Course Project 1-Case Analysis Project – Preparation
This activity is the introduction and preparation for the case analysis course project. The draft is due in Unit 6 and the final project is due in Unit 9.
In this course, you will also be expected to complete an individual course project, in which you will demonstrate strategic critical thinking skills by analyzing a business scenario and recommending strategies to help that business move forward towards its goals. In preparation for this 6–8-page paper, complete the following:
· Read the unit introduction, if you have not already.
· Read the Case Analysis course project description.
· Use your text to read “Guide to Strategic Management Case Analysis,” pages 442–450, and “Case 30: “Yahoo! Inc.: Marissa Mayer’s Challenge,” pages 30-1 to 30-12. Note: This case will be referred to as “Case 30” for the remainder of the course.
Guide to Strategic Management Case Analysis
THE CASE METHOD
Case analysis is a proven educational method that is especially effective in a strategic management course. The case method complements and enhances the text material and your professor’s lectures by focusing attention on what a firm has done or should do in an actual business situation. Use of the case method in a strategic management course offers you an opportunity to develop and refine analytical skills. It also can provide exciting experience by allowing you to assume the role of the key decision maker for the organizations you will study.
When assuming the role of the general manager of the organization being studied, you will need to consider all aspects of the business. In addition to drawing on your knowledge of marketing, finance, management, production, and economics, you will be applying the strategic management concepts taught in this course.
The cases in this book are accounts of real business situations involving a variety of firms in a variety of industries. To make these opportunities as realistic as possible, the cases include a variety of quantitative and qualitative information in both the presentation of the situation and the exhibits. As the key decision maker, you will need to determine which information is important, given the circumstances described in the case. Keep in mind that the results of analyzing one firm will not necessarily be appropriate for another since every firm is faced with a different set of circumstances.
PREPARING FOR CASE DISCUSSION
The case method requires an approach to class preparation that differs from the typical lecture course. In the typical lecture course, you can still benefit from each class session, even if you did not prepare, by listening carefully to the professor’s lecture. This approach will not work in a course using the case method. For a case course, proper preparation is essential.
443
Suggestions for Effective Preparation
1. Allow adequate time in preparing a case. Many of the cases in this text involve complex issues that are often not apparent without careful reading and purposeful reflection on the information in the cases.
2. Read each case twice. Because many of these cases involve complex decision making, you should read each case at least twice. Your first reading should give you an overview of the firm’s unique circumstances and the issues confronting the firm. Your second reading allows you to concentrate on what you feel are the most critical issues and to understand what information in the case is most important. Make limited notes identifying key points during your first reading. During your second reading, you can add details to your original notes and revise them as necessary.
3. Focus on the key strategic issue in each case. Each time you read a case you should concentrate on identifying the key issue. In some cases, the key issue will be identified by the case writer in the introduction. In other cases, you might not grasp the key strategic issue until you have read the case several times. (Remember that not every piece of information in a case is equally important.)
4. Do not overlook exhibits. The exhibits in these cases should be considered an integral part of the information for the case. They are not just “window dressing.” In fact, for many cases you will need to analyze financial statements, evaluate organizational charts, and understand the firm’s products, all of which are presented in the form of exhibits.
5. Adopt the appropriate time frame. It is critical that you assume the appropriate time frame for each case you read. If the case ends in 2009, that year should become the present for you as you work on that case. Making a decision for a case that ends in 2009 by using data you could not have had until 2011 defeats the purpose of the case method. For the same reason, although it is recommended that you do outside reading on each firm and industry, you should not read material written after the case ended unless your professor instructs you to do so.
6. Draw on all of your knowledge of business. As the key decision maker for the organization being studied, you will need to consider all aspects of the business and industry. Do not confine yourself to strategic management concepts presented in this course. You will need to determine if the key strategic issue revolves around a theory you have learned in a functional area, such as marketing, production, finance, or economics, or in the strategic management course.
USING THE INTERNET IN CASE RESEARCH
The proliferation of information available on the Internet has direct implications for business research. The Internet has become a viable source of company and industry data to assist those involved in case study analysis. Principal sources of useful data include company Web sites, U.S. government Web sites, search engines, investment research sites, and online data services. This section will describe the principal Internet sources of case study data and offer means of retrieving that data.
Company Web Sites
Virtually every public and private firm has a Web site that any Internet user can visit. Accessing a firm’s Web site is easy. Many firms advertise their Web address through both TV and print advertisements. To access a site when the address is known, enter the address into the address line on any Internet service provider’s homepage. When the address is not known, use of a search engine will be necessary. The use of a search engine will be described later. Often, but not always, a firm’s Web address is identical to its name, or is at least an abbreviated form of its name.
