Industry Environment – PESTLE Analysis
Yahoo! Inc. is a global digital media company. It started off as technology firm but relies on online advertising for revenue.
The company underwent a change in leadership in 2012 by appointing Marissa Meyer, formerly of Google as its CEO after facing a decreasing trend in business. Meyer has since introduced a number of changes to pull the company back on track.
This paper analyses the challenges that Meyer is set to face. It also formulates and proposes strategic options that the company could consider to improve company position.
1. General Environmental Analysis
The framework for the analysis of general industry environment follows a PESTLE analysis format (Newton, 2014).
a. Technological Trends
The internet has become intangible in everyday life touching lives of common man all around the world. Internet use is penetrating lives with its accessibility through PCs and mobile devices. Technology is rapidly undergoing evolution as well. Popular technology used in the industry includes search engines, portals and social networking.
b. Demographic Trends
The market size of the internet services industry has been increasing rapidly with PCs, laptops and mobile devices becoming household. 80% of US households reportedly had a personal computer in 2012.It is the largest market. Africa and Asia were reportedly the fastest growing market in percentage and absolute terms respectively with over billion internet users in 2011.However the internet penetration rate was reported to be 13.5% and 26.2% for the two regions respectively which indicate huge growth potential.
c. Economic Trends
The internet advertising revenue for the US in 2011 was reported to be $31.7 billion. This marked a 22% jump from 2010 catapulting online advertising to a significant role in media. Mobile advertisement sector made a jump of 149% from 2010 to 2011 by achieving $1.6billion revenue. The search related revenue accounted for $14.8 billion which is 46.5% of the total digital advertising revenue whereas display related revenue accounted for 34.8% of the total that is $11.1 billion.
d. Political/Legal Trends
Internet consumer service businesses are subject to cyber laws. The US among others have regulations on internet, mobile and VOIP (voice over internet protocol) which pose limitations and liabilities on businesses. Governments have increasingly been taking into cognizance the possible risks of unfiltered and unfettered network access. There has been a trend towards curtailing privacy and anonymity over the internet.
e. Sociocultural Trends
The increasing internet penetration rate across continents around the globe has led to acceleration of the globalization process. Social Networking sites like Facebook and twitter facilitate global cultural convergence. A study in 2012 reported that average time spent by a user on Facebook per month is 405 minutes (Hitt, Ireland & Hoskisson, 2016).
Porter’s Five Forces Analysis
f. Global Trends
The internet consumer base is a globalized market with Asia and Africa quickly catching up with the western world in terms of technology, internet connectivity and usage. Yahoo is a global brand with its presence in 25 countries however it seems that its presence is weak in Asia and Africa owing to stiff competition from local businesses.
g. Physical Environment Trends
Sharing of information via electronic communication technology has replaced paper as a means of sharing documented information. This could reduce deforestation. However use of technology requires energy consumption which mainly comes from coal, indicating accelerated consumption of non-renewable energy with increasing internet usage.
Analysis of external environment of the industry could be described in the frame work of Porter’s five forces (Dobbs, 2014).
Threat of new entrants and potential competitors:
It held third position with 13.8% of the global market share for search engines and had 177.249 million unique visitors in the US alone in 2012 (Hitt, Ireland & Hoskisson, 2016).It has been able to establish and retain a considerable consumer base. Moreover its main competitors Google, Microsoft and Facebook make for a tough competitive market which is constantly innovating making, although entry into the web portal market, the skill requirement to gather and retain large customer base is hard, making threat of new competitors low.
Threat of Substitute Products:
Yahoo has a number of products and services especially through its web portals. It especially faces little competition for its search engine on web portals such as Yahoo! Finance and Yahoo! News. There are little to no efficient substitute for its products in the web portal sector.
Bargaining power of Buyers:
Yahoo charges little to no fee for its services to its customers and this ensures that its switching cost for users is low. This coupled with the high competitiveness of the industry amounts to medium bargaining power to its buyers who are primarily advertisers, looking to buy ad spaces.
Bargaining power of Suppliers:
Yahoo’s search engine sources, categorizes and presents freely available content on the internet to its customers. It faces huge competition from Google in this aspect. It therefore has considerably low bargaining power over its suppliers.
Existing Competitors:
The internet consumer services market is rapidly changing and evolving environment with rapid development constantly challenging the players in the field. It is highly aggressive and competitive with competitors such as Google and Microsoft who challenge Yahoo in terms of innovation, capital and technological R&D. Although Yahoo has been able to retain a significant market share in the mature markets of western countries, it is yet to tackle the competition that local businesses pose in the growing markets of Asian and African countries.
