Unexpected economic turbulences

Introduction

Unexpected economic turbulences as well as rapid technological advances in the business environment have greatly impacted on the operations of many firms across varied industries. Consequently, quite a number of firms emanating from a wide range of industries have been forced to close down their businesses while others operate under varied degree of financial difficulties. Many firms have therefore adopted different management strategies to counter the heightened challenges within the business environment. At the outset, the varied industries are characterized by unique challenges given their mode of operations and the service as well as products they handle. Internet and computer hardware industry is such an industry that is currently facing challenges brought about by the increased complexities of the consumer demands. This paper therefore seeks to analyze two companies in the search industry namely Google Inc. and Yahoo companies to understand their management strategies as well as financial performance within the industry. Besides, the paper also examines the historical developments of the two aforementioned companies in addition to their current comprehensive strategic analysis. Moreover, the two companies are compared in terms of their managerial as well as financial decisions and other issues that influence their prices of stock. Finally, the future direction of both companies and the industry at large highlighted.

Advances in technological innovations have shaped up the industry in the recent past and are expected to improve the performance of the firms in the industry. The companies within the industry have no option except to adjust their management strategies to fit in the market. Since their inception, both Yahoo and Google have swerved through a highly competitive business environment to survive and better still ensure their profitability. The two aforementioned companies however have different management strategies and marketing options and therefore display varied performance in the market. Moreover, their financial performances differ due to the management and financial decisions the firms had opted to pursue in their operations.

Yahoo Inc.

Yahoo Inc. was founded way back in 1994 by Stanford Ph.D. students David Filo and Jerry Yang as an internet provider before expanding its operation to encompass other services and products that the company currently provides. The company is currently a leading global brand having changed the way people transact and communicate with each other, share, access, and create information. Yahoo dominated the search industry in 2008 by becoming the world’s internet destination with almost hundred and forty million visitors each month. The company’s web portal allowed access to any information found on the internet. A variety of activities could be performed by visitors on the yahoo site including setting up an e-mail account, checking the latest news and weather, maintaining personal calendar, obtaining maps, follow a stock portfolio, searching personal ad or job listing among other online services. The company also provided services to small businesses and internet retailers by hosting their websites. For instance, Yahoo Company entered into partnership with almost twenty mobile phone operators in Europe and US with the aim of providing mobile search and display ads to the operators’ customers. Accordingly, the search company accounted for thirty five percent of all the searches carried out on mobile phones. The Yahoo management strategy of dealing in a wide range of services including display of banner ads on the yahoo web site, Yahoo messenger, Yahoo mail, among other many services has enabled the company to gain revenues thereby improving its performance in the market.

Besides, Yahoo also enhanced its stability by indulging into alliances as well as acquisition of other small firms to expand its business operations. For instance, it entered into an alliance with Intel in 2007 and also acquired Right Media in the same year to facilitate the business expansion to encompass services other than internet advertising and the subscription fee charged to the users. Yahoo became Google’s customer in 2000 by providing searching appliances that was required by the latter company. However, such business relationship deteriorated in 2002 when Yahoo distanced itself from Google and acquired other firms with advanced search technologies. The issue took a legal perspective when the two companies engaged each other in a legal battle after Yahoo had replaced Google with its own search technology. Yahoo lost the case and Google was rewarded massively. Yahoo thereafter faced a series of poor performances in 2006 and opted to renew its relationship with Google in 2008 in an attempt to revive the firm. They reached an agreement with yahoo benefiting from $800 million in additional annual revenues. The partnership later broke down following the withdrawal of Google Inc. from the partnership. Yahoo later pursued a takeover bid to acquire Microsoft in vain. The California-based firm currently offers services to users in categories of five including, applications, Search, Integrated Consumer Experiences, Media Products & Solutions, as well as Mobile.

Google Inc.

Google inc. on the other hand was started as BackRub by two computer science students from Stanford University and has ever since maneuvered through a highly competitive market to become the best search engine in the world. At the outset, Sergey Brin and Larry Page developed the BackRub search engine in 1996 which later expanded and dominated the world IT market. BackRub was later transformed to Google Inc. in 1998 following its acquisition by an investor who paid up $100000 for the search engine. Google has since undergone comprehensive changes to dominate the search industry (Porter, 1998). It has a sound financial background including net income and revenue base which have tremendously grown due to the suitable management strategies adopted by the firm including acquisition of smaller firms as well as venture in technological innovations. The company provided a variety of internet services featuring Google news, Google product search, Google Scholar, Google local among other services which were added in 2004 followed by an expansion of the firm’s index of web pages to more than eight billion. It thereafter increased its country domain to more than hundred and fifty by 2004. Moreover, the company indulged in the expansion of its products for mobile phones with an SMS feature that enabled the mobile phone users to send a request to the company. Generally, Google Company improved its performance tremendously after its initial public offering in 2004. It expanded its business through acquisitions and technological innovations that guaranteed the provision of high quality services to customers hence increasing customer and revenue base as well as the market share.

