Marketing

When the business landscape was simple, companies could afford to have complex strategies. But now that business is so complex, they need to simplify. Smart companies have done just that with a new approach: a few straightforward, hard-and-fast rules that define direction without confining it.

Since its founding in 1994, Yahoo! has emerged as one of the blue chips of the new economy. As the Internet's top portal, Yahoo! generates the astounding numbers we've come to expect from stars of the digital era-more than 100 million visits per day, annual sales growth approaching 200%, and a market capitalization that has exceeded the value of the Walt Disney Company. Yet Yahoo! also provides something we don't generally expect from Internet companies: profits.

Everyone recognizes the unprecedented success of Yahoo!, but it's not easily explained using traditional thinking about competitive strategy. Yahoo!'s rise can't be attributed to an attractive industry structure, for example. In fact, the Internet portal space is a strategist's worst nightmare: it's characterized by intense rivalries, instant imitators, and customers who refuse to pay a cent. Worse yet, there are few barriers to entry. Nor is it possible to attribute Yahoo!'s success to unique or valuable resources- its founders had little more than a computer and a great idea when they started the company. As for strategy, many analysts would say it's not clear that Yahoo! even has one. The company began as a catalog of Web sites, became a content aggregator, and eventually grew into a community of users. Lately it has become a broad network of media, commerce, and communication services. If Yahoo! has a strategy, it would be very hard to pin down using traditional, textbook notions.

While the Yahoo! story is dramatic, it's far from unique. Many other leaders of the new economy, including eBay and America Online, also rose to prominence by pursuing constantly evolving strategies in market spaces that were considered unattractive according to traditional measures. And it's not exclusively a new-economy phenomenon. Companies in even the oldest sectors of the economy have excelled without the advantages of superior resources or strategic positions. Consider Enron and AES in energy, Ispat International in steel, Cemex in cement, and Vodafone and Global Crossing in telecommunications.