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Industry Analysis and Foresight 1
An Internet Search and Advertising Industry Analysis and Foresight
Tara Houdeshell, Cari Jewell, David Tinker
Muskingum University INFR 514
July 12, 2009
Industry Analysis and Foresight 2
INTRODUCTION
A recent popular video from the site www.collegehumor.com portrays the climate of the
competitiveness within the internet search industry, if not familiar with the video, the following
are some captions from it, “Tired of search overload? Introducing “Bing” the better way to
google, Bing helps you google the best choice faster and shows related googles right there on the
results page. Bing knows what you like to google and Bing googles it based on your previous
googles. Say you want to google hotels in Dublin, Bing can google that easily…” The title of
this video is “Googling with Bing - The easiest way to Google since Yahoo!”.
This video effectively portrays, on a basic user level, the large market share and
popularity that Google commands in the internet search industry. The word google has become
synonymous with internet search. Overwhelmingly, the public no longer looks information up on
the internet; instead, they are more likely to “google” it.
In an effort to gauge Yahoo!’s current position within the internet search industry, an
analysis of the industry will be performed according to Michael Porter’s Five Forces model. This
model will include Yahoo!’s competitors and industry leaders, buyers, suppliers, potential
entrants, and substitutes. In addition, an industry foresight will be explored that includes
important trends of potential industry impact over the next 5-10 years to highlight future areas of
focus and ways for Yahoo! to continue to remain an industry leader.
COMPANY OVERVIEW
“Yahoo!” was started by Jerry Yang and David Filo, Stanford Electrical Engineering
Ph.D. candidates, in a campus trailer as a way to keep track of their personal interests on the
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Internet. The reasoning for selecting the name Yahoo! is said to be because of its definition
which means "rude, unsophisticated, uncouth." This is anything from where Yahoo! is today,
with nearly 140,000,000 unique visitors every month.
Yahoo! became incorporated in 1995, headquartered in Sunnyvale, California, and since
has established in over 30 different countries with 13,600 employees. Yahoo! offers services to
its users falling into five main categories that include Front Doors; Search; Communications and
Communities; Media, and Connected Life. Although the main source of Yahoo!’s revenue is
generated from providing marketing services to advertisers through its properties and affiliate
sites, additional revenue comes from premium services that Yahoo! offers for a fee, though most
of its user services are free. However, these paid services are not what drive the company.
Yahoo! states that it is committed to empowering its users and employees through programs,
products, and services that inspire people to make a positive impact on their communities,
including partnerships with nonprofit organizations such as Global Green, Network for Good,
and DonorsChoose.
Yahoo! enjoys a market capitalization of 20.84 billion, ranked second to Google. On
July 10, 2009 its stock price was $14.93 up 2.61% from the previous day and its price to earnings
ratio was $35.55. When comparing the financial statements of other top companies within the
internet industry, Yahoo! has fared similarly throughout the economic downturn. That being
said, their operating profits are less than 5% of revenue. One year ago Yahoo! declined the offer
to be purchased from Microsoft and is now realizing the competitive impact of its newly
introduced search engine, Bing.
INTERNET SEARCH INDUSTRY COMPETITORS
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Yahoo! competes in the industries of internet search, advertising, publishing and
developing, ranking second in market capitalization of the internet information provider industry.
Within the areas of Yahoo!’s core competencies the following companies are listed among its top
competitors: Google (GOOG), Microsoft’s Bing (MSFT), InterActiveCorp’s Ask.com (IACI),
Amazon (AMZN) and Facebook (privately owned).
Google emerged as one of the top 100 search engine websites in 1998 and 11 years later
enjoys the status of the top ranked internet search company. Bing is the newest search engine
launched by Microsoft, replacing Live Search. It attempts to better serve its clients in their
search requests by offering very focused and smarter results. Although search results appear
similar to Google, Bing also displays a tabbed toolbar that directs users to more results based on
their search. It is also hard to ignore that when searching on Bing, their efforts to get you answers
faster such as when you point to a search result, without clicking, and a pop-up balloon appears
displaying the first few paragraphs of text on the site. Bing has been gaining popularity in the
U.S. where they have focused advertisement. Ask.com is a search engine that specializes in
allowing users to get answers to questions posed in everyday natural language as well as
traditional keyword search. Ask.com is the fifth most used search engine behind Google,
Yahoo!, Bing (MSFT) and AOL according to CrunchBase.com.
Yahoo! also competes in retail sales (e.g. Yahoo! Shopping) and social networking (e.g.
Yahoo! Messenger). The top two competitors in these areas of focus are Amazon and Facebook.
Amazon revolutionized the catalog and mail order industry fifteen years ago when it launched.
Through efficient tracking of inventory, it has been able to generate a large amount of revenue
from the sale of books from its own inventory and from the inventory of the tens of thousands of
affiliated book sellers. Amazon has expanded to sell products including everyday household
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items and groceries. Facebook is the most used social networking site now on the internet. With
more than 200 million monthly users, it out competes other social sites such as MySpace, Bebo,
Orkut, Hi5, Friendster, and Twitter.
