Jerry Yang and David Filo founded Yahoo! (Yet Another Hierarchically Organized Oracle) in 1994 as "Jerry and David's guide to the world wide web."
Yahoo Inc. last week announced it expects to complete its sale to Verizon for $4.8 billion this June, marking the end of its history as an independent firm.
Until recently, the once-mighty internet icon of the early days of the World Wide Web had revenues higher than LinkedIn and Twitter, and its traffic numbers outstripped the likes of Wikipedia, Amazon and eBay. Yahoo was one of Silicon Valley’s most riveting success stories.
Now it stands as a warning to others.
Yahoo's Slow and Steady Demise
In its heyday in the mid 2000s, Yahoo was flush with lucrative advertising deals from the world’s biggest brands. It enjoyed a good run as one of the top dogs in the world’s hottest industry with revenue soaring. By 2006, the web portal and search engine finished the year with $5.3 billion in revenue and $1.9 billion in profits.
But, the web giant has been unraveling—slowly and steadily—ever since.
The unraveling has culminated in the company being put up for sale at a fraction of the more than $100 billion it was valued at in year 2000.
10 Lessons from Yahoo's Failures
Yahoo’s failures were multi-faceted and spectacular. Here are a few things online marketers, publishers and business owners can learn in hindsight from the spectacular demise of the once prominent web portal.
1. It’s vital that you identify what your core business is and what you want to be early.
Yahoo never really knew what it was or wanted to be. It fluctuated between the guises of a tech company and media giant. Its chronic lack of focus right from the start ensured it never was able to find a clear path to where it ought to go. As a result, whenever the internet zigged, Yahoo zagged.
In a 2006 internal memo called Peanut Butter Manifesto, a Yahoo employee highlighted that the company wanted to do everything and be everything – to everyone. The “fear of missing out” and the inability to focus on a core business contributed to the downfall of the internet pioneer.
2. It’s paramount that you have a clear mission, vision and ultimately be known for something specific.
At a 2006 senior Yahoo executives retreat exercise in San Jose, California, everyone was asked to say what word came to mind when a company’s name was mentioned. The list of companies was read: eBay: auctions. Google: search. Intel: microprocessors. Microsoft: Windows.
Then those in attendance were asked to write down their answer for Yahoo.
“It was all over the map,” recalled Brad Garlinghouse, then a Yahoo senior vice president and now COO of payment settlement start-up Ripple Labs. “Some people said mail. Some people said news. Some people said search.”
Yahoo’s lack of a clear mission and vision was one of its biggest undoing. The company posted as many as 24 different company descriptions in 24 years. It seems Yahoo wasn’t sure of its core competency.
3. It’s best to diversify your business portfolio, while still being known for something specific.
Yahoo’s overreliance on the revenue generated from the lucrative dotcom advertising deals of ten years ago turned out to be a deadly trap. Like its comrades in the print media industry that continued to rely on selling ad pages long after it was clear that it was a dying business model, Yahoo couldn't help but focus on where the big money was, even though that wasn't where the future was.
Greg Cohn, a former senior product director at Yahoo, recalls how efforts to make the company an open platform – with nifty third-party applications around specific content areas such as travel – foundered in the face of opposition from managers in charge of Yahoo's in-house products.
Cohn told Reuters that too often the end result was money spread too thinly across too many marginal initiatives. This was also famously pointed out in the leaked Peanut Butter Manifesto.
4. It’s vital that you hire and retain the best talents, employees.
At some point, Yahoo had some of the most brilliant minds in Silicon Valley. However, it reportedly started hiring mediocre engineers and did not put enough focus on keeping their talent density high. Because of this (and other reasons), the best people started to leave, reducing the talent density further.
Without a healthy talent density, Yahoo couldn’t compete effectively in a cutthroat industry. The iconic web portal also became too fat with layers of lawyers, product managers and accountants, people whose job it was to mitigate risk, rather than take it.
5. It’s important that you seize your opportunities; the best opportunities don’t come twice.
In 2002, Yahoo had an opportunity to close a deal with Google co-founders Larry Page and Sergey Brin to buy their search company for $1 billion. However, then Yahoo CEO Terry Semel failed to close the deal. According to Paul Graham, founder of Y Combinator and a former Yahoo employee, Yahoo dismissed search as an important part of the business at the time.
