Yahoo! - Case Study

YAHOO!

Introduction

Yahoo! was created by two Electrical Engineering students from Stanford University – David Filo and Jerry Yang in 1994. At first, Yahoo! was a catalogued websites and it published the directory for free on the internet. The original version was called Jerry and David’s Guide to the World Wide Web. Then it was renamed as Yahoo!, an acronym of “Yet Another Hierarchical Officious Oracle” when Filo and Yang left their studies. The humorous name caused some confusion early on, but it worked in setting Yahoo! apart from traditional companies.

Yahoo!’s Success

Yahoo! was among the very first searchable guides of the internet. The sites attracted hundreds of thousands of web surfers within a year of its introduction (Keller, 2008). The company’s search engine was unique because it have a massive searchable, in addition of standard word features. The dissemination of Yahoo! was fuelled by Netscape decision in 1995 to make Yahoo! the default search engine of his browser. This early attention attracted investors.

Online Advertising

Yahoo! plans to generate revenues through advertiser support in July 1995. The ads were typically rectangular boxes, called “banners”, placed in prominent locations at the top or

bottom of a web page. Yahoo! could deliver a large number of web surfers to its advertisers because the nature of a search engine. Search engine were among the most heavily trafficked sites on the internet. As traffic to the Yahoo! site increased, so did its advertiser base. Between second quarter of 1996 to second quarter of 1997, the average number of times people viewed Yahoo!’s homepage per day grew from 9 million to 38 million (Keller, 2008). Over the same period, the number of Yahoo! advertisers grew from 230 to 900. By fourth quarter of 1997, the company averaged 65 million page views daily and had 1700 advertisers.

Yahoo!’s Brand Positioning

Yahoo! sought to convey fun and irreverent attitude that originated from the personalities of founders, Filo and Yang. Yahoo! went public in April 1996. In order to capitalize on this momentum, Yahoo! hired Black Rocket, a small advertising agency to develop a $10 million awareness-building campaign (Keller, 2008). Black Rocket positioned Yahoo! as a consumer brand rather than a technology company. Karen Edwards (Yahoo! Marketing Director) explained the positioning emerged because:

“…search engine are no longer [just] search engine. We feel more like media companies, providing information via various formats…”

Yahoo!’s Marketing Strategy

Yahoo! began traditional media advertising in April 1996 with a television campaign that was followed by print and radio ads with the introduction of “Do You Yahoo!”. Yahoo! was one of the first internet portal to realize that mainstream media buys were important in

generating new customers that had yet to spend time on the internet (Keller, 2008). The Yahoo!’s marketing effort targeted consumers who intended to use the internet for the first time, referred as “near surfers”. Near surfers tend to be brand sensitive and more brand loyal. Yahoo! integrated marketing program projected a targeted image to different audiences (Keller, 2008). To consumer, Yahoo! associated themselves as Fun, Wacky and Easy to Use; to Financial Analyst – Professional & Well Run; and to Media buyers – Market Leaders & Online Experts. The marketing program measurably increased consumer knowledge of Yahoo!. Many felt that a key to Yahoo!’s success was the consistency if it’s advertising (Keller, 2008). Yahoo! stood out from the chaos by sticking to the same brand image.

Yahoo!’s Transformation

Yahoo! transform from a portal to a destination site where web surfers lingered and stayed to Yahoo! site. The key in retaining an audience was developing a ‘sticky’ site wth appealing content that kept consumer ‘eyeballs’ glued to the site’s page. As the need to expand beyond a search engine portal increased, executives looked to boosts the time spent at the site per user in a variety of ways. This required the addition of onsite offerings such as Yahoo! Finance, Yahoo! Travel, or the Yahoo!-ligans Kids directory, which would keep users on Yahoo! pages.

To bolster its content offerings, Yahoo! began acquiring companies with expertise in other internet services aside from web searches (Keller, 2008). Yahoo’s first acquisition was its purchase of free e-mail provider and directory services Four 11 Corp in October 1997 (Keller, 2008). This enabled Yahoo! to offer its users Yahoo! Mail. The acquisition of

Viaweb in June 1998 enabled Yahoo! to develop more e-commerce capabilities. By acquiring Yoyodyne in October 1998, Yahoo! improved its marketing services for ad buyers.