INTERNET SEARCH INDUSTRY BUYERS
Customers of Yahoo!’s services include basic users, averaging between the ages of 2544. Buyers include advertisers, publishers and developers. In April 2009 Yahoo!’s top 10
advertisers by number of advertisements were smarter.com, pronto.com, yahoo.com,
nextag.com, bizrate.com, amazon.com, shopzilla.com, ebay.com, business.com and bestprice.com. Unfortunately, the number of Yahoo! keywords purchased by advertisers has steadily
decreased from month to month since January 2009.
Google’s customers are very similar to Yahoo!’s, the basic user, advertiser and
developer. In April 2009 Google’s top 10 advertisers by number of advertisements were
amazon.com, yahoo.com, nextag.com, target.com, ebay.com, bizrate.com, shopping.com,
pronto.com, shopzilla.com and local.com. In January 2009 Google experienced a rather large
decrease in the number of keywords purchased by top 100 advertisers; however, since then they
have recovered half of their losses. In addition, Google remains the overwhelming choice for
online advertisers as 80% choose Google. Comparatively, 33% of online advertisers choose
Yahoo! and only 12% choose Microsoft.
Facebook’ buyers also include advertisers, as well as people who design, manage and or
buy applications for Facebook. Additionally, since Facebook and application developers are able
to aggregate data, researchers and companies that compile data lists are able to buy this very
valuable information. Buyers for Amazon include college students, mail order customers,
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grocery buyers, publishing companies, companies wanting cloud space, and companies wanting
to build their applications on Amazon’s open application programming interface.
INTERNET SEARCH INDUSTRY SUPPLIERS
Yahoo!'s suppliers include developers and third party entities who partner to provide
internet services as well as broadband internet access providers. Some of Yahoo!’s most well
known divisions and third party partners include: Flickr, del.icio.us, FoxyTunes, Zimbra and
AltaVista. Google’s main supplier revolves around research and development, application
building and the collection of more data on the internet. Like Yahoo! the acquisition of
businesses as well as partnering with businesses play a large role in their supply chain.
Examples of these acquisitions and partnerships include DoubleClick, Baidu, YouTube,
Dodgeball and more.
Facebook suppliers include the basic users who add personal data and 950,000
application designers who build applications on Facebook’s open application programming
interface. Other suppliers may include hardware and server makers, auditors who are required
for investors, and media relations consultants who help Facebook navigate public relations.
Ingram Book Group, the largest book supplier in the world is also Amazon’s largest book
supplier. Other suppliers for Amazon include affiliate booksellers, written and music publishers,
manufacturers, software, hardware and server makers such as HP, which provides 90% of
Amazon’s infrastructure requirements, and delivery companies such as FedEx and USPS.
INTERNET SEARCH INDUSTRY POTENTIAL ENTRANTS
Potential entrants or future competition of Yahoo!, Google, Ask.com and Bing will
certainly be companies that focus in the area(s) of Wikia Search, the semantic web,
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blogging/micro-blogging, mashups and social networking. Social media aggregators, companies
who combine social media networks into one stream of information, such as TweetDeck,
Seesmic and FriendFeed threaten to be potential entrants for companies like Facebook as well as
traditional search engines like Yahoo!. Since 70% of Facebook’s users are outside of the U.S.,
social media startups in foreign countries are also a major source of potential entrants.
Amazon’s diverse product line allows for many potential entrants including new cloud
storage companies, new e-commerce companies, reader product providers, and new publishing
technologies. Additionally, web-based software providers as a service (SaaS) who are reducing
the need for PC-based software purchases and web-based platform providers as a service (Paas)
who are reducing the need for company owned information technology infrastructure can impact
Amazon by reducing the total number of software and platform applications.
INTERNET SEARCH INDUSTRY SUBSTITUTES
According to Hoover’s, television remains the most effective means of advertising.
Television, newspapers and in-person means are all substitutes to the use of Yahoo!, Google,
Ask.com and Bing for both search and advertising. Also substitutes for general search engines
include specialized sites, such as WebMD, WolphramAlpha and Hunch.com. FriendFeed,
LinkedIn, new or niche social networking sites like Ning, video sharing like YouTube and Hulu,
and photo sharing sites like Flickr (owned by Yahoo!), are all substitutes to Facebook, because
they address other features such as video and photos. Due to the current unstable economy
people are buying less, and the local library is currently a substitute for Amazon. Additionally,
the increased storage capacity of removable devices is a substitute for cloud computing needs.
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Big box discount retailers, such as Wal-Mart, which continue to enhance their on-line presence,
are substitutes for Amazon.
INDUSTRY FORESIGHT
To better evaluate the future goals for Yahoo! to remain an industry leader in the next 510 years, it is important to have an understanding of Yahoo!'s current strategy. Yahoo! states that
its focus is to present users with unique experiences by leveraging user participation, connections
and data. Their goal is to remain a leading force by aligning with four key objectives that include
expanding customer-centric culture and capabilities, creating leading social media environments,
leading in next-generation advertising platforms, and by driving organizational effectiveness.
