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Scotty, you’re next. Now save Yahoo!
Just a new face as CEO will not ease Yahoo!’s “pain”. Selling chunks of it, giving it a stronger identity and marketing the web property may. But chances are: even these may not be enough?
Issue Date - 02/02/2012
It was a rather difficult day in the life of a CEO. The date: September 6, 2011. Carol Bartz, the-then CEO of Yahoo!, was to board a flight from California to New York City, where she had been invited as a speaker at Citi’s Technology summit. She also had a meeting lined-up with Roy Bostock, Chairman of Yahoo! at a restaurant at the NYC airport that evening at 6. The agenda was unknown to her. A brief but severe tropical storm (“Lee”) swept across New York (and other States along the East coast) that day, delaying her flight by several hours. The meeting with Bostock never took place.

At six past six, while going through the script of her speech for the summit, Bartz gave Bostock a call. When the call got connected, Bostock immediately started reading out a lawyer’s statement meant for Bartz. Minutes later, Bostock had finished his script. Bartz asked for no explanation. The lady who had battled with cancer for the past 20 years, had been fired. Her speech at the Citi event the following day never happened.

Despite all the talk of praise in Silicon Valley about Bartz’s ambitious struggle to set a troubled Yahoo! house in order, reality was, only a tiny fraction of the tech-doctor community believed in the mirage she trusted was an oasis. Some considered her firing unjustified, given that Bartz had created $4.36 billion for Yahoo!’s shareholders from a dying dodo of a property (something unseen during the tenure of her predecessors: Terry Semel and Jerry Yang). But some argued otherwise. They had their reasons. During her tenure, she had fired over 5% of Yahoo’s staff, yet the company remained an overstaffed one as compared to industry peers (compare Yahoo’s revenues per employee ratio of $464,705, to Google’s $935,157 or Facebook’s $3,558,333 or even the much-forgotten AOL’s $512,969!). She did cut costs, but revenues continue to fall (from $7.21 billion in FY2008, Yahoo!’s topline fell to $6.46 billion in FY2009 and to $6.32 billion in FY2010). She did close down non-performing properties like Yahoo! Personals and GeoCities sites, reduce product development costs (opex for FY2010 fell 42.81% to $2.92 billion as compared to FY2008), but Yahoo! continued to grow in ‘unattractiveness’ for advertisers & users alike. It still does.

Under such a circumstance, optimism is an unlikely emotion. But as Yahoo! stumbles and the board of management fumbles from one likely saviour to another, newly appointed CEO Scott Thompson (who joined office on January 9, 2012), is forced to believe in a rare opportunity. Can he manage the stage trick? And if yes, what are the strategies he must adopt to make his way through the sandstorm?

From getting close to touching an m-cap of $100 billion in the summer of 2000 ($95.84 billion), Yahoo has lost much goodwill in the eyes of its stakeholders. A dozen years is a long time. Today, Yahoo! Search, Yahoo! Messenger and Yahoo! Mail are not much talked about. Newcomers like Google Mail, Google Search, Facebook and Twitter, with stronger identities have undone what Yahoo! tried to build over time. Two types of companies rule the world of online technology in the current times. One is the league of young companies led by geeks (Facebook, Twitter, LinkedIn, Groupon, et al), the other – 800-pound gorillas led by capitalists (like Google, Amazon, Microsoft et al). What confuses most is – where does Yahoo lie on the chequered board? Thompson’s first and foremost task is to therefore infuse some identity into a not-so-young, 16 year-old company. It is unlikely though that he can ease Yahoo!’s pain easily. He has no experience in media and marketing (which Yahoo! desperately needs to reestablish its identity), and his data-crunching experience at PayPal will do the Internet giant no immediate good. [Keeping this in mind, perhaps an insider like Ross Levinson, VP at Yahoo! Americas, would have been better positioned to revive Yahoo!, given his long experience in the world of online media marketing.] But if numbers is what he is comfortable with, then he can start with an attempt to monetise the traffic that is found on the company’s web pages. 700 million unique monthly visitors (equivalent to that on Facebook’s user base) is serious business, and Thompson can use this as a bait to fish-out advertising dollars.

Captain Scotty’s second task is to seal the leaking revenue tank at Yahoo! (from $7.2 billion in FY2008, the company’s revenue is expected to touch $4.6 billion in FY2012; estimates by Zacks Investment Research). Should not be a difficult task when you are talking about the third-most visited online property in the world. But numbers aren’t on his side. From 15.9% in 2011, Internet advertising is forecasted to occupy 21.2% share of the global ad market by 2014 (Dec 2011 report by Zenith Optimedia). Growth there is expected for the overall market, but not so for Yahoo!. To command a worthwhile share in the Search ad market – which accounts for the majority share of the online ad market (49%) – will prove an ever-growing challenge for Yahoo!. The company’s hold on this platform has continued to slip in recent years. From 19.4% in 2005, Yahoo!’s share fell to 13.7% in 2009 and in 2012, is expected to reach 6.5%. Using a Polynomial Regression Analysis (see chart on page 27), B&E forecasts that if the current trend continues, Yahoo!’s share will be reduced to just 1% by 2016. And of course, Google (76.6% share in 2012) and Microsoft (11.1%) will thrive at the cost of the Sunnyvale team. Even in the Display ads category (which accounts for 37% of the online ad market), tomorrow won’t be easy for Yahoo!. While Facebook’s and Google’s shares in display ads are expected to increase (from 7% in 2009 to 19.4% in 2012 & from 4.5% to 12.3% respectively), that of Yahoo! is predicted to fall (from 15.8% to 12.5%). Google has emerged as one of the strongest players in the display ad format, pushing aside Yahoo!, with its Google Display Network (GDN) that it successfully sold into the SMB segment. Talking on this, Terry Ruffolo, Director - Multimedia Production at Zacks Investment Research, tells B&E, “While Yahoo! remains strongly positioned with many big spenders, it could only be a matter of time before Google’s GDN gains ground in this segment as well. Particularly so, since using the GDN helps lower the cost per acquisition, which is an important factor for advertisers looking to spend money online.” In other words, Yahoo! has to copy the GDN model. This investment will also work in Yahoo!’s favour in the long term, since display is expected to over Search ads as the #1 driver of online ad spending starting 2015.


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