As mentioned before, both Google and Yahoo companies adopted management strategies which had some elements of similarities. Notably, both the companies pursued acquisition of other small firms as well as rival companies in an attempt to expand their operations and revenue base. To begin with, Google Inc. embarked on acquisition of other business ventures in an attempt to increase its net cash, revenue base, as well as earnings since the 2004 IPO. For instance, Google acquired a digital mapping company referred to as Keyhole in 2004 which necessitated the launch of Google Earth in the same year. Google Earth’s hardware as well as its software enabled the internet users to view any image from any location worldwide. Furthermore, Google Company acquired several firms in the subsequent years after the 2004 initial public offer thereby expanding its net cash, income as well as its revenue base. Besides, the company expanded its business operations within the search industry hence attracting a wide range of customers compared to its close rivals including Yahoo and Microsoft Live. Such approaches stabilized Google Inc against its close competitors in the market, Yahoo included. On the other hand, Yahoo Company also indulged in the acquisition of small firms to expand its business operations too. To begin with, the company acquired Overture In 2003, for approximately 1.6 billion Dollars. This implied that the company names were phased and replaced by Yahoo brand names with exception of Korea and Japan where Overture was still operated under the local business name.

Google and Yahoo Companies

Apart from acquisitions of business venture mentioned above, both Google and Yahoo companies ventured into technological innovations to improve the quality of their products and service in an attempt to influence the customers within the search industry. For instance, Google inc. developed a variety of technologies during its operation as exemplified in such innovations as cloud computing. The aforementioned technology would potentially enhance the company’s growth to $95 billion by 2013. Such technological advancement was succeeded by the 2008 development of the Chrome technology which was meant to accommodate cloud computing applications. Moreover, the technology enhanced service delivery to Google customers by enabling the users to perform such functions as word processing, video editing as well as operating spreadsheets among other applications on different tabs that could be run simultaneously. Similarly, Yahoo Inc. developed technologies such as the widget application in 2007 when it formed an alliance with the Intel Company. The application would allow the TV viewers to be connected to the internet thereby enabling them to follow such things as news, stock listing among other important information.

Financial and strategic performance

Even though both the companies have displayed commendable financial performance over the period of operation, Google Company has ever since out-competed its close rivals in the search industry. To begin with, Google Inc. recorded a massive revenue growth in 2007 to about $16.5 billion hence increasing its competitive potential against Yahoo. It therefore overtook Yahoo Co. which had been in the business many years before Google Inc. On the other hand, Yahoo Inc had a revenue base of about $6.9billion in the same period. The loyalty of internet users towards Google Company was cited as the contributory factor to the increased revenue collection. In 2008, Google Inc led in the mobile and internet advertisements by controlling over 63% of the market share. Google Inc had demonstrated a steady growth in the industry hence could not be extricated from the leadership position in the internet advertisements within the industry by Yahoo or any other search company. It out-competed all the business rivals in the internet industry including AOL, Ask, Yahoo, and Microsoft among other firms in the industry by controlling more than 40% of the market share (Gamble, 2008). Moreover, the company’s strategy of business acquisition increased its revenue base, net cash as well as earnings since the 2004 IPO. Such approaches further enhanced the stability of Google Inc against its close competitors in the market. Besides, the venturing into cloud computing technology is believed to enhance the company’s growth to $95 billion by 2013 (Gamble, 2008). Google inc. recorded commendable profits in the online business in 2008 by recording a profit of about $4.2billion in the aforementioned period up from %3.08billion in the previous year compared Yahoo Inc. which recorded a meager $6.6 million net income in the same period. The above statistics on Google’s profitability demonstrates a positive financial performance of the firm during the year in review.

Google also had quite a commendable quantity of assets compared to its liabilities thereby demonstrating its financial worth compared to Yahoo. For instance, in 2007, Google had asset value worth about $25 billion against meager total liabilities of approximately $2.6billion in the same period. The assets recorded in the aforementioned time period increased from $18.5billion in the previous year. This is more than $6billion increase in one year which is a commendable performance by the firm. However, the liabilities increased from approximately $1.3billion in 2006 to $2.6billion in subsequent year. Yahoo on the other hand had total assets of about $12billion against long-term liabilities of approximately $0.4billion. It is noteworthy that Yahoo Company had recorded a slight increase of $0.5billion in the total assets which is far below the records shown by Google Inc. However, Yahoo’s record of reducing long-term liabilities from $0.8billion to $0.4billion is encouraging.

