Brand Health Check: Yahoo!

Marketing 03-Jan-07

Lacking a cohesive vision, the portal and web services provider suffered a disastrous year in 2006, writes Gemma Charles.

Yahoo!, the world's most-visited website, has just had a year it would
rather forget. The firm issued a series of profit warnings, reported a
38% drop in third-quarter profits to $155m, and watched its share

price drop by more than 25%.

Its disappointing performance indicates that the internet services
company has somehow lost its way. Providing a raft of products and
services from its search offering to email, music, mobile, shopping,
health advice and small-business services, not to mention related sites
such as Yahoo! Answers, the brand could be accused of trying to do too
much.

The year came to an explosive close in December with a shake-up of its
organisational structure amid the announcement that chief operating
officer Dan Rosenweig and media group head Lloyd Braun were leaving the
firm.

The resulting rejig seems to have been influenced by a leaked memo by
Brad Garlinghouse, Yahoo!'s senior vice-president, which concluded that
the firm lacked a clear vision and needed to cut its workforce by as
much as 20%.

The restructure is being led by Yahoo! chief executive and chairman
Terry Semel and aims to increase accountability and speed up
decision-making.

Managers at Yahoo!'s European operations will be hoping that the
restructure gives them more freedom to build the brand in their own
markets, as US management has kept a tight rein on its operations across
the Atlantic.

Priorities include the creation of more social media environments and
the roll-out of its much-delayed search-advertising system Project
Panama, which aims to make its paid-search options more attractive to
advertisers.

Search provides one of the most lucrative opportunities on the web, but
Google has put Yahoo! in the shade in this area. Google's system, which
uses a combination of pay-per-click and rankings based on the
price-per-click paid by advertisers, makes up to 40% more ad revenue per
search than Yahoo!

While Yahoo!'s social search engine Yahoo! Answers has done well since
its 2005 launch, with more than 100 separate services, the brand is in
desperate need of streamlining.

What can the firm do to bounce back? We asked Nick Blunden, client
services director of Profero, which handles online advertising for
ask.co.uk, and Nigel Walley, managing director of Decipher and a former
marketing director of NTL's internet division.

DIAGNOSIS 1 - NICK BLUNDEN CLIENT SERVICES DIRECTOR, PROFERO

Despite recent challenges, the Yahoo! business has a lot going for it.
The brand is a fantastic asset with extraordinary levels of awareness.
Yahoo! also retains one of the single biggest online audiences
worldwide. Finally, while it may not have outright market leadership in
all of its services, many of them are extremely competitive.

Nevertheless, Yahoo! has lost some of the magic that propelled it into
the digital stratosphere in its heyday. While there is no single
explanation for this, its quest for growth appears to have undermined
the sense of purpose and identity that drove its success. Just a few
years ago Yahoo!'s services seemed to be clustered around the themes of
communication, content and commerce and it was renowned for its
innovation in these areas. Today, it appears to be a much looser
collection of services that are united by the Yahoo! name.

In a world where individual powerhouses have emerged, such as MySpace,
YouTube and Google, this lack of focus presents a real challenge to the
business.

REMEDY

- Communicate a clear vision for Yahoo! in a web 2.0 world by investing
in gaining market leadership in services that most support this
vision.

- Focus marketing on services such as Yahoo! Answers, which support the
brand.

- Make greater use of emerging digital communications to reinforce
Yahoo!'s credibility and innovation heritage.

- Develop solutions for advertisers in addition to a market-leading
search platform.

DIAGNOSIS 2 - NIGEL WALLEY MANAGING DIRECTOR, DECIPHER

The past 10 years have seen the internet audience grow far more
sophisticated in its use of the medium, and more likely to use
specialist sites to deliver specific content or services.

Therefore, each of the component parts of a site such as Yahoo! has to
be at least as good as the stand-alone versions provided by competitors
such as Google, eBay and MySpace.

Yahoo!'s core strength is its hosting of a vast number of the free email
accounts used by people in the UK, which generate traffic to the site.
This appears to be the one service where it stands out and as video
content becomes more important, it creates a valuable 'snacking-type'
visitor pattern that could be exploited to build brand relevance
again.

Core to this will be the growing consumer love of communicating about
and with media; people texting and emailing each other about key shows,
and exchanging content and clips. The Yahoo! brand would seem a perfect
platform to build 'comms and content' services on.

REMEDY

- Give up areas of content where it is simply not competitive.

- Continue to improve functionality.

- Further link the communications products with media hosting products,
such as Flickr, that generate traffic to and use of the communications
products.

- Take advantage of the massive development of online video.

- Replace obtrusive forms of advertising with video-rich, high-value
formats.