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Yahoo! Reorganization Doesn’t Address Company Problems: Analysts
Posted On April 16, 2012
Yahoo! is reorganizing the company’s management structure in an attempt to put the company back on track and to stop the decline in the company’s business, but analysts don’t think the changes will mean much. The reorganized company will focus on three major sectors: consumer, which will include media, connections, and e-commerce; regions, which will encompass advertising sales in the Americas and in emerging markets; and technology, which will focus on supporting the company’s own internal architecture, including cloud initiatives and advertising.

The announcement of the changes came just a couple of weeks after the company announced the layoffs of 2,000 employees. The actual changes are scheduled to take place May 1.

“Our new consumer group will be all about creating great, engaging user experience,” Yahoo! CEO Scott Thompson reported in his memo to employees outlining the reorganization. “Our geographic regions will serve our advertisers and agencies and be accountable for all Yahoo! revenue. Our technology teams will provide the advanced infrastructure, technology, and science to enable our consumer group and the regions to deliver our best products and experience into market, at scale, and fast.”

Yahoo! has been battling to maintain its position in the information industry and to maintain its value for its shareholders, but has been losing the battle for some time while rivals like Google have continued to grow, says John Blossom, president of Shore Communications, Inc.

Yahoo! was founded in 1994 by Stanford students Jerry Yang and David Filo. It quickly became the most popular web directory, manually adding new sites to categories. It soon offered search powered by Inktomi, which Yahoo! bought in 2002. In 1996, it started showing banner ads to directory and search users. Yahoo! used Google’s back end for search from June 2000 through February 2004, when it started using its own search engine. In 2009, it announced a 10-year partnership to use Microsoft search technology. It didn’t take long for Google to leap ahead and Yahoo! to continue to lag.

Ken Doctor, media analyst for Outsell and for Newsonomics, says that Google was a one-time rival, butit  has surpassed Yahoo! so far that they aren’t really in the same business any more. Google specializes in search and paid search, while Yahoo! has some search, advertising, and other capabilities, but it hasn’t tried to focus on a particular area of digital media, which has kept the company from growing like others in digital media.

“Yahoo! has been in a constant restructuring mode for several years,” Doctor says. “A few years ago, they competed head to head with Google, but not anymore. They claim to be a media commerce and connections company, but they aren’t top of mind for any one thing in particular.”

Such a lack of focus in hurting Yahoo! in areas like search where the company once commanded a much larger share of the market, according to Blossom and Doctor. Research firm comScore reported in April that Yahoo!’s percentage of the search market continued to decline in March, the most recent reported month. Google had 66.4 % share of all search queries conducted in the month, Microsoft, 15.3 %, Yahoo! 13.7 %, and Ask Network, 3 %. The Yahoo! figure was down 0.1 % from the previous month.

Yahoo! has had multiple reorganizations in the past and the latest shuffle seems to be more of the same, according to Blossom. “Yahoo! is a media company that filed for an IPO a long time ago. The idea was that Web would become the media channel. So Jerry Yang (co-founder and former CEO) was forced out for more ‘real media’ executives who tried to create a property that was more valuable. Those metrics were understandable to shareholders.”

However, those metrics were based on traditional media. Similarly, the new executives were accustomed to working with media properties with predictable revenue streams and had predictable expenses. As a result, they underinvested in Yahoo’s web business, missing out on the evolution of search, geocentric services, social media, and other growth opportunities.

Yahoo! executives have mistakenly approached the business as a traditional media model than as a web model, says Blossom, who likens the evolutionary stage of the internet to that of television in 1960. “The Internet isn’t a cash cow business. It’s a business of continuous destruction and reinvention.”

“Yahoo! was largely a consumer of IT technology and a news source,” adds San Jose, Calif.-based analyst Rob Enderle. “The new organization looks to be ramping up a services unit and will likely go into similar areas as Amazon has with their Web services. Initially, they appear to be a blend of AOL and Amazon’s Web services, which would appear doable.”

However, Enderle says, “the elimination of Yahoo!’s new products group is likely to eliminate creativity, at least for a while. While Yahoo! might eventually move into larger businesses, this isn’t Thompson’s strength, so I’m not expecting much effort or success there in the near term.”

If Yahoo! does introduce any new products, it will be without chief product officer Blake Irving, who decided to leave the company, according to Thompson’s memo.

Blossom expects little advancement for Yahoo! in the near term or for the forseeable future, saying that the announced reorganization is addressing the core of the company’s problem—that Yahoo! is still approaching new media in an old way. The reorganization doesn’t include a new strategy. Blossom recommends that Yahoo! decide on a specific strategy to address a specific portion of the market, much like leaders Google, Amazon, and Facebook have done.

Blossom adds that the job reductions were necessary: “It was necessary to trim the dead wood, they had nothing focused on market presence.”

 “They’re only inventing a more efficient way to do way they already do,” Blossom says. “I’m not sure they are positioned well enough in the marketplace to present their investors with a probable growth scenario. They are basically not positioned against their rivals. They have database and online media, and they do that competently, but haven’t opened any new frontiers. That’s a concern for investors. The scope of online media has grown so much and Yahoo! has done so little to put their finger in that wider scope.”

Blossom adds that Yahoo! has done nothing to take advantage of the growth in mobile communications, while Google and other digital media companies have moved aggressively into the mobile front. Similarly, though Yahoo! acquired Flickr in 2004, it has done nothing to monetize the asset, missing an opportunity to make Flickr more than just a photo sharing service. The photos themselves can provide marketers with important information, which is why Facebook was willing to offer $1 billion for Instagram. But Yahoo! never cultivated Flickr after acquiring it, according to Blossom.

Enderle adds that outside of advertising opportunities, Yahoo! remains largely a consumer-focused company.

Phil Britt is a freelance writer who focuses on high-tech, financial services, and other industries.

Email Phil Britt

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