Company Web sites contain data that are helpful in case study analysis. A firm’s Web site may contain descriptions of company products and services, recent company accomplishments and press releases, financial and stock performance highlights, and an overview of a firm’s history and strategic objectives. A company’s Web site may also contain links to relevant industry Web sites that contain industry statistics as well as current and future industry trends. The breadth of data available on a particular firm’s Web site will vary but in general larger, global corporations tend to have more complete and sophisticated Web sites than do smaller, regional firms.
U.S. Government Web Sites
The U.S. government allows the public to access virtually all of the information that it collects. Most of this information is available online to Internet users. The government collects a great range of data types, from firm-specific data the government mandates all publicly traded firms to supply to highly regarded economic indicators. The usefulness of many U.S. government Web sites depends on the fit between the case you are studying and the data located on the Web site. For example, a study of an accounting firm may be supplemented with data supplied by the Internal Revenue Service Web site, but not the Environmental Protection Agency Web site. A sampling of prominent government Web sites and their addresses is shown here:
Environmental Protection Agency: www.epa.gov
General Printing Office: www.gpo.gov
Internal Revenue Service: www.irs.ustreas.gov
Libraries of Congress: www.loc.gov
National Aeronautics and Space Administration: www.hq.nasa.gov
SEC’s Edgar Database: www.sec.gov/edgarhp.htm
Small Business Administration: www.sba.gov
STAT-USA: www.stat-usa.gov
U.S. Department of Commerce: www.doc.gov
U.S. Patent and Trademark Office: www.uspto.gov
U.S. Department of Treasury: www.ustreas.gov
One of the most useful sites for company case study analysis is the Securities and Exchange Commission’s EDGAR database. The EDGAR database contains the documents that the government mandates all publicly traded firms to file including 10-Ks and 8-Ks. A Form 10-K is the annual report that provides a comprehensive overview of a firm’s financials in addition to discussions regarding industry and product background. Form 8-K reports the occurrence of any material events or corporate changes that may be of importance to investors. Examples of reported occurrences include key management personnel changes, corporate restructures, and new debt or equity issuance. This site is very user friendly and requires the researcher to provide only the company name in order to produce a listing of all available reports.
Search Engines
Search engines allow a researcher to locate information on a company or industry without prior knowledge of a specific Internet address. Generally, to execute a search the search
(Pearce 442-445)
Pearce, John, Richard Robinson. Strategic Management, 14th Edition. McGraw-Hill Learning Solutions, 03/2014. VitalBook file.
The citation provided is a guideline. Please check each citation for accuracy before use.
Case 30
Yahoo! Inc.: Marissa Mayer’s Challenge 1
1 At 12:45 a.m. on August 25, 2012, Marissa Mayer, the recently appointed chief executive officer (CEO) of Yahoo! Inc. (Yahoo), sent an e-mail to all employees of the company. The e-mail exhorted them to continue to work hard and keep up their spirits, given the many challenges the company faced.2The e-mail indicated to the employees that their CEO, pregnant and due to deliver her first child in early October, was hard at work at that late hour. Mayer was due to meet Yahoo’s board in mid-September at Yahoo’s headquarters in Sunnyvale, California, in order to present her strategy to turn the company around. The board meeting, originally scheduled for New York City, had been moved to its current location given Mayer’s advanced stage of pregnancy. In recent months, Yahoo had reconstituted its board to admit three members who represented an activist shareholder, seen the departure of its previous CEO amid embarrassing circumstances, suffered the loss of key senior executives, and faced the phasing out of its investment in Alibaba, a Chinese Internet company. After a highly secretive search, Yahoo’s board had convinced Mayer to move from Google (where she was the company’s twentieth hire) to take over the leadership position at Yahoo.3 The Yahoo board, the investment community, and Yahoo’s employees were all eagerly waiting for Mayer’s vision for confronting the company’s challenges.
THE INTERNET CONSUMER SERVICES INDUSTRY 4
2 The Internet was a vast network of interconnected smaller networks of computers, supported by both tangible infrastructure (physical hardware) and intangible infrastructure. In 2012, the Internet was the essential medium for communication and content and its importance to everyday life was regarded as higher than that of the telephone, television, and computer. Companies that provided the intangible infrastructural support to
Page 30-2
the Internet were clustered into segments whose boundaries were rapidly changing and dissolving. Of these clusters, companies such as Google and Yahoo comprised the content and electronic commerce segment. This segment consisted of players who offered search engines and portals to enter and navigate the Internet, as well as a wide gamut of destinations for information and shopping. These players sought to monetize the traffic that passed through their offerings via advertising and transaction fees. Players in this segment often expanded to other Internet segments in order to consolidate their competitive position.
