Stuck in a Rut, Yahoo! Does the Reorganization Dance

Despite superior products and services and a larger customer base, online giant Yahoo! has sat on the sidelines and watched as competitors such as Google and MySpace have sopped up all the online ad revenue and new users. Now, the company is ready to act: This morning, Yahoo! announced its biggest corporate shakeup in more than five years--a change that's aimed at jumpstarting ad sales and refocusing the company on users instead of on products.

"We're moving aggressively to deliver the most possible value to our key customers--audiences, advertisers, and publishers--and seize the major new opportunities we see ahead for the Internet," said Yahoo! Chairman and CEO Terry Semel. "The Internet is continuing to grow and evolve at a rapid pace, and we're reshaping Yahoo! to be a leader in this transformation ... We believe having a more customer-focused organization, supported by robust technology, will speed the development of leading-edge experiences for our most valuable audience segments. In turn, we plan to drive growth and profitability by leveraging our deep audience insights to create a full-fledged advertising network, with a marketplace that meets supply and demand both on Yahoo!'s valuable owned-and-operated network and across the entire Internet."

Although some of Yahoo!'s problems are its own fault--its highly touted upcoming ad network has been delayed several times--some are not as easily explained. In the Internet services space, Yahoo! often offers solutions that are vastly superior to those of its competitors. Yahoo! Mail is a key example: The new version of the service is dramatically more attractive and useable than similar services from Google and Microsoft, and yet Google's Spartan Gmail service, in particular, somehow manages to continue gaining converts.

Yahoo! said it will rein in its practice of continually releasing new products, although the same strategy doesn't seem to have harmed Google yet. Google, if anything, is even more scatter-brained in regards to its seemingly never-ending release of beta products and services. Yahoo! will reorganize into three groups focused on its struggling but still popular Web site, advertising, and technology. An executive memo that touched off the reorganization called for dramatic layoffs as well, but Yahoo! said it will continue to grow its employee base instead to jumpstart growth.

Regardless, Yahoo!'s future is murky. As the company continued to stumble throughout the past year, Google's stock soared past unheard-of heights, and Google recently purchased online video sensation YouTube for $1.76 million. Meanwhile, Yahoo!'s attempts to purchase facebook.com--a competitor to the social networking service MySpace--have faltered.

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