Remote Environment Analysis
Yahoo faces the usual Internet policies that differ from nation to nation. The privacy regulations are perhaps the biggest hurdle Yahoo must face, although America’s policies are fairly simple to abide by. According to privacyrights.org “…the Internet remains largely unregulated and the policies governing it underdeveloped. Laws concerning online privacy are still being developed. To date, the U.S. Supreme Court largely has taken a hands-off approach to regulating the Internet and online privacy in favor of free speech.” (privacyrights.org) Again, the biggest problem is the multiple rules and regulations instated by different countries, especially privacy laws. Regulations from state to state are also an issue for Yahoo. Because of the conflicting regulations from state to state, the Federal government will likely have a hard time with general regulation.
According to the Council on Foreign Relations, there are 5 important economic trends forming in 2012:
1. Political polarization
2. Global volatility
3. Investors searching for safe assets
4. China’s Rise Under Stress
5. Shortage of AAA Assets (cfr.org)
These trends in conjunction with the current recessive state of the economy and inflation rates will likely affect Yahoo in lower revenue from advertisers, although bargaining with programmers may produce lower expenses thanks to the unemployment rate and the decreased supply (thus increased demand) of jobs.
The national debt is a factor that should not be ignored. This will affect Yahoo in terms of potential subsidies and bailouts.
SOURCE: Data from the Congressional Budget Office, The 2012 Long-Term Budget Outlook, June 2012. Compiled by PGPF.
The use of Yahoo and the internet in general is increasingly being viewed as having a negative impact on the nation.Dr. Adi Jaffe, writer for Psychology Today states: “1 in 3 people consider the Internet to be as important as air, water, food and shelter. Given how intensely people feel about this technology, is it any wonder that some psychologists are convinced that Internet addiction is a real pathology?”
In Korea, a country where technology is deeply enmeshed in the culture and Internet cafes abound, Internet addiction is considered one of the country’s most serious problems. In the last decade, many people have died after marathon sessions of playing online video games, presumably from exhaustion and lack of nutrition, as they ignored their basic needs so they could continue to play a game.
In America, current estimates are that a child between the ages of 8-18 uses media (tv, books, computers, mp3 players and video games) nearly eight hours a day, while extreme users spend up to 12 hours a day with media, every day of the week.
He explains that Internet addiction is both real and detrimental, and that intervention should take place as soon as the problem is identified. (psychologytoday.com)
Perhaps the most vital element to a Yahoo is its technological function. What is unfortunate to the company is the developing trend of increased users of the iGoogle function. (Ulanoff)
One trend that is good news for the company is this: The imminent decline of social media. “Facebook will break the 1 billion user mark in 2012, but its numbers have flattened out in the U.S. Twitter is growing; it may have as many 450 million users, but no one knows how many people are really active users. Google+ is growing steadily, but is still well behind the two most established networks and much of the public is unaware of its existence. There is the now persistent, with good reason, backlash against mobile phone usage in cars and on streets.” (Ulanoff) Another beneficial trend is the continuance of the tablet and smart phone trends. Although these trends may be considered neutral to some degree because they provide the same benefits to other search engine companies, they do certainly benefit Yahoo in that the continued improvement of these devices solidifies the use of their site.
Industry Environment Analysis
Threat of Entry
Requirement of time and capital
The costs associated with entering the search engine market are quite high.
One would require millions of dollars of capital to develop a site similar to Yahoo! The amount of time it would take to gain market share is another factor that creates a substantial barrier of entry.
For new entrants brand loyalty is a strong entry barrier. Yahoo, as well as its competitors, has a strong following of individuals who are satisfied with the brand and accustomed to utilizing its services. A new entrant would have to offer a service with a uniquely structured system that is somehow more appealing; more useful to the target market. This is a market that is constantly changing to keep up with consumer demands. These companies have the resources and experience to do this. A new entrant would be at a decided disadvantage in developing brand recognition in such a well-established market.
Absolute Cost Advantage
In this particular market, new entrants have to possess an absolute cost advantage over their competitors. There are only a select few individuals and organizations in the world with the amount of capital and time needed to create a strategy and structure that would operate in a more efficient, cost-effective way than Yahoo and their competitors.
Economies of Scale
The threat of new entrants in the search engine market is very low. Competitors such as Google, Bing, and Ask have numerous worldwide servers and have integrated a large amount of data in regards to user personalities, preferences, and habits. This level of intelligence in the market would take years to replicate, and the level of service provided by these companies would be hard to match, let alone surpass.
Consumer Bargaining Power
The bargaining power of customers is quite high.
Availability of substitutes
Unfortunately for Yahoo There are a large number of substitutes in competition with them. Google is perhaps the most obvious; Bing and Ask are as well.
There are many sites that offer the same services that Yahoo does, but in a more specialized fashion (You Tube and Wall Street Journal for instance). These companies give the consumer a large and varied amount of alternatives to Yahoo, thus increasing their bargaining power.
The switching cost of Yahoo customers is very low, because most of the services offered are free to begin with.
Supplier Bargaining Power
The bargaining power of suppliers is low.
Quantity of Suppliers
There are thousands of programmers in the market; if a contract or some other form of deal falls through there is a large supply of programmers eager to replace them. Because there is such a large number of programmers and companies offering programming services, the bargaining power for the suppliers is diminished.
Threat of Substitutes
Perhaps the greatest substitute threats outside of its immediate domain are social networking sites such as Facebook, Linked In, Digg, and Pinterest. These sites are likely to take away a large amount of revenue and market share from search engine businesses due to the fact that they provide a more direct avenue to target consumers. These sites hold a very specific set of information about each individual, and these users typically log on and view their account (thus ads on their account) daily. Advertisers are beginning to use social media sites more because of these characteristics. The rise of social networking sites pose a strong threat to Yahoo.
The level of competitive rivalry is very high.
Yahoo would lose millions, perhaps billions to quit the business. They have built upon their goodwill, level of service, brand value, and business model for over a decade.
Again, Google is certainly Yahoo’s strongest rival. Their presence and current market share indicate that they have become the leading force in this market. Yahoo is second to Google.
SOURCE: Data from finance.yahoo.com
This chart shows the two competitors compared with the S&P Index. Google is outperforming the index, while Yahoo is falling significantly short.
Burtless, Gary. “Five Economic Trends to Watch in 2012.” Council on Foreign Relations. N.p., n.d. Web. 20 July 2012. http://www.cfr.org/economics/five-economic-trends-watch-2012/p26903.
Jaffe, Adi. “Internet Addiction—Epidemic or Fad?” Psychology Today. Web. 12 Jan. 2012. <http://www.psychologytoday.com/blog/all-about-addiction/201111/internet-addiction-epidemic-or-fad>.
“Online Privacy: Using the Internet Safely.” Privacy Rights. N.p., n.d. Web. 20 July 2012. https://www.privacyrights.org/fs/fs18-cyb.htm.
Pearce, John A., and Richard B. Robinson. Strategic Management: Formulation, Implementation, and Control. 12th ed. Boston: Irwin/McGraw-Hill, 2000. Print.
“The External Environment.” Principles of Management: The External Environment. N.p., n.d. Web. 19 July 2012. http://www.cliffsnotes.com/study_guide/The-External-Environment.topicArticleId-8944,articleId-8859.html.
Ulanoff, Lance. “Trending Stories.” Mashable. N.p., n.d. Web. 20 July 2012. http://mashable.com/2011/12/27/5-tech-trends-to-watch-in-2012/.