SWOT Analysis
Microsoft and AOL are its main competitors in the web portal industry. However Google has also sought to enter the market with its iGoogle which customizes portals for its users. The portal business earns money through promoting brands to its users. Therefore traffic acts as an indicator of how well the business works. The internet traffic data for the US in 2012 as per S&P, reveal that Google held first position followed by Microsoft then Yahoo followed by Amazon and Facebook (Wheelen et al. 2017).
By end of 2012 Yahoo reported a workforce of 12000 employees across 25 countries, it operates from. The employee count is ordered in ascending order as, operations, administration, sales and marketing and product development. Based on tenure and designation, employees are regularly compensated in terms of salary and incentives. CEO Marissa Meyers has brought about a number of changes in its internal work environment starting with a thorough review of its employees leading to a layoff of 2000 people in 2012 (Hitt, Ireland & Hoskisson, 2016).It employs its own team in Sales for the US however it employs both external as well as internal sales team in other regions. Its approach to innovation comprises of a combination of acquisition and organic paths.
A major challenge of the company is the establishment of its identity. Yahoo started off as a technology firm. However its main source of income is through digital advertisement which falls under domain of media. This created a discrepancy in company outcome and vision (Wolf & Floyd 2017).
Analysis of SWOT helps to pinpoint pressure points of the organization, aiding strategy formulation (Madsen & Walker, 2015).
Strengths
- Yahoo has presence in 60 countries spanning the Americas, Europe, Middle East, Africa and Asia pacific.
- Wide range of services and products in web portal industry with little available substitutes.
- One of the largest established firms in its industry with strong brand influence.
Weakness
- It is yet to make significant mark in Asian and African markets by failing to compete with low prices of locals and legal regulations.
- There exists a discrepancy in clarity regarding its identity among is employees as a media firm.
- It is vulnerable to economic scenario given its reliance on other businesses for revenue. Any slump which adversely affects its clients in advertisement would cause harm.
Opportunities
- It has a huge potential for growth in Asia and Africa provided that it can penetrate the markets.
- Growing internet usage across the world open up a larger consumer base for Yahoo.
Threats
- Technology is constantly developing by leaps and bounds and this requires competing firms to constantly keep up with the emerging technology.
- Competitors Google and Microsoft present considerable challenge to its business.
Yahoo although has a strong brand presence it has yet to make a mark in Asia and Africa. It is of tantamount importance for the firm to succeed in these emerging market to hold on to its position as a global leader in the industry while beating the competition. In order to achieve this, it is necessary to consolidate an integrated effort by its employees to innovate and produce quality products while cutting cost of operations (Bryson, Edwards, & Van Slyke, 2017). This not only requires talented human resource but also an organized mission and vision plan.
The following set of plans have been developed keeping in mind the strategic goals (Grant, 2016).
- Increase employee engagement by arranging regular meetings and activities.
- Conduct periodic workshops to keep the employees up to date with latest technological developments.
- Conduct periodic brainstorming sessions to boost innovating thinking.
- Establish and propagate a comprehensive vision plan and a mission plan which complements it. Additionally, ensure that people in leadership positions have clear understanding and are on the same page about the company objectives.
- Appoint people in leadership positions who effectively motivate and communicate with the rest.
- Increase business venture in Asian and African markets by incorporating local agencies into its business plan keeping in mind mutual interests of all parties involved.
- Increase workforce diversity to bridge sociocultural gaps which could affect operations in unchartered markets.
- Indulge in strengthening brand value in Eastern markets by engaging in more promotional and charity work.
Conclusion
Yahoo! Inc. has potential and the means for further growth as a business. It is inferred that proper leadership and vision could make significant improvement. Investing in innovation, R&D and collaboration is also a necessary area of contention. Fostering a competitive work culture with motivated and talented employees and leaders is also a necessity.
This could be achieved by consciously engaging in bonding activities and training sessions and ensuring a diverse talent pool. Collaboration with external firms to further strategic goals could also work in favour of the firm.
References
Bryson, J. M., Edwards, L. H., & Van Slyke, D. M. (2017). Getting strategic about strategic planning research.
Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.
Goetsch, D. L., & Davis, S. B. (2014). Quality management for organizational excellence. Upper Saddle River, NJ: pearson.
Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an integrated approach. Cengage Learning.
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2016). Strategic management cases: competitiveness and globalization. Cengage Learning.
Madsen, T. L., & Walker, G. (2015). Modern competitive strategy. McGraw Hill.
Newton, P. (2014). What is the PESTLE Analysis?.
Wheelen, T. L., Hunger, J. D., Hoffman, A. N., & Bamford, C. E. (2017). Strategic management and business policy. pearson.
Wolf, C., & Floyd, S. W. (2017). Strategic planning research: Toward a theory-driven agenda. Journal of Management, 43(6), 1754-1788.
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