3 Search sites allowed users to find relevant information on the Internet. The quest for companies in this sub-segment was to use technology to offer accuracy and speed to users as a way of differentiating themselves from others. In March 2012, the top three players in terms of market share were Google (66.4 percent), Microsoft (15.3 percent), and Yahoo (13.8 percent). While Google had held onto its leadership position, Microsoft’s Bing (launched in 2009) had taken market share away from Yahoo and a host of smaller players. As per an agreement reached between Microsoft and Yahoo, Bing was to power all of Yahoo’s search offerings by mid-2012. Search sites monetized traffic through banner (display) and keyword advertising.
4 Portals were sites that aggregated content (some of which was their own, while the vast majority belonged to others) in a unified way and were often the starting point for users’ Internet activity. Microsoft, Yahoo, and AOL were the leading portals. However, Google, which was essentially a search site because of its simple interface, offered iGoogle, a customizable portal. Like search sites, portals obtained revenue through advertising, although many of them received transaction fees from several fee- or subscription-based sites that were accessed through the portal.
5 Players in the portal segment attempted to offer an array of destination sites for information, entertainment, and electronic commerce. The goal of these players was to drive traffic to the myriad sites and monetize the traffic via display and click-through advertising, as well as by selling several fee- or subscription-based services. In this sub-segment, competition was intense between pure portal sites and search sites that offered various destination options. The key metric to measure traffic to these sites was the number of unique visitors for a specific period (see Exhibit 1). In recent times, however, advertisers looked at the average time spent by users at a site as a key measure of advertising rates. In this area, social networking sites such as Facebook and Twitter had a distinct advantage over portals and search sites. A 2012 study reported that the average time spent by a user on Facebook was 405 minutes a month and that Facebook alone accounted for nearly 15 percent of the time users spent online, compared to 10.6 percent for all of Google’s sites, and 8.6 percent for Yahoo’s sites.
EXHIBIT 1 U.S. Internet Traffic Data for January 2012 (Top Five)
| Site a | Unique Visitors (Millions) b | Reach Percentage c |
| 187.368 | 85.1 | |
| Microsoft | 179.220 | 81.4 |
| Yahoo! | 177.249 | 80.5 |
| 163.505 | 74.3 | |
| Amazon | 109.997 | 50.0 |
Page 30-3
Source: Standard & Poor’s Industry Surveys: Computers: Consumer Services & The Internet, April 5, 2012.
a Includes various sites owned by the specific company.
b This represents the number of times a site was opened; page views indicates the number of pages opened by a visitor in a site and is also used as a traffic metric. For example, Yahoo reported over 700 million page views in January 2012.
c The percentage of Internet-active individuals who visit the site (one of all the sites owned by a company) at least once during the month.
6 Internet advertising revenues in the United States were $31.7 billion in 20115 (compared to $38.5 billion for broadcast television and $30 billion for cable television), representing an increase of 22 per cent over 2010. An industry expert explained the significance of crossing the $30 billion mark:
This historic moment, with an especially impressive achievement in mobile, is indicative of an increased awareness from advertisers that they need to reach consumers where they are spending their time—in digital media. Pushing past the $30 billion barrier, the interactive advertising industry confirms its central space in media. Across search, display, and digital video, digital provides a wealth of opportunity for brands and consumers. With the proliferation of smartphones and tablets, it is likely that the tremendous growth in mobile will continue as these screens become even more crucial to the marketing mix. 6
7 The fastest-growing segment of Internet advertising was mobile advertising, which totaled $1.6 billion in 2011, an increase of 149 percent over 2010. An industry expert commented on mobile advertising:
The year 2011 saw mobile advertising become a meaningful category. By combining some of the best features of the Internet, along with portability and location-based technology, mobile advertising is enabling marketers to deliver timely, targeted, relevant, and local advertisements in a manner that was not previously possible. It is for these reasons that we see strong growth to continue with mobile advertising. 7
8 In 2011, the 10 leading search and portal companies accounted for 71 percent of total online advertising revenues, while the next 15 accounted for 11 percent. Search revenues of $14.8 billion (up from $11.7 billion in 2010) made up 46.5 percent of total revenues (up from 44.8 percent in 2010), while display-related advertising was $11.1 billion (versus $9.6 billion in 2010) or 34.8 percent. Of the two prevalent pricing models, performance-based pricing (cost per click-through) had been the dominant model since 2006 and accounted for 65 percent of all advertising in 2011.8
9 As reported in Standard & Poor’s Industry Surveys, there were around 613 million Web sites worldwide in February 2012, a significant increase from 285 million in 2011. Several factors were responsible for the growth of the Internet. Chief among them were the increasing affordability of computers and increasing Internet penetration rates. In a virtuous cycle, as component prices fell rapidly, PC manufacturers passed on the price decreases to customers, who in turn increased the demand for PCs, leading to lower prices due to manufacturers’ economies of scale and purchasing power savings. For example, nearly 80 percent of U.S. households owned a PC in 2012, up from 63 percent in 2000, and the vast majority of users had bought a PC or a similar device for Internet connectivity. In 2011, North America had the largest Internet penetration rate of 78.6 percent, followed by Oceania/Australia with 67.5 percent, and Europe with 61.3 percent. However, the fastest-growing market in percentage terms was Africa, and the fastest-growing market in absolute terms was Asia, which had over a billion Internet users in 2011 versus 114,300 in 2000. While the average worldwide Internet penetration rate was 32.7 percent, Asia’s was only 26.2 percent (only higher than Africa’s 13.5 percent),9 indicating the growth potential of this region (Exhibit 2 provides a profile of worldwide Internet usage).
