A reluctant and anticipated technical reform disrupted Semel's media strategy.
After several quarters of poor performance, Yahoo finally made a drastic change, but the intensity was not as great as the media had previously speculated.
On December 5th, Yahoo announced a plan for significant corporate restructuring and changes in senior management. According to Yahoo's announcement, starting from January 1st next year, Yahoo will be reduced to three major operating divisions: Advertising & Publishing Division, User Services Division, and Technology Division. In terms of senior personnel changes, Susan Decker will step down as CFO and take charge of Yahoo's core Advertising and Publishing Division; COO Dan Rosensweig announced that he would leave his position in the first quarter of next year. However, CEO Terry Semel, rumored to possibly step down, will continue to lead Yahoo.
Although this adjustment is considered the most intense action since Semel took office five years ago, this reorganization may not represent a strategic direction shift. Stronger execution may be what Yahoo needs the most. A clear signal is that CEO Semel still controls the overall situation, while Susan Decker, seen as Semel's successor, resigned from her CFO position to focus on Yahoo's core Advertising and Publishing Division.
When Semel took office in 2001, he set a strategy for Yahoo to transition from an internet company to a media company. Fairly speaking, this strategy was an excellent choice at the time: Yahoo was already the undisputed king of portals, leading in both revenue scale and media influence. With such momentum and foundation, Yahoo's transition to a media company was entirely rational. In fact, looking back now, this strategy itself has been proven to be a correct direction. Not only Yahoo, but Google is also doing the same thing: seemingly diversifying into various services and increasingly integrating with traditional media.
All problems stem from the sudden emergence of search engines, and Yahoo Search did not succeed. This unexpected development completely shattered Yahoo's established strategy. Google's search engine technology revolutionized the online advertising landscape, transforming Yahoo from a leader in the online advertising market into a follower within just a few years. More importantly, the advertising marketing platform built by search engines was revolutionary — unlike brand advertising, the search advertising marketing platform can offer more precise advertising results and more reasonable allocation of advertising resources. Undoubtedly, the entire market environment has undergone a complete transformation compared to just a few years ago. Although Yahoo's strategic direction is still sound, it needs to reconsider its implementation steps.
Yahoo must succeed in search to continue advancing its overall strategy. The most fatal point is that Yahoo seems to have lagged behind in both execution and technology regarding search, failing to keep up with the overall strategic rhythm. Data compiled by third-party research firm comScore shows that in July 2006, Google accounted for 43.7% of total search queries, while Yahoo accounted for 28.8%, meaning Yahoo received about 60% of Google's search traffic. Based on their Q3 financial reports, Yahoo's total revenue of $1.58 billion was roughly 60% of Google's total revenue of $2.69 billion. However, considering that almost all of Google's revenue comes from search advertising, while a considerable proportion of Yahoo's revenue comes from brand advertising, it indicates that Yahoo's search business does not generate income commensurate with its traffic volume. This suggests that Yahoo's search business still has much work to do in terms of technology and execution, which is precisely one of the main goals of Susan Decker being dedicated to the advertising publishing division as a potential CEO successor.
In fact, Yahoo had already realized this issue. Its original plan was to launch software called Project Panama (Panama Project) this year, but it was ultimately postponed until the first quarter of next year. This software mimics Google's model and is believed to help Yahoo increase its search advertising revenue. Analyst Justin Post from Merrill Lynch stated that the "Panama Plan" could improve Yahoo's technology for publishing network search ads and potentially add $115 million in revenue by the second half of next year.
If Yahoo still fails to reverse its declining trend in search next year, then perhaps Yahoo should seriously consider acquisition or being acquired.