Yahoo!’s Success

After two years in a tightly contested portal market, Yahoo! becomes the leading internet portals. The company selling ads space to over 900 advertisers. Yahoo!’s success partly because its early entry into the search engine category. Because of Yahoo!’s powerful brand positioning, they have become the first choice for other companies that want to get into the internet.

In 1997, Yahoo! revenues grew by 242% to $125 million, while its stock rose 517% during the same period. By spring 1998, the stock has risen 745% from its IPO and the company become hugely popular when Business Week featured the company on the cover of its September 7, 1998 issue.

Yahoo! Went Global

Even though Yahoo! is trailing behind AOL in terms of unique users in US Market in October 1999, Yahoo! always ranked either first or second in every market it entered (Keller, 2008). Yahoo! had achieved a place among the best of the dot-coms, and now had global aspirations. There are two main areas of Yahoo!’s global growth which is Europe and Asia.

Yahoo! Europe

Yahoo! first moved into Europe in 1996, when it partnered with Ziff-Davis International media group to form Yahoo! Europe. Yahoo! Europe offered specialized content for the UK, Germany and France. By 2000, Yahoo! was the portal with largest audience in Europe where 42% of all internet users visited the site (Keller, 2008). Yahoo!’s primary competition came from European media and telecom companies such as AOL, German ISP T-Online, France Telecom, Spain’s Tera Networks. Yahoo! emerged as one of the top three portals in every market it entered (Keller, 2008). This broad audience attracted advertisers which contributed about $20 million (10%) to Yahoo!’s total.

Yahoo! Asia Yahoo! Japan was launched in April 1996 and become the youngest company ever to go public. Yahoo! saw its share price triple in the first day. This success came partly from the fact that there is almost no competition in Japan. Neither AOL nor MSN had entered the Japan market. After its success in Japan, Yahoo! looked to entered in other countries in Asia. The company introduced native-language Yahoo! Korea in September 1997 (Keller, 2008).

Yahoo! also introduced an English based site called Yahoo! Asia which mirrored the US Home site but afforded Asian user faster content retrieval by being based in Singapore. The company also added a Chinese-language site in early 1998 for China, Taiwan, Hong Kong and Singapore. Yahoo! became wildly popular among Asian internet users. The survey of 30,000 people from nine Asian countries by online survey company, Consult.com revealed that respondents cited Yahoo! as their favourite Internet directory.

Yahoo! Change Strategy

In 2000, the economy began to falter and all Internet company including Yahoo! began to crash. Yahoo! stock fell to 80% during the year. Because of Yahoo! derived over 80% of its revenue from online advertising sales, the bulk of its advertisers were internet companies, their struggle would affect Yahoo!’s revenue. Contributing to Yahoo!’s problem was a low click-through rate. Click through rates plummeted from 2% in 1999 to 1%.

Yahoo! was quick to reassure Wall Street that profit would continue. Yahoo! was reeling from the falloff and in need of a major overhaul. Jerry Yang realized it was time to make a change in the company’s leadership. Yang approached Terry Semel – former COO and co-CEO of Warner Brothers, in 2001. Semel agreed to take the job, but with the provision that current CEO Koogle also step down as Chairman. UBS Wasburg analyst Christopher Dixon said:

“This is a classic example of bringing in adults in to mind the children..”

Yahoo! need to generate more income from non-advertising sources. In 2000, 90% of Yahoo!’s revenues came from advertising. In order to find new revenue streams, the company began charging for some services that used to be free. Yahoo! revenues divided by two categories: marketing services and fees. Marketing services revenues came from growing number of users and advertisers. Fee-based services included internet broadband, dial-up services, premium email, music, personal, and services for small businesses. Through feebased revenues had increase, their percentage of total revenue continued to decrease. To attract more dollars, Yahoo! targeted customers with internet offering services and also charging players in its fantasy baseball league in order to get their team results over a web phone.