Page 30-4
EXHIBIT 2 Worldwide Internet Usage as of December 21, 2011
| Region | Internet Users | Percentage of Total Worldwide Internet Users | Internet Growth Rate Percentage (2000–2011) | Penetration (Percentage of Total Population) |
| Africa | 139,875,242 | 6.2 | 2,988.4 | 13.5 |
| Asia | 1,016,799,076 | 44.8 | 789.6 | 26.2 |
| Europe | 500,723,686 | 22.1 | 376.4 | 61.3 |
| Middle East | 77,020,995 | 3.4 | 2,244.8 | 35.6 |
| North America | 273,067,546 | 12.0 | 152.6 | 78.6 |
| Latin America/Caribbean | 235,819,740 | 10.4 | 1,205.1 | 39.5 |
| Oceania/Australia | 23,927,457 | 1.1 | 214.0 | 67.5 |
YAHOO’S COMPANY BACKGROUND 10
10 In February 1994, two graduate students at Stanford University in California, David Filo and Jerry Yang, wanted to find a way to keep track of their favorite Web sites on the Internet. As the list of Web sites became larger each day, they began categorizing them into groups and subgroups. They developed a Web site to capture their categorization method and called it Yahoo!, naming it after the dictionary definition of the word: “rude, unsophisticated, uncouth.” Housed in their two computers in a campus trailer, their search engine began to attract the attention of their friends and soon others who needed a way to find Web sites of interest on the Internet. By the fall of 1994, Yahoo recorded its millionth user hit and Filo and Yang realized that they had chanced upon a business opportunity. They obtained venture capital funding and appointed Tim Koogle (a Motorola veteran and Stanford graduate) as the company’s first CEO. Yahoo went public through an initial public offering (IPO) in April 1996. The company offered the first online navigational guide to the World Wide Web and monetized this opportunity by selling advertising space on its site. Soon after its IPO, Yahoo formed Yahoo! Japan and Yahoo! Europe to offer search services to Internet users worldwide. The company grew organically and via acquisitions, to both broaden its reach and generate additional revenue streams.
11 When Terry Semel replaced Tim Koogle as CEO in 2001, Yahoo had 3,000 employees, 24 global properties, and annual revenues of over $717 million. During this time, it had dropped Inktomi as its search engine provider and moved to using the then-startup Google. Semel continued Yahoo’s push to seek new revenue sources by getting into music, blogging, and photo sharing and posting.
Page 30-5
12 Jerry Yang, one of Yahoo’s co-founders, replaced Terry Semel as CEO in 2007. Yahoo faced intense competition from Google in the Internet advertising space and the two companies competed with each other to acquire complementary businesses. A combination of intensifying competition and the global economic slowdown resulted in Yahoo’s first employee layoffs in early 2008 and a second round at the end of the same year. In 2008, Microsoft made a second bid to acquire Yahoo, after its 2006 bid had been rejected. Jerry Yang and Roy Bostock (Yahoo’s board chairman) convinced the company’s board to reject Microsoft’s offer, considering it as undervaluing Yahoo.
13 Carol Bartz replaced Jerry Yang as CEO in 2009. She was charged with turning around the company and toward that goal she announced a search engine partnership with Microsoft, sold several underperforming acquisitions, and discontinued certain services. In addition, Bartz expanded Yahoo’s global presence by making key acquisitions in regions such as the Middle East. However, Yahoo’s revenues declined for the third consecutive year in fiscal 2010 and the company announced further employee layoffs to cut costs. Bartz was fired by Yahoo’s board in late 2011 after failing to turn around the company. She was replaced on an interim basis by Tim Morse, the company’s chief financial officer.
