WHAT WERE THE REASONS BEHIND YAHOO’S FAILUR

Competitive rivalry- High

Although yahoo has a dozen of competitors when it comes to its internet information
providers, its main competitor is Google. This is because the search engine algorithm which
was used by Yahoo was not as good as Google. In 1998, Yahoo missed the opportunity of
buying the revolutionty algorithm which to be estimated today is nearly $1 million. This
missed opporrunity by

In 1998, Yahoo! is being offered by Larry Page and Sergey Brin the
opportunity to purchase their revolutionary search engine algorithm
for the derisory amount (today) of $1 million. Widely leader in the
field of search engines with its hierarchy directory, Yahoo! do not see
the value of buying this algorithm and lets pass a first opportunity to
get their hands on what has made Google what it is today

However, as time progressed the online world soon began to realize the importance of third-
party online advertising revenue. Google built its own pay-per click service called AdWords
back then, and is now the key reason for Google's rags to riches story. In 2002, Brin and Page
went to Yahoo once again, this time to raise funds worth $3 billion. However, then Yahoo
Chief Terry Semel refused the offer as it looked to again build its own search engine to
compete with Google. Yahoo acquired search engine Inktomi and ad revenue maker Overture
in its mission to build the search engine that would topple Google.

The ffigure below shows the comparison of yahoo and Google stock prices. 
While Yahoo! competes with dozens of various Internet information providers, its main
competition is undoubtedly Google. The Company isn’t in danger of failing financially, but is
clearly at risk of having Google take away market share the same exact way Yahoo! did to
AltaVista a few years ago. Since its introduction to the market, Google has taken
considerable market share from Yahoo! and outperformed the once-dominant Company in
nearly every financial category. 20 Despite the fact that Google’s stock price has slipped
recently on news of various lawsuits related to its recent acquisition of YouTube and
Yahoo!’s impending introduction of its Panama technology, Google’s stock has exhibited
considerable growth over the past few years and shows few signs of slowing. The following
chart demonstrates how Yahoo! and Google’s stock prices have diverged in recent years. As
is evident from Table 2 b

Clearly at this point Google is just a more profitable firm than Yahoo!. Since Google is still a
relatively young company we expect Google to exhibit very high levels of growth – and it has
over the past five years. However, its profitability and efficiency have far surpassed Yahoo!’s
in a very short period of time, in much the same way Yahoo! overtook and far surpassed
AltaVista. While we don’t anticipate Google enjoying the success and incredibly high growth
rates we see now, Google has clearly set itself up well for a prosperous future. Taking full
advantage of Yahoo!’s relative first-mover advantage in the industry, Google has established
an advertisement-based revenue system which allows the firm to operate at much higher
margins than its counterpart. Table 2 illustrates this point well: while the two firms exhibit
nearly identical gross margins, Google’s profit margin, operating margin, return on assets,
and return on equity are far superior to those of Yahoo!. The issue of Yahoo!’s relative
inefficiency and the consequences thereof are further discussed in the Strategic Issues
section.
Recommendations:

 One way that yahoo could compete with google advertisement based revenue
structure was that it should benchmark the system that Google has adopted.  This
way yahoo could easily benefit from Google’s current system which can be used as a
starting point that would help in reducing cost.  A new revenue mechanism is ideally
needed by the organization 

 Yahoo should be able to quickly adapt to the changing trends in the industry. They
should focus on the consumer tastes, this could be done by focusing on yahoo sports
as well as their yahoo finance which can help to grow their traffic. 

 Broadening their marketing services should be their major focus. This will be done by
building strong relationship with online market service provider companies and
making use of research and development in order to stay ahead in competition.

 Since it is becoming difficult to differentiate their product in the market, it should

focus on getting its product in many many places so that consumer’s attention can
be grasped.  This may be accomplished by having deals with new websites to get
their products incorporated or having those deals preploaded on computers. For
instance they could make deal with Del to get the yahoo tool bar installed at a
discounted price.