Google Inc. has also shown positive performance through the constant increase in its net income per share between 2004 and 2007. Notably, the net income per share increased from $0.77 in 2003 to $13.53 in 2007. This is reflects a total increase in the net income from a meager $6.9million in 2003 to the $4.2billion in 2007.. It is without doubt that the company has recorded the best growth in the net income in the search industry so far (Warren, Reeve, & Duchac, 2008). Yahoo Company on the other hand recorded a slight increase in the net income growth from $0.24billion in 2003 to $0.66billion in 2007 thereby reflecting a growth of $0.42billion in four years. Google out-competes Yahoo Inc. in the annual increase in net income as shown in the above statistics.

Marketing strategies

Yahoo and Google companies receive much of their revenues from their marketing services. In 2009 for instance, Yahoo Company received 88% of its total revenues fro the fiscal year from services accruing from marketing. The larger portion of the aforementioned revenues was obtained from search advertising. The advertisers in this case bid to have their ads displayed on the yahoo search results by the search terms. The Yahoo Company makes an average of about three cents per search and aims to improve the revenue got from such adverts through the adoption of the new advertising system known as Panama Yahoo. Google Inc. too generates much of its profits from similar approach notably, advertisements which it does through the AdWords program. Just like Yahoo, the advertising companies pay for their ads which are displayed by Google Inc. on its search site. The company receives ninety-nine percent of its total revenue from advertisement. In 2006 for instance, it recorded approximately 10.5billion Dollars of revenues from advertisements. The high revenues received by the company from advertisements are attributed to the development of technologies by Google thereby improving the performance in relation to the advertisements. For instance, Google developed a DoubleClick technology which enabled the users to seek advertisements that interest them and are of relevance to their search. Consequently, Google has become one the leading companies in the online advertising.

Future prospects of the industry and the two firms

Both Google and Yahoo companies have demonstrated commendable performances in the internet industry with the former company gaining much of the credit. To begin with, the constant increase in the revenue generation by Google Inc. is expected to continue in the next financial years due to the sound management strategies adopted by the company management team. These strategies include innovations in technology that aims to improve the quality of the services as well as products produced by the company. The high quality services therefore ensure that the customer needs are met thereby ensuring increased sales and subsequent increase in the market shares. The sound financial performance by the company as shown in the above statistics demonstrates the firm’s potential growth in the future. Moreover, the management strategies as well as sound financial decisions that are adopted by the management team also contribute to the expected future growth of the firm. For instance, Google hired a financial manager trained in “Six Sigma” management practices to minimize the wastages that occurs during the firm’s operations in an attempt to prepare the firm for any future inconveniency.

On the other hand, Yahoo Company has also demonstrated gradual and steady growth to become one of the most trafficked internet sites and world class online company. The sound strategies adopted by the firm including its innovative technologies as well as engaging content and services ensures improved performance thereby increasing revenue base and the market shares. The aforementioned management strategies as well as sound decisions by the company would enhance its growth in the future however gradual. Finally, the search industry has recorded tremendous improvements in the recent past due to the stiff competition between the companies including Google, Yahoo as well as Microsoft. The competition is expected to be even stiffer as these companies fight for their survival in the market as well as increase profitability. The advancements in technology are attributed to the rapid developments in the industry. The customers are the beneficiaries of such developments as the prices and quality of the services and products provided would improve.

Conclusion

The constantly changing business environment greatly impact on the performance of business ventures across all industries. Company management teams therefore have to adopt strategies meant to counter the challenges in an attempt to guarantee survival of their firms as well as profitability. Internet industry for instances faces stiffer challenge due to the rapid advances in technology and the subsequent complexity in the consumer demands. As a result, the companies within the industry such as Google ands Yahoo have continued to adopt management strategies based on innovations and business acquisition to expand their market shares, increase revenue generation and net income thereby enhancing their stability in the market. Moreover, the two companies depend on advertising as a major marketing strategy that has so far generated most of the companies’ revenues. The two search companies have demonstrated growth in the industry with Google taking much of the credit despite its establishment several years after the institution of Yahoo Company. Google Company has displayed commendable growth since its inception to become the world’s best internet service provider. Its financial performance too outdoes those of its competitors in the industry including Yahoo courtesy of sound management strategies adopted by the firm. The potentiality of Google to grow in the future is very high given its previous performance as well as the management strategies and financial decisions so far adopted by the firm. Yahoo on the other hand has shown little but gradual growth in the past and is expected to increase its performance in the industry in the future considering its financial statements in the current period.

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