Competition Analysis of Yahoo!

Yahoo Competition

Today’s society relies heavily on the internet. People can spend hours a day on the internet, either for work or pleasure. With all the countless hours on the computer, what are people supposedly doing? Yahoo! desires to be the location that people spend all their time. How will Yahoo! create and sustain competitive advantage? What strategy will best serve Yahoo! on the race to the top between the other firms looking to have a digital theme park? To understand how Yahoo! plans to keep up with the changing economy, the resource-based view strategic model allows the analysis of both the internal and external perspectives of the firm. To create and sustain a competitive advantage Yahoo! should allow for differentiation and focus to its services.

The resource-based view analyzes how the tangible resources, intangible resources, and the organizational capabilities work together to form a competitive advantage. For Yahoo! to have a competitive advantage against other companies with the same goal of the digital theme park, Yahoo! must take advantage of their tangible and intangible resources.

Yahoo!’s tangible resources include financial, physical, technological, and organizational sources. Yahoo! started to turn around financially after Terry S. Semel took over as CEO. Semel brought structure and order to the “spontaneity that drove the firm’s decision during its go-go days” (Shamsie, 2007, p. 792). Yahoo! relied heavily on advertising for revenues of the firm under the old management. After Semel took over, he did not feel comfortable on relying only on advertising. Semel and his Product Council allowed premium services to be offered at a low rate. These low rates and advertising raised the company’s net assets.

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Yahoo!’s physical tangible resources include the company headquarters. After Semel took over, he “moved swiftly to chop down the 44 business units…to 5” (Shamsie, 2007, p. 792). The chopping down of cubicles also relates to the organizational tangible resources. Semel whole new order changed Yahoo! as a whole. The care-free culture turned into a culture with more order and structure. Yahoo!’s newly founded Product Council is made up of a group of managers. These “managers have to make formal presentations to bring up their new ideas in weekly meetings” (Shamsie, 2007, p.792).

On the technological sector of the tangible resources, Yahoo! has search engine and other premium service technology. The search engine technology is from the company Inktomi. “Analysts claim that in terms of technology, Inktomi offers a search engine that is better than most others” (Shamsie, 2007, p. 796). The other premium services include job-hunting, personals, music, games, e-mail, and yellow pages. Yahoo! acquired the job-hunting service from the “buyout of HotJobs.com in 2002…the addition of this premium service has provided a significant boost to the firm’s revenue” (Shamsie, 2007, p.795). Yahoo!’s technology is directly related to the financial market of Yahoo!. As Yahoo!’s technology increased, the revenue of the firm also increased. An advantage in the technological sector that Yahoo! possess is “Yahoo!’s Yellow Pages, which provide them [customers] with the return addresses and driving maps” when searching and typing in area code (Shamsie, 2007, p 797). Semel also made deals with SBC Communications and Verizon Communications to help move Yahoo! into the broadband age.

Yahoo!’s intangible resources include human skills, innovation and creativity, and the firm’s reputation. Semel is the reason Yahoo! turned around. Semel possess human skills that are not imitable. “Semel has also used the deal-making skills that made him a legend in the movie business to land crucial acquisitions and partnerships that would allow Yahoo! to tap into new sources of advertising revenue” (Shamsie, 2007, p. 793). Semel pushed through deals that the old CEO’s could not get. Innovation and creativity sectors include Semel’s organizational views and the creativity that came to the Product Council meetings. The last of the intangible resources is Yahoo!’s reputation. Yahoo! has been around for years, it is known for its free e-mail service, search engine, and its instant messenger. People can pay a little extra for a premium e-mail service that has a larger storage space than the free e-mail. Yahoo! is also known for its free financial pages called Yahoo! Finance, which gives up-to-date information on stocks and bonds.

Lastly, the resource-based view looks at the organizational capabilities which are “the competencies or skills that a firm employs to transform inputs into outputs” (Dess, Lumkin, & Eisner 2003, p.93). Yahoo!’s organizational capabilities are the innovativeness of new and multiple services at one location. Yahoo! is no longer just a search engine, it is a powerhouse of different features that all intertwine together to create this multi-cultural funhouse.

For Yahoo! to gain the competitive edge against the other firms like Google, MSN, and AOL, Yahoo! can focus on differentiation between its products. Porter’s three generic strategies involves overall cost leadership, differentiation, and focus. Overall cost leadership will not help Yahoo! sustain competitive advantage, but the combination of differentiation and focus will allow Yahoo! to outrun the other companies.

Although most of the time, differentiation leads to failure but in Yahoo!’s case with its different interest areas that are already occurring differentiation will lead to success. “A differentiation strategy involves providing unique, high-quality products and services that promote a favorable reputation and strong brand identity and usually command a premium price” (Dess, Lumkin, & Eisner 2003, p.209). Yahoo! already exhibits a strong brand identity since almost everyone in the world would know what Yahoo! is. Google has become one of the leading search engines in only four years because it can search millions of web-pages in milliseconds. Yahoo! can now compete with Google when Yahoo! made a deal with Inktomi for a new search engine. “Inktomi offers a search engine that is better than most others” (Shamsie, 2007, p.796).

Yahoo! has many areas of interest that pertain to all different types of people. Yahoo! offers personal pages, email, financial pages, job-hunting service, etc. For the younger generation, Yahoo! offers on-line games, chatting, and a messenger service. Yahoo! already has differentiated its products, but so have the competitors. Yahoo! needs to obtain unique services that their competitors do not have. One thing that is unique for Yahoo! is the offering of music to its customers. Viewers can go on-line and watch music videos for free or for a fee, without commercial breaks. Yahoo! also differentiates its look to go with the seasons, not all web-pages do this.

Using the combination of differentiation and focus strategies, Yahoo! will be able to focus individually on the different sectors of services. “For companies that pursue focus strategies, the Internet offers new avenues in which to compete because they can access markets less expensively and provide more services and features” (Dess, Lumkin, & Eisner 2003, p.301). As Yahoo! accesses their intangible and tangible resources, managers can figure out which services to differentiate and which services need have a narrower focus. The tangible technological resources are the services that managers need to distinguish as profitable and valuable, and which services are not helping the company succeed in the jump to digital theme park. Semel should allow more focus to the product council meetings, so that managers would be able to get different services recognized. For the digital economy, the combination strategy of differentiation and focus is the best to have.

The company’s resources all working together creates a successful business. Yahoo! demonstrates how a company can use the strategies of the resource based view, differentiation, and focus to obtain a sustainable competitive advantage. As long as Yahoo! uses their tangible and intangible resources efficiently and effectively they will be able to advance and compete with the other companies such as Google, MSN, and AOL.

Tangible Resources:

• Financial- cut costs, advertising, premium services
• Physical- Cubicles
• Technological- Inktomi search engine, HotJobs, yellow pages, other features
• Organizational- Product Council, structure

Intangible Resources:

• Human- Semel’s deal making skills
• Innovation and Creativity- meetings
• Reputation- free services, search engine

Organizational Capabilities:

• Making a digital theme park
• Differentiation and Focus
• Services offered
• Design/Appearance
• Brand Identity
• Reputation

References

• Dess, G. Gregory, Lumpkin, G.T., Eisner, B. Alan. (2007). Strategic Management 3e. New York, NY: McGraw-Hill.
• Shamsie, Jamal. Yahoo!. Michigan State University. Strategic Management 3e. (792-797). New York, NY: McGraw-Hill.