Yahoo! - A tale of lost opportunities
There's hardly anyone who's ever been on the internet and hasn't heard of Yahoo! You could hardly claim to be using the internet and not have used any of their services at least once. Be it their famous Yahoo search, Yahoo Messenger (one of the early providers of emoticons) or Yahoo Mail or Yahoo Groups, Yahoo answers, etc, they all had a huge loyal customer base.
Unfortunately, Yahoo's story is also one that is filled with many lost opportunities and the lack of a clear strategy to cope up with an ever-changing technology landscape. It wouldn't be a mistake to compare Yahoo's present situation with another technology veteran Nokia. Although they were fundamentally into different businesses, both seemed to miss the woods for the trees!
In January 1994, two electrical engineering graduate students, Jerry Yang and David Filo, at Stanford University, started "Jerry and David's guide to the World Wide Web" by would go one to become “Yahoo!". The word Yahoo is a backronym for "Yet Another Hierarchically Organized Oracle". The founders insist that they chose the name because they liked the slang definition of a "yahoo" (used by college students in David Filo's native Louisiana in the late 1980s and early 1990s to refer to an unsophisticated, rural Southerner): "rude, unsophisticated, and uncouth."
Yahoo grew through the nineties and became famous for its web search and web directory services. In 1998, it started a web portal of its own (which was a hot thing during the dot-com era) and hoped to garner a lot of internet traffic. The dot-com bubble was soon to break and Yahoo was not immune to it. To just give you an idea of how bad it was for Yahoo, its stocks traded on 3rd January 2000 at $118.75 to only fall to as low of $8.75 on 26th September 2001. That was quite a fall!
Yahoo – The rich spoilt brat!
Technology and especially internet can also be a very unforgiving industry to those who don't acclimatize to the change. We have had myriad instances of internet based companies that were once touted as the next big thing which have disappeared into oblivion. Of all the places you can afford to be complacent, Silicon Valley isn't one of them!
Just a cursory look at the kind of companies that survived the brutal dot-com burst will tell you what lack of innovation and solid engineering culture in a company can do. Of the several internet based companies that were founded in the nineties, only a handful of them have been able to adapt to the changing times and managed to stay relevant. Some of the top names like Amazon, eBay, Google, etc managed to sail through the tough times and emerge as winners. On the other hand, Yahoo is one of those unlucky ones that tripped at every step and finally yielded to an acquisition.
The downfall of Yahoo didn’t happen overnight. It was a gradual process and happened over the years through series of missteps. According to Paul Graham (co-founder of "Viaweb" which was bought by Yahoo and became Yahoo Store and co-founding the Y Combinator, a seed capital firm) there are 2 major reasons why Yahoo failed: easy money, and ambivalence about being a technology company.
In his article, Paul recalls his meeting with Jim Yang and describes how there was a fundamental gap in what each thought was the purpose of the meeting. His anecdote above states: "He thought we were meeting so he could check us out in person before buying us. I thought we were meeting so we could show him our new technology, Revenue Loop." Allow that to sink in. Yahoo was buying a technology company and they didn’t seem to care what it was all about.
It’s apparent from Paul’s article that Yahoo never really viewed themselves as a technology company in a way Google or Amazon did. The reason why Yahoo didn't care about the technology Paul's start-up had to offer was because the advertisers were already overpaying for the traffic Yahoo generated. In the days when companies were ready to pay in millions for the banner ads, there was no dearth of sales people if Yahoo who ran after these sort of deals. That explains why Yahoo could care any lesser than it did about the new technology they bought!
In what Paul describes as his Archimedes moment, he recalls: “By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. When I realized this one day, sitting in my cubicle, I jumped up like Archimedes in his bathtub, except instead of "Eureka!" I was shouting "Sell!"
The other reason why Yahoo failed was the way they insisted on calling themselves a "media company." Paul recalls in his article: “If you walked around their offices, it seemed like a software company. The cubicles were full of programmers writing code, product managers thinking about feature lists and ship dates, support people (yes, there were actually support people) telling users to restart their browsers, and so on, just like a software company. So why did they call themselves a media company?”
Calling your product managers as “producers” or calling your offices as “properties” didn’t quite cut the deal for being a technology company. It was serious. Yahoo didn’t just pretend to be a media company; it literally lived up to its reputation!
To err once is human, to err twice is careless
Yahoo missed a golden opportunities twice, which could have change the course of its future forever. It was a classic display of poor judgment and a complete failure on the part of its leadership to foresee potential acquisitions or investments.
One such opportunity came to it on a platter in 1998 when Google’s Larry Page and Sergey Brin had approached Yahoo with an offer to sell their PageRank system for as little as $1 million. At that time both Page and Brin had just developed PageRank but wanted to focus on their studies at Stanford. Yahoo being dimwitted or extra smart refused their offer because it wanted to develop its own platform.
In 2002, Brin and Page again approached Yahoo to raise funds for Google’s expansion. Giving $3 billion to Brin and Page would have meant Yahoo getting a substantial pie of Google but Yahoo refused. Then Yahoo Chief Terry Semel refused the offer as it looked to again build its own search engine to compete with Google.
You cannot be in the business and survive if you commit such blunders. It all started with Yahoo being valued at $100 billion its heydays and ended with it being sold for just $4.83 billion to Verizon
Do read about a series of blunders by its CEO Terry Semel here.
A final attempt to save Yahoo!
The announcement to bring in an “outsider” was Yahoo’s final attempt to redeem its lost glory. So they decided to bring in Marissa Mayer as the new CEO of Yahoo in July 2012. As it turned out, Marissa Mayer was assigned an uphill task to save Yahoo and bring it back on track. Sadly Yahoo was, at this point, “damaged beyond repair”. Yahoo was badly hoping for Acche Din!
By the time Marissa Mayer took over, there were very few products or services that Yahoo offered which really were leaders in their space. Consider the long list of products that Yahoo had lost completely to its competition. Yahoo mail lost to Gmail, Yahoo Groups lost to Facebook or Google Plus, Yahoo Messenger made way to new IMs like WhatsApp, Snapchat, Yahoo Answers made way to Quora, Yahoo Search failed to take off and eventually made way to Bing and Google Search. The list of outdated products just didn’t seem to end.
Marissa Mayer did bring is some fresh ideas to the table but she is also “partner in crime” of a few terrible deals like $1.1 billion acquisition of Tumblr in 2013 or sale of Alibaba stock in 2014. Due to the onerous task ahead of her, she also had to rollout few unpopular policy decisions like removing work from home, which irked a few long time employees.
SpringOwl Asset Management, a small activist hedge fund, published a 99-page litany of Yahoo’s missteps, including—by its calculation—$2.8 billion spent on failed acquisitions, $450 million on free food, $9 million on new phones, and $7 million on a Great Gatsby-themed holiday party. “I don’t think she has any management skills,” says Eric Jackson, managing director of SpringOwl.
In the end one feels that Yahoo’s days were numbered and the writing was on the wall. The company did what it could to save itself but failed. A company that is not able to bring value to its customers will seize to exist eventually and that’s exactly what has happened to Yahoo!
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