Yang and Semel decided to change Yahoo!’s relationship with advertisers and hired a non-tech advertising sales manager, Wenda Millard in late 2001. Millard attempted to add more traditional marketers to its roster of internet advertisers. Yahoo! also revamped its ad sales program by cutting prices, hiring more experienced marketing executives and allowing new ad formats on its sites. The trust and experience that Millard brought to Yahoo! eventually paid off, enabling her to bring new and larger accounts to Yahoo!. Yahoo! provided their advertisers with detailed demographic information about people who clicked on her ads, predicted the probable response rate to the ads on each segment of the portal. Yahoo! also able to predict what time of the day the ads would be effective, and spot potential buyers at various stages of the consideration process. This information was valuable to the advertisers, and they are pleased with the level of information they could get from Yahoo!.

Yahoo! Risk Factors

Many analysts believed there are three primary threats to the Yahoo! which is - competition from other internet-related companies; potential exposure to concerns over aggressive industry online advertising practices; and weak growth in international markets. For users, one negative development of the internet was the rise of aggressive advertising practices, such as spam, click fraud, spyware and adware. Some analysts believed that when combined, these practices could reduce user interest in the internet. Yahoo! believed that in order to grow bigger in international revenues, the company have to extend its core brand by emanating the same wacky vibe that pervaded its yodel-filled domestic ads. Aside from catchy marketing campaign, Yahoo! also set its sights on China – the world’s second largest

online population with 100 million internet users. To take advantage of this expected future growth, Yahoo! announced an agreement with local company Alibaba.com. Many saw this agreement as a positive step for Yahoo! to make a bigger international push.

Yahoo!’s Challenge

Towards the end, Yahoo! worked to add more relationships with other firms and providing new services to both loyal and new users. A developing issue for Yahoo! is that many partners began withdrawing their content, preferring to develop their own online presence. Site like Reuters and New York Times, began removed its story from Yahoo and charge more for its content. The challenge for Yahoo! is to convince content providers that the relationships would be mutually beneficial.

The company also sought to improve its user experience by adding new services and upgrading existing ones such as Yahoo! 360, Flicker, Yahoo! Messenger, and many others. Yahoo! also launched a new version of its email service offering enhanced features and better integration with other Yahoo! services. But Yahoo! financial performance still suffered in 2005 and 2006. In 2006, Yahoo!’s online advertising conditions worsened toward the end of the third quarter as many automotive and financial services advertisers stopped their online as spending due to unfavourable conditions in their own industries. Yahoo! need to deliver better growth or it will risked a further decline in its market valuation.

Questions 1. Describe the sources of equity for the Yahoo! brand. Did those sources change during Yahoo!’s history? If so, how?

The sources of equity for Yahoo! come from the excellent company’s brand building. Yahoo! projected a targeted image to different audiences. By 2000, Yahoo! had awareness levels of 90%. Many felt a key to Yahoo! success was the consistency of its advertising. Yahoo! also have a Positive Image associations - fun, excitement, ease-ofuse, powerful, global, funky, etc; Credible - Building trust within the net consumers; and Customizable - suits your profile; and interactive - override one-way traditional communications.

Yahoo! change its strategy in order to increase its user based and consumer spending time on Yahoo!’s site. Yahoo! became more interactive with the addition of media content, chat groups, instant messaging, mobile capabilities. It is also become more customizable with the introduction MyYahoo! to its consumer. The company also went global and continued to grow a bigger international market. Yahoo! bolster its ability by adding many more corporate services ie. internet marketing, stock market updates, online PR, etc. besides retaining the fun, excitement, user friendly and the element of surprise to the internet user.

2. How did Yahoo!’s marketing program contribute to the company’s success? What changes, if any, would you recommend for the future?