14 In January 2012, the board announced that Scott Thompson, then the president of PayPal, would become the company’s new CEO. Thompson’s tenure was short as he was forced to step down on May 13, 2012, after it was revealed that he had falsified his educational background on his resumé. During Thompson’s tenure, Daniel Loeb, who controlled the hedge fund Third Point LLC, became an activist investor at Yahoo and demanded sweeping changes at the board and top management levels.
15 After Thompson’s departure, Roy Bostock and two other board members stepped down and Fred Amoroso became board chairman. Yahoo appointed Ross Levinsohn (who headed the company’s media business) as interim CEO and began an intense search for a permanent leader. At the July 12, 2012, annual stockholders’ meeting, Daniel Loeb and two of his nominees were elected to Yahoo’s board. On July 16, 2012, the board announced that Marissa Mayer, a senior executive at rival Google, was to be Yahoo’s new CEO. Ross Levinsohn, who had fully expected to be named Yahoo’s permanent CEO, resigned from the company after Mayer’s appointment.11
CORPORATE GOVERNANCE AT YAHOO
The Microsoft Bid
16 On February 1, 2008, Microsoft made an unsolicited bid to acquire Yahoo by offering (in cash and stock) $31 per share, valuing the company at $44.6 billion. Yahoo’s stock price had closed at $19.18 the previous day. When Yahoo’s board rejected the offer, Microsoft increased its bid price to $33 per share.12 Once again, Yahoo rejected the bid, demanding $37 per share (valuing Yahoo at $47.5 billion). In a letter to Steve Ballmer, Microsoft’s CEO, offering the rationale for rejecting the bid, Yahoo stated:
Our Board . . . unanimously concluded that it (the bid) was not in the best interests of Yahoo! and its stockholders. Our Board cited Yahoo!’s global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as its substantial unconsolidated investments, as factors in its decision. . . . We are not opposed to a transaction with Microsoft if it is in the best interests of our stockholders. Our position is simply that any transaction must be at a value that fully reflects the value of Yahoo!, including any strategic benefits to Microsoft, and on terms that provide certainty to our stockholders.13
Page30-6
Carl Icahn’s Proxy Fight
17 After Microsoft withdrew its offer on May 3, 2008, activist investor Carl Icahn (who had invested in Yahoo earlier and owned 4.98 per cent of Yahoo’s common stock) launched a proxy fight to replace all 10 board members with his own nominees at the upcoming annual stockholders’ meeting. Icahn’s intention was to force the sale of Yahoo to Microsoft upon gaining control of the board.14 On July 21, 2008, Yahoo announced that it had settled with Icahn by appointing him to the board and giving board seats to two of his nominees. In return, Icahn agreed to withdraw his proxy fight. He eventually resigned from Yahoo’s board in October 2009 and in 2010 began to rapidly decrease his investment in the company.
Third Point LLC’s Activism 15
18 Daniel S. Loeb, who headed the hedge fund Third Point LLC, began accumulating Yahoo shares in 2011 and by March 2012 held 5.8 percent of the company’s outstanding shares. He began to actively campaign for changes after several unfruitful meetings with CEO Scott Thompson. Loeb was firm in demanding that Yahoo’s strategic direction should be to find ways to monetize the millions of site visitors per month. Rather than focus on pushing Yahoo into new businesses, which was Scott Thompson’s vision, Loeb wanted Yahoo to focus on its media business. He argued that in hiring two executives to the board with a technology background (which Yahoo had done in February 2012), Yahoo was moving away from the media business. In addition, Loeb demanded that the company sell its Alibaba stake as well as its 35 percent stake in Yahoo Japan and use the capital to strengthen its core advertising business. Loeb filed a proxy statement to gather support for his four nominees (three of whom had advertising backgrounds, the fourth was himself) to replace the more technology-oriented Yahoo board members.
“Resumégate”
19 On May 3, 2012, a Silicon Valley Web site reported that Daniel Loeb had written to Yahoo’s board about a possible discrepancy in CEO Scott Thompson’s educational background. Loeb had alleged that Thompson had inaccurately indicated that he had graduated with dual degrees in accounting and computer science, whereas in reality he had graduated with just an accounting degree. Since Yahoo had reported Thompson’s educational background in regulatory filings, this error amounted to a misrepresentation of facts.16 Yahoo’s board admitted that Loeb was correct in his accusations and after an internal investigation, Thompson resigned from the company. Patti S. Hart, a member of Yahoo’s board who took the lead role in vetting Thompson at the time of his appointment, resigned following Thompson’s departure.
20 At the July 12, 2012, annual stockholders’ meeting, Daniel Loeb and two of his nominees were elected to the company’s board. His fourth nominee voluntarily took himself out of the running after Third Point and Yahoo reached an agreement. Exhibit 3 lists Yahoo’s board members.
