Yahoo’s Development. Organizational Research and Theory


Yahoo was founded as a start-up to help provide internet users with directories that would enable users to categories their search using the company’s advanced search options. However, the rapidly changing technological environment of the industry made the human edited directories old as information on the internet increased, making this method of directory building problematic. This case study shows how yahoo developed from its inception and the business changes that the company is undergoing due to the fast-changing business environment. The main problem that can be identified that Yahoo faces is its lack of business focus.

Analysis of Problem

Yahoo’s environment

Yahoo’s external environment had become extensively competitive in the 2000s. The novelty of the business had been lost and with the dot-com bust, the company was facing new competitors like Google and AOL in the search engine business. Companies that provided internet services like MSN, Google, AOL, etc. Allowed customers internet access and email service on a time related fees. Earlier companies charged for each email sent by users. With Netscape, the environment changed and there were free-to-use internet search engines like AltaVista, Inktomi, etc. Yahoo brought in a new service with its unique advanced search directory. The environment was extremely competitive within the ISPs as many were trying to gain as many users as possible to attract the largest number of advertising revenue. Soon the Internet transcended from fee-pay model to free Internet. Yahoo had its business into many internet business areas like search engines, auctions, or portals that sold products like, etc. After the bust, the environment changed completely with the advent of Google. Google was a big threat to Yahoo with its unique business model and social networking sites, which allowed users a lot of customization and personalization. Further, Google made internet advertising and cross-sponsored website advertisements to a new level. With the advent of social networking portals, the internet war reached a new height. Sites like MySpace and YouTube helped users personalize their web pages. Yahoo’s Geocities was an “old hat” technology in the era of new technology-based social networking sites. Therefore, the industry was moving to a new generation of technology in search engines, social networking, and e-marketing, where Yahoo was falling back.

The organizational structure of Yahoo in 2006

The problem identified in 2006 by Yahoo was its content-driven strategy. Yahoo faced problems from other ISPs like Google who were slowly entering areas where Yahoo was a leader like in emailing service. Further internal concern regarding high prized content development arose, thus, shrinking the profit of the company. The main problem identified with Yahoo was its lack of focus on a particular business area.

In 2006, Semel concentrated Yahoo’s focus on search engines as he identified that ISP’s growth can be stimulated through search engines. Therefore instead of having human editors or ‘surfers’ as it had originally, Yahoo now entered into a contract with small ‘crawler based’ search providers who could provide answers to the user queries when its human-edited system failed.

The second strategy that Semel identified was Goole’s success in generating high-volume advertising revenue, by connecting advertisers to the closest search queries, and thus optimizing user clicks on advertisements. The strategy that helped Goole was to customize every advertisement that could drive online transactions. Yahoo adopted a customized advertising strategy, imitating Google. Further, it went into an advertising/marketing alliance with eBay, which allowed Yahoo to create customized advertising on the eBay webpage.

In 2006, the company also underwent a structural change. The change aimed to align the management structure to better fit the business model of the company. The company aimed at increasing its focus on its more successful online services, and stop product development. Further, Yahoo decided to discard the weak products. The new structure had three cores, which would have three chief executives to lead the verticals, and these chief executives would report to the CEO of the company (see figure 1). According to Semel’s restructuring, he would remain to be the CEO of the company, Susan Decker would become the chief operating officer, Nazem would lead the new technology development vertical and another executive will be hired to lead Yahoo’s website audience. The structure was total customer-oriented, as the verticals were made such that the company could directly concentrate on its three main customers (internal and external). The first aimed at satisfying the web users, the second the advertisers through whom the company generated its revenue, and then the internal customers i.e. the technology development team who developed new products to keep the organization ahead of competition. Further, the focus of the company to increase Yahoo usage, increase revenue from advertisements and new technology development has been accentuated through this vertical oriented functional structure.