Similarly, Yahoo approached Mark Zuckerberg in 2006 with an offer of $1 billion to acquire his social network Facebook. Although Zuckerberg declined, it was widely known that an offer of $1.1 billion would have got the deal approved by Facebook’s board. Again Yahoo failed to close the deal. It also eschewed the chance to buy YouTube, which was subsequently bought by Google.
Part of Yahoo’s downfall can be traced to these missed opportunities.
6. It’s vital that you are wary of flawed, unclear business management and strategy.
Yahoo’s strategic rationale for acquisitions over the years has been lacking. While some of its purchases paid off like its stake in Chinese e-commerce giant—Alibaba, many others did not.
Yahoo bought photo sharing site Flickr in 2005 at a time when Flickr's team had plans to turn the site into a social network. But, Yahoo mismanaged the website into obscurity. Along the way it also did the same with Delicious, GeoCities and, most recently, Tumblr.
Poor choices made by both the executive leadership and the board of directors was an ominous sign of the business troubles to come.
7. It’s not always a good idea to keep a hands-off approach to product development.
Unlike Larry at Google and Mark Zuckerberg at Facebook, Yahoo’s co-founders Jerry Yang and David Filo disconnected themselves with decisions related to product design. Product managers at Yahoo were reportedly left to run things on their own with little room for feedback from the founders.
And in 2012 Yahoo’s co-founder Yang stepped away from the company to "pursue other interests outside of Yahoo." The resignation was a death knell for the company. It left Yahoo without the centered vision and clear leadership of a company’s founders that other tech rivals enjoyed.
8. It’s essential that you stay nimble in a fast-moving internet landscape.
Just as damaging was Yahoo’s slow-footed ways. Yahoo took too long to respond to the emergence of social media and the mobile internet. The company was too bureaucratic and too focused on traditional brand advertising to prosper in a fast-moving internet business landscape, according to some former Yahoo managers who spoke with Reuters.
"It became very difficult to get both investment and alignment" around new product initiatives, said Cohn, who is now CEO of the mobile phone app company Burner. "If you built a new product and the home page didn't want to feature it, you were hosed."
9. It’s critical that you are wary of self-promoters, people who blow their own horn so much.
It’s not a secret that Yahoo has had a string of bad chief executives over the years. Its current CEO Marissa Mayer shares key traits with other leaders of failed companies—she is really, really good at the business of self-promotion with little to show for it, according to Ted Prince, CEO of the Perth Leadership Institute, and author of “The Three Financial Styles of Very Successful Leaders.” Apparently, that’s how Mayer has managed to remain at the helm of Yahoo after continuously failing to turn the company around for four straight years since she took over in 2012.
“How many people are out there like Marissa Mayer?” Prince asks in The Balance. “How many CEOs are you aware of who might be highly articulate, but who are nonetheless just corporate bureaucrats with big talk and great body language? All hat and no saddle, as the saying goes.”
Even after Mayer eloquently articulated how Yahoo had to become a mobile ad company, the company was still doing a thousand things besides that. There never seemed to be any real focus on mobile.
10. It’s incumbent on you to find new streams of revenue besides digital-ads now.
In an article in The Atlantic, writer Adrienne LaFrance warns that Yahoo’s demise is a signal that web-native companies are next. That’s because Facebook and Google have gobbled up all the digital ad revenue, leaving nothing for other businesses clamoring for a share of the revenue.
Together Facebook and Google command the lion’s share (up to 99 percent) of global digital-ad dollars. That’s 54 percent of the pie for Google, 45 percent of it for Facebook and 1 percent for everybody else, as per data analysis by the Interactive Advertising Bureau, a trade group for advertisers.
“The ad-tech market will go the way of search, social and mobile as investors and entrepreneurs concede that Google and Facebook have won and everyone else has lost,” adds venture capitalist and blogger Fred Wilson in a January blog entry projecting what’s going to happen in 2017. “It will be nearly impossible to raise money for an online advertising business in 2017.”
If you run a business that heavily relies on digital-advertising for its revenue generation, you need to find new streams of revenue now. But it may already be too late, LaFrance says.