Page 30-7
EXHIBIT 3 Yahoo’s Board Members
| Name | Member Since |
| Alfred Amoroso (Board Chairman) | February 2012 |
| John Hayes | April 2012 |
| Sue James | January 2010 |
| David Kenny | April 2011 |
| Peter Liguori | March 2012 |
| Daniel Loeb | May 2012 |
| Marissa Mayer (CEO and President) | July 2012 |
| Thomas McInerney | April 2012 |
| Brad Smith | June 2010 |
| Maynard Webb | February 2012 |
| Harry Wilson | May 2012 |
| Michael Wolf | May 2012 |
Yahoo’s Business Operations 17
Products and Organization
21 In 2012, Yahoo was a global digital media company that attracted visitors to its Web site by offering personalized content and experiences and monetized the visits via advertising (81 percent of total revenues in 2011) and transaction fees. The company’s online properties and services (called Yahoo! Properties) were classified into three categories: Communications and Communities, Search and Marketplaces, and Media.
22 Products in the Communications and Communities category included Yahoo! Mail, Yahoo! Messenger, Yahoo! Groups, Yahoo! Answers, Flickr, and Connected TV, and were aimed at enabling users to “organize into groups and share knowledge, common interests, and photos.”18 While some of these services were free of charge and supported by advertising revenue, other services were fee- or subscription-based.
23 Offerings such as Yahoo! Search, Yahoo! Local, Yahoo! Shopping, and Yahoo! Travel in the Search and Marketplaces category were “designed to quickly answer users’ information needs by delivering innovative and meaningful search, local, and listings experiences on the search results pages and across Yahoo!”19 In December 2009, Yahoo entered into a ten-year agreement with Microsoft whereby Microsoft would get a 12 percent share of search revenues and would provide Yahoo with the technology that ran its search engine. The agreement discontinued Yahoo’s existing relationship for this purpose with Google. Yahoo generated revenues from this category via listing fees and transaction fees in addition to advertising.
Page 30-8
EXHIBIT 4 Yahoo! Inc. Revenue Breakdown
| Ex. 4a Revenue Sources ($) in thousands | |||
| 2009 | 2010 | 2011 | |
| Display | 1,866,984 | 2,154,886 | 2,160,309 |
| Search | 3,396,396 | 3,161,589 | 1,853,110 |
| Othera | 1,196,935 | 1,008,176 | 970,780 |
| Total | 6,460,315 | 6,324,651 | 4,984,199 |
| Ex. 4b Revenue by Geographic Segment ($)in thousands | |||
| 2009 | 2010 | 2011 | |
| Americas | 4,852,331 | 4,45,457 | 3,302,989 |
| EMEA | 598,300 | 579,145 | 629,383 |
| Asia Pacfic | 1,009,684 | 1,320,049 | 1,051,827 |
| Total | 6,460,315 | 6,324,651 | 4,984,199 |
24 Products such as Yahoo! Homepage, Yahoo! News, and Yahoo! Finance formed the cornerstone of the Media category, whose goal was to engage users with “compelling content.”20 While the majority of revenues for this category came from advertising, Yahoo! Sports services such as Yahoo! Fantasy Football were fee-based. Exhibit 4a provides a breakdown of Yahoo’s revenues.
25 Yahoo managed its global business geographically, reporting financial results by three segments—Americas, EMEA (Europe, Middle East, and Africa), and Asia Pacific (Exhibit 4b reports financial results per geographic segment). Yahoo sites were in 45 languages in 60 countries.
Sales, Marketing, and Product Development
26 Since advertising was the primary revenue driver, Yahoo organized its sales team into three categories based on the type of customer served. The field advertising sales channel sold display and search advertising to leading advertisers and agencies. The mid-market channel sold advertising to medium-sized businesses, and the reseller/small business channel sold it to regional and small business advertisers. While Yahoo employed its own sales teams in the United States, it used a combination of internal salespeople and external salesagencies in international markets. The marketing team ensured that the Yahoo! brand name continued to be widely recognized and drew traffic to the company’s various properties. Yahoo used a combination of organic and acquisition-driven paths to product innovation. It spent $1 billion in internal product development in 2011 (versus $1.1 billion in 2010 and $1.2 billion in 2009), employing a team of software engineers and forming alliances with universities to improve existing products and create new ones.
