We take a look back on some of the indicators behind Yahoo!’s decision to close its offices in Mexico and Argentina. Yahoo! was one of the first companies to offer an Internet search engine with an email address, but in reality, its business is not growing, and its needs to make radical changes to compete.
By Ximena Cassab, translated by Gretchen Gardner
The announcement that Yahoo! is closing its offices in Mexico and Argentina came as a surprise for those that were unprepared. Nonetheless, the 22 year-old company founded in Silicon Valley was showing signs that it needed a radical structural change to grow at the rate some of its competitors grow (e.g. Google and Facebook).
“It’s a surprise that Yahoo! Mexico is closing, since it was once of the first American companies in the country, and it always operated with a profit,” says Pedro Labarta, general director for Mexico and LatAm at Brand Networks. “It doesn’t matter if they once had 100 employees and now have 15. (Yahoo!) always looks for the way to stay strong.”
A New Growth Strategy
Since last year, shareholders and the members of the Board of Directors have pressured Marissa Mayer, CEO of Yahoo! since July 2012, to show a higher profitability and stay competitive in the face of strong competition from other companies like Google and Microsoft.
To do so, the company established a new action plan, along with the consulting firm McKinsey, based on three elements: investment, maintenance and elimination. Mobile search, for example, entered the investment category, and Yahoo! Finance could be filed under maintenance according to Silicon Beat, which cited a source close to the company.
On the other hand, offices in international markets with low profitability are part of the elimination category. Mexico and Argentina’s offices are two of those.
In 2011, Yahoo! and Yahoo! Mexico faced a lawsuit for $2.7 million for breach of contract by the Mexican companies World Wide Directories and Ideas Interactivas. The company emerged unscathed, and the court revoked the sentence in which the company had lost. Nonetheless, the event left the company in on the watchlist of international and national courts.
Competition for Advertisers
Yahoo! was one of the first companies to offer a search engine and email address on the Internet. It’s primary sources of revenue were from advertising through banners and pop-up windows. But the strong competition for “likes” and advertisement that appears on Google and social networks like Google means that buyers distribute their budget among more media, leaving Yahoo! behind.
Advertising in Mexico has been more centered on Google, sites that focus on certain content, and finally social networks and video, taking up much of companies’ budgets, says Labarta.
What’s more, the financial strain on Mexico and Latin America has a direct impact on companies’ commercial budgets. It’s not surprising that they will make smaller advertising investments and focus more on just a few types of media properties.
More Changes Are Coming
Despite the shutdowns in Mexico and Argentina, “Latin America is an important region for Yahoo! and we will continue to invest in our consumers and local products,” wrote a Yahoo! spokesperson to Portada through e-mail. The company will continue to have a sales team in Brazil and Miami to meet the demands of pan regional clients.
Henry Zammarripa of Yahoo! in Miami told Portada that “Armando Rodriguez will continue as the VP & managing director of LatAm/US-Hispanic, and I will continue in my role as the regional sales director for Latin America.”
“Seeing that Yahoo! couldn’t keep up in terms of numbers, it’s understandable that they closed smaller operations to maintain those that delivered better numbers,” says Brand Networks Labarta. “Leaving the operation in Brazil is understandable, but the question would be, ‘for how long?'”
Tomorrow February 2, Yahoo! will report its latest quarter results. These will be decisive for obtaining more information about a probable restructuring of the company. Some experts speculate about the possible outsourcing of some of their functions and even a sale to another giant, a somewhat similar situation to the one in which AOL was acquired by Verizon last year.