Yahoo! used an innovative and easy-to-use product as foundation for marketing activity. It also decided to built the awareness and image at an early stage, before many competitors were advertising (trendsetter). Besides that, Yahoo! quirky advertising contributes to the reinforced key product benefits and image associations - by doing excellent cross-promotion, licensing, grassroots activity reinforced key values of fun, excitement, user-friendly, etc. in unique ways that enable the company to growth. Yahoo! also sought to improve its user experience by adding new services and upgrading the existing service by doing strategic partnership and joint venture to expand the market.

3. Evaluate Yahoo!’s strategy of selling services. What impact, if any, will it have on consumers’ perceptions of the brand? How can Yahoo! get more people to pay for more of its services? Yahoo! did not rely to its online advertising as a source of revenue. Yahoo! revenues divided by two categories: marketing services and fees. Marketing services revenues came from growing number of users and advertisers. Fee-based services included internet broadband, dial-up services, premium email, music, personal, and services for small businesses.Therefore, this approach is appropriate and less risky in the longterm (brand positioning). The consumer perceptions should be positive as a result of this approach because the brand offers a variety of valuable services and contents (sub-brand). Each sub-brand created to tailor each target market (segmentation). Even Yahoo! began charging for

its services, Yahoo! kept its traditionally free services out of this pricing scheme. So there are some services that remained free.

4. Should Yahoo! work more on growing its international presence, or should it focus on strengthening its domestic position?

How do you defined ‘domestic position’. People all over the world can access the Internet and can retrieve any information borderless. So Yahoo! should work more on growing its international presence besides create contents locally (relevancy and reliability) – such as Yahoo! Malaysia, Yahoo! Japan, Yahoo! Asia and etc. The coverage in Yahoo! site should be relevant to all cultures and markets and thorough to appeal to local tastes. Going global but being local at the same time.

5. What do you think is the biggest risk to Yahoo! at the time of the case? What should the company do about it?

The biggest risk to Yahoo! at the time and in the future is the competition and market developments. Yahoo! revenues are unpredicted with technological developments and quick changes in market dynamics and requirements. Yahoo! should respond by growing its user based to other global market, search for a new sources of revenue for example like China, India and Middle East. Yahoo! also can acquire a media company to expand and further grow. But Yahoo! should avoid the frequent of top management change. It will effects the whole branding exercise ie. 4 CEO’s for the past 2 years. Yahoo! also can renew their branding strategy ie. company restructuring, new technology innovation to compete with other group of company.

Bibliography

Keller, K.L. (2008). “Yahoo!: Managing an Online Brand”, pp. 249-273; “Best Practice Branding Cases in Branding: Lesson’s From The World’s Strongest Brands”. Upper Saddle River, N.J.: Pearson Education.

Yahoo Marketing Mix can be found at http://www.marketingteacher.com/case-study/yahoo-case-study.html

Internal Memo: Yahoo Revamping Global Marketing Strategy can be found at http://www.zdnet.com/blog/btl/internal-memo-yahoo-revamping-global-marketingstrategy/61542

Yahoo! Case Analysis can be found at http://analysees.co.uk/PDF/Yahoo-Case-Analysis.pdf

Yahoo’s Strategy – 6 Reasons Why it Blows can be found at http://marketingbones.com/yahoos-strategy-6-reasons-why-it-blows/

Bibliography: Keller, K.L. (2008). “Yahoo!: Managing an Online Brand”, pp. 249-273; “Best Practice Branding Cases in Branding: Lesson’s From The World’s Strongest Brands”. Upper Saddle River, N.J.: Pearson Education. Yahoo Marketing Mix can be found at http://www.marketingteacher.com/case-study/yahoo-case-study.html Internal Memo: Yahoo Revamping Global Marketing Strategy can be found at http://www.zdnet.com/blog/btl/internal-memo-yahoo-revamping-global-marketingstrategy/61542 Yahoo! Case Analysis can be found at http://analysees.co.uk/PDF/Yahoo-Case-Analysis.pdf Yahoo’s Strategy – 6 Reasons Why it Blows can be found at http://marketingbones.com/yahoos-strategy-6-reasons-why-it-blows/