Page 30-9
Human Resources
27 When Yahoo announced cuts to its workforce of 2,000 employees in April 2012, it was the sixth major round of layoffs in the last four years. The company’s employee headcount in September 2012 was around 12,000 spread out in 25 countries. Depending on their tenure and position in the organization, employees were compensated by salary, bonuses, commission, and stock options. The vast majority of the employees worked in the product development area, followed by sales and marketing, administration, and operations. Yahoo used a matrix structure where products such as Messenger, Mail, and Yahoo! Finance were the “verticals,” and support functions such as public relations and legal were the “horizontals.” The structure was created during former CEO Terry Semel’s tenure (2001–2007).
Finances
28 Exhibit 5 provides Yahoo’s financial statements for a three-year period, while Exhibit 6 contains summary stock prices for the company. Yahoo had not declared a dividend in its history. A $100 investment in Yahoo stock on December 29, 2006, would have resulted in an investment value of $59 on December 30, 2011, in comparison to $140 for the NASDAQ 100 Index, $99.50 for the S&P 500, and $137 for the S&P North American Technology-Internet Index.
EXHIBIT 5 Yahoo! Inc. Financial Statements Consolidated Statements of Income (Condensed for year ending December 31 in $ thousands)
| 2009 | 2010 | 2011 | |
| Revenue | 6,460,315 | 6,324,651 | 4,984,199 |
| Cost of Revenue | 2,871,746 | 2,627,545 | 1,502,650 |
| Gross Profit | 3,588,569 | 3,697,106 | 3,481,549 |
| Operating Expenses: | |||
| Sales and Marketing | 1,245,350 | 1,264,491 | 1,122,302 |
| Product Development | 1,210,168 | 1,082,176 | 1,005,090 |
| General and Administrative | 580,352 | 488,332 | 495,804 |
| Amortization of Intangibles | 39,106 | 31,626 | 33,592 |
| Restructuring Charges, net | 126,901 | 57,957 | 24,420 |
| Total Operating Expenses | 3,201,877 | 2,924,582 | 2,681,208 |
| Income From Operations | 386,692 | 772,524 | 800,341 |
| Other Income, net | 187,528 | 297,869 | 27,175 |
| Earnings in Equity Interests | 250,390 | 395,758 | 476,920 |
| Net Income (after provision for taxes and income attributable to non-controlling interests) | 597,992 | 1,231,663 | 1,048,827 |
| Assets | |||
| 2010 | 2011 | ||
| Current Assets: | |||
| Cash and Cash Equivalents | 1,526,427 | 1,562,390 | |
| Short-term Marketable Debt Securities | 1,357,661 | 493,189 | |
| Accounts Receivable, net | 1,028,900 | 1,037,474 | |
| Prepaid Expenses and Other Current Assets | 432,560 | 359,483 | |
| Total Current Assets | 4,345,548 | 3,452,536 | |
| Long-term Marketable Securities | 744,594 | 474,338 | |
| Property and Equipment, net | 1,653,422 | 1,730,888 | |
| Goodwill | 3,681,645 | 3,900,752 | |
| Intangible Assets, net | 255,870 | 254,600 | |
| Other Long-term Assets | 235,136 | 220,628 | |
| Investments in Equity Interests | 4,011,889 | 4,749,044 | |
| Total Assets | 14,928,104 | 14,782,786 | |
| Liabilities & Equity | |||
| Current Liabilities: | |||
| Accounts Payable | 162,424 | 166,595 | |
| Accrued Expenses & Other Current Liab. | 1,208,792 | 846,044 | |
| Deferred Revenue | 254,656 | 194,722 | |
| Total Current Liabilities | 1,625,872 | 1,207,361 | |
| Long-term Deferred Revenue | 56,365 | 43,639 | |
| Capital Leases & Other Long-term Liab. | 142,799 | 134,905 | |
| Deferred & Other Long-term Liabilities | 506,658 | 815,534 | |
| Total Liabilities | 2,331,694 | 2,201,439 | |
| Stockholders’ Equity | 12,596,410 | 12,581,347 | |
| Total Liabilities and Equity | 14,928,104 | 14,782,786 | |
| Yahoo! Inc. Summary Statements of Cash Flow (in $ thousands for year ended December 31) | |||
| 2009 | 2010 | 2011 | |
| Net Cash Flow Provided by Operating Activities | 1,310,346 | 1,240,190 | 1,323,806 |
| Net Cash (Used in) Provided by Investing Activities | (2,419,238) | 509,915 | 202,362 |
| Net Cash (Used in) Provided by Financing Activities | 34,597 | (1,501,706) | (1,455,958) |
| Effect of Exchange Rate Changes on Cash & Cash Equivalents | 57,429 | 2,598 | (34,247) |
| Net Change in Cash & Cash Equivalents | (1,016,866) | 250,997 | 35,963 |
| Cash & Cash Equivalents at Beginning of Year | 2,292,296 | 1,275,430 | 1,526,427 |
| Cash & Cash Equivalents at End of Year | 1,275,430 | 1,526,427 | 1,562,390 |
Page 30-10
EXHIBIT 6 Yahoo! Inc. Selected Stock Price Data ($ at close of market)
| Date | Price |
| Jan. 2, 2008 | 19.18 |
| Jan. 2, 2009 | 11.73 |
| Jan. 4, 2010 | 15.01 |
| Jan. 3, 2011 | 16.12 |
| Jan. 3, 2012 | 15.47 |
| Sept. 4, 2012 | 15.74 |
Enter Marissa Mayer
Early Actions
