for Yahoo! is to build a business model that focuses on building long term core competencies. Google has proven that the only reason it succeeded is because it focused on its core competency which is search and then built upon that core competency to generate revenue opportunities and expand into other areas while maintaining focus on users’ experience. Yahoo! did attract traffic but didn’t take steps to preserve that traffic. Thus, user focus and user experience should become cornerstone of Yahoo!’s business model. First of all, Yahoo! should let different services operate as different business units, possibly with their own separate non-Yahoo! addresses. This will ensure that all business units can focus on their strengths without any interference from the headquarter or other units. In addition, it may make users see those units as specialized service providers instead of just another Yahoo! subsidiary to attract traffic. If we look at successful acquisitions such as YouTube, PayPal, and Skype, the parent companies allowed them complete freedom to continue to focus on their core strengths and maintain separate brand identity. Once Yahoo! and its subsidiaries have locked in users, the advertising revenue will be less cyclical and profitability will increase due to greater business opportunities.

Another symptom of a potential problem was declining revenues. The continuously declining revenues pointed towards the fact that the assumptions behind Yahoo!’s business model were flawed. The management erroneously believed that there was a direct relationship between the internet traffic on its portal and the advertising revenues. It was this very conviction that led Yahoo! to pay huge prices for websites with non-proven business models because it equated traffic with revenues.In addition, Yahoo!’s management failed to anticipate the cyclical nature of internet advertising as compared to other media because it was still in infancy and its effectiveness had yet to be proven.

The solution for Yahoo! is to build revenue streams that are less cyclical. One way is to build a better advertising system that focuses on the needs of the advertisers and provide incentives to the websites to participate in its advertising program. Google succeeded because it focused on advertisers’ needs instead of just focusing on increasing portal traffic. Google also reduced the potential of fluctuations in its revenue streams by tying the economic benefits of the advertisers to their costs i.e. the advertisers pay only if the sale happened and not on the basis of mouse clicks. Yahoo! can also try other tactics to reduce fluctuations in its revenue streams such as offering more fee-based services and focusing on business customers.