Recently Yahoo! has made announcements that it plans to enhance their financial
results through partnerships with other companies to run sponsored search ads, such as Google,
to advance their strategic objectives of becoming the "starting point" for a larger portion users on
the Internet. By gaining user volume, Yahoo! believes it will be able to offer compelling value to
advertisers, so they will see them as the "must buy" in online advertising. This should also
provide more compelling evidence that Yahoo! is trying to protect and enhance stock value for
shareholders.
Companies develop key partnerships and align themselves with projects that they
believe will benefit them in the future. There are many other factors to take into consideration as
well that can affect how a company is able to perform in the coming years. Some of these items
can include the current state of the economy and expectations and trends for the future. The way
in which money is spent affects not only the prices of products on the market, but also things
such as the investment of companies to develop newer, cheaper products. Some of the other
Industry Analysis and Foresight 9
factors that are important for Yahoo! to utilize in developing industry foresight include
technology trends, geopolitical and regulatory trends, and lifestyle trends.
Technology is one of the highest evolving industries in the world today. Every time you
turn around a corner there is a new application or new device that promises to streamline and
make life simpler than the previous. It is important to keep technology trends in mind when
developing foresight as to how one can remain an industry leader. Some of these technology
trends that Yahoo! needs to keep in mind include service-oriented architecture (SOA) and cloud
computing, semantic web, and increasing access with mobile devices.
SOA represents the idea for delivery of software, hardware, telecommunications, call
center, marketing, etc., as a service. Services working together to provide a more comprehensive
offering is the underlying meaning of SOA. These services communicate by passing data from
one service to another, or by coordinating an activity between more than one service. SOAs
operate through current practices such as cloud computing. Cloud computing is how the delivery
of these computing services occurs, i.e., typically over the internet.
Cloud computing users do not generally own many of the services that are supported and
are essentially renting usage from a provider and only pay for resources that they use. The
increasing availability of low-cost, high-speed Internet connections is one of the driving factors
towards the rise of cloud computing and an IT services-based economy. The American Recovery
and Reinvestment Act includes program funding to increase access to high speed internet for
people in rural communities who are being underserved. The Pew Internet & American Life
project has found than 63% of Americans use broadband internet, though this is fairly limited to
urban areas. The ability to access high-speed bandwidth via broadband, mobile and wireless
Industry Analysis and Foresight 10
connections, allows companies access to cloud computing. These companies previously
purchased physical software and hardware, installed and managed it locally, often incurring large
costs with maintenance. With gaining access to broadband, there has become more need for
cloud computing and demand will continue to grow.
Technology advances allow for continuing improvements in many aspects. However the
use of technology varies in different regions. Some countries which do not allow a full free and
independent press, have disabled internet access or require filters or certain features turned off.
This can affect how a company operates, and plans for the future as well. An example of this is
how Google disables some features, so that the Chinese government would approve its use.
Some people have been able to get around this blockage by using access to the internet through
their cellular phones.
Another important trend that is affecting how companies operate is through the change in
the way they store personal information. The information stored by cookies is a problem for
some regions. Search engines such as Google and Yahoo have had to adjust the length of time
they store cookies and have had to make their personal information storage more transparent.
Additionally companies such as Ask.com have added the “AskEraser” feature to their search
engine to allow users to turn this on so that their search history is erased from the server within
hours, to meet the emerging privacy trends within the search industry. The ability to meet the
needs of users such as increasing privacy will play a key role as to the successfulness in the
coming years.
The current state of the economy can also influence how a company plans to remain
competitive in the near future. According to a recent survey by the telecommunications company
Industry Analysis and Foresight 11
Alcatel-Lucent, approximately 60 percent those interviewed in Europe, Asia, Latin America and
the U.S. planned to cut spending during 2009. However the majority of users said services they
considered essential included broadband internet, a landline phone, SMS/MMS (text messaging),
TV, and a monthly or prepaid cell phone plan. Along with this, it is expected that the IT industry
will remain at a rate of growth despite the current state of the economy, even though the growth
may not be as high as expected. Users need to remain connected; they see it no longer as a
luxury, but a necessity. By increasing applications available across numerous media will allow
Yahoo! to remain an industry leader.
It is our belief that Yahoo! can survive into the near and distant future by studying
Porter’s categories of industry foresight. Ultimately Yahoo!’s competitors are all facing similar
struggles. Careful consideration and analysis of the industry competitors, buyer, suppliers,
entrants and substitutes will lead to a better aligned future and long-term survival. In addition,
proactively keeping important trends in mind will further help Yahoo! to adjust their strategy to
keep pace with the ever-evolving technological industries. If Yahoo! follows these guidelines,
they will remain a top industry leader.
Industry Analysis and Foresight 12
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Industry Analysis and Foresight 13
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Industry Analysis and Foresight 14
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