29 Prior to joining Yahoo, Marissa Mayer had a 13-year career at Google, where she held a variety of positions. She was responsible for launching more than 100 products at Google and was a key player in developing Google’s home page. Her last position at the company was vice-president of Local, Maps, and Location Services, where she led the product management, engineering, design, and overall strategy for the Google Maps suite of products.21
30 One of the first things that Mayer did at Yahoo was to announce that she would review every hire that the company made, a practice similar to that done at Google by the company’s two co-founders. While this slowed down hiring at Yahoo, one anonymous company employee was quoted as saying:
It’s gotten a little frustrating. But I can’t say that I blame her. The problem at Yahoo in the past couple of years has been “B-players” hiring “C-players” who were not fired up to come to work and were tolerated too long. I mean nobody good wanted to come to Yahoo. If I am inheriting a mess like that, I’d want to review all the talent that comes in the doors, too.22
31 She quickly instituted a number of changes at the company. Principal among them were a weekly all-employee meeting every Friday afternoon, free food in the company cafeteria, replacement of employees’ BlackBerry phones with a choice of iPhones or Android-based phones, and the launch of a program termed “PB&J,” an acronym for Process, Bureaucracy, and Jams. The PB&J program was to solicit employee input on a variety of things including improving the work culture and increasing productivity. One employee reacted to Mayer’s actions:
While the free food and iPhones are nice, it was the midnight email that finally won my heart. Redundant processes and policy, and bureaucracy, are the worst enemies to innovation and efficiency. Of course, change will not happen overnight. There are so many things that need to improve in order to get us back in the same league as Google and Apple. But I have faith in the company and Marissa. And I truly hope the company will be great again.23
Challenges
32 The privately owned Alibaba Group was one of China’s biggest Internet companies specializing in electronic commerce. In 2005, Yahoo invested $1 billion in Alibaba for a 40 percent equity share. It also handed over the responsibility of operating its Yahoo! China Web site to Alibaba. The two companies began negotiations in 2010 on the future of Yahoo’s investment. Softbank, a Japanese Internet and telecommunications company, had also invested in Alibaba. In addition, Softbank had a 65 percent stake in Yahoo! Japan, with Yahoo owning the rest. Alibaba and Softbank wanted to buy out Yahoo’s stake in Alibaba as well as its stake in Yahoo! Japan. While Yahoo agreed to the Alibaba divestment (it had made no decision on the Yahoo! Japan issue), the bone of contention was in structuring the deal to minimize Yahoo’s tax bill on the capital gains. In late August 2012, Yahoo announced that it would sell half its Alibaba investment immediately for $7.6 billion (resulting in after-tax cash of $4.3 billion) and the rest when Alibaba was expected to go public in 2015.24 The key challenge to Mayer in this area was how to use the proceeds of the Alibaba investment. Early on, she had indicated that she would use the proceeds to make critical acquisitions, but pressure from shareholders had caused her to back off from this position.
33 In addition to the Alibaba issue, Mayer faced the main strategic challenge of establishing Yahoo’s identity as a company. While it had started out as a technology firm, its principal revenue source was currently advertising. However, many Yahoo insiders still regarded themselves as working for a technology company that had a presence in media. Daniel Loeb’s insistence that Yahoo’s best bet was to find a way to monetize its visitor traffic indicated that he wanted Yahoo to morph into a media company. Given Mayer’s technology background and experience at Google, would this morphing play to her strengths? The growing markets were Asia and Africa, regions where Yahoo had only a weak presence. Should Yahoo acquire companies to benefit from growth in these markets? In addition, the Internet was moving to a mobile platform where Yahoo had only a marginal presence. While the mobile platform was showing tremendous growth (albeit from a small base), it was not clear whether it would support traditional revenue sources. Management faced these issues prior to meeting with the company’s board in September.
(Pearce 30-11-30-12)
Pearce, John, Richard Robinson. Strategic Management, 14th Edition. McGraw-Hill Learning Solutions, 03/2014. VitalBook file.
The citation provided is a guideline. Please check each citation for accuracy before use.