Yahoo’s structure in 2006
Figure 1: Yahoo’s structure in 2006

Yahoo’s and Strategies for Managing Symbiotic Resource Interdependencies

Yahoo is interdependent on other Internet portals to provide new and up to date content to its customers. Initially Yahoo followed a strategy of acquiring the resources like, Koogle, etc. Then for product bundling, Yahoo used its advanced internet directory to gain more advertisement revenue. The revenue was collected from advertisers based on per click basis. After the advent of Google, the advertising strategy used by Yahoo failed and it started attracting advertisers with its advanced search technology and instant messaging services. Since 2006, Yahoo has gone into a contract with major US newspapers to provide content for the website as well as post job. Even presently, Yahoo has taken over companies like AdInterax and Rich Media to increase its supplier network. Thus, the strategy that Yahoo follows for symbiotic interdependencies are merger and takeover.

Effectiveness of Yahoo’s Managers At All Levels at Analyzing the Environment

The CEO of the company, Semel had rightly identified the areas, which Yahoo had to concentrate on. The main problem with Yahoo, as identified by Semel was its lack of focus, which could be maintained through different forms of strategy. The strategy he devised was to look at them through three core functions of the company i.e. customer orientation, which could be for different business areas, new technology development, and finances and revenue generation. Semel therefore concentrated in making the company an all service portal who concentrated on its users and technology. However, others who believed that downsizing could reduce cost and thus, increase profit was not a plausible option, as it would have made the company lose its stock price as it would have been the second downsizing effort by the company within 5 years. Thus, the strategy to grow through its core business areas and concentrate on the main customers, both internal and external, was the right strategic move and would make the company more focused on its operations.

Yahoo’s External Environment

Key Factors

In the twenty-first century, the internet had reached at a highly competitive platform, where users benefitted from free service providers and ample of information. The key to the success factor in a highly technologically charged industry was to constantly innovate its product offerings and provide content that is fresh and regularly updated. The main features of the environment of Yahoo are its high degree of change and increasing competitiveness.

Pattern of interconnectedness

The e-commerce area had increased the interconnectedness of the internet business with brick and mortar companies. There has been a huge shift of the content providers like newspapers, new channels, etc. to the internet and increase the connectedness of the new medium of information transferring. Further advertisement medium has gradually moved from billboards, radio, and news channels to the Internet and is expected to grow further. Therefore, there is an increased need to connect these revenues with other areas of business in order to generate higher advertisement revenue for the company.

Rapidity of change

The Internet is a fast moving and changing industry, where the industry modes have changed very quickly over the last two decades. Technological change has drove many companies out of business, and is still doing so. Thus constant innovation and new product offerings is very important as customers too have become more demanding due to the changing industry pattern.

The extent and nature of competition

The competitive environment in the industry is very stiff. There are big players in the internet business like Google and Microsoft who compete with Yahoo. The main area of competition arises in the search engine business where Google is the leader. Google has combined a unique combination of innovative technology powered search engine which allows them to reap revenue from advertisements has made their business plan a great success. The present competition in the Internet business is related to search engines and advertising revenue. How can the companies become the preferred search provider with internet users? This factor will increase the revenue that companies earn from advertisers. Further competition is increasing in the area, as even small companies can enter the Internet business, as there is negligible entry barrier in the business. The internet posses high level of competition, easy entry into the industry, and fast changing technology. Remaining competitive in such an industry is important. One strategy to retain competitiveness is innovation. Constant innovation will allow the company to maintain synergy between all its business areas and make its portal the preferred website by users. Further, in a competitive environment retaining old and attracting new customers is very important. Innovating of its products, be it content, search engine or other areas, will allow Yahoo to remain ahead of other companies in order to attain lead in the race. Thus, higher level of innovation will satisfy web users and increase the company’s advertising revenue.


Yahoo started its business with a successful business model and unique product offering. However, the company’s performance dwindled as they failed to innovate and offer new services to users. Increased competition and changing structure of the Internet industry after the bust made the company lose its relevance to competitors like Google. The company’s core business area i.e. search engines was losing revenue and usage to competitors with higher technological standing. Whereas, Yahoo was losing focus as it entered into a more diversified business strategy. Therefore, in 2006, the company underwent a management restructuring in order to retain focus on its core business area, and make the company its position as a preferred entry search provider.


Jones, G 2010, Organizational Theory, Design and Change, 6th edn, Pearson, New York.

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