Yahoo, once a pioneering titan of the digital era, has long since fallen from its lofty position. The lengthy saga appears to be ending with its sale to Verizon for a meager $4.8 billion, a far cry from the $125 billion of its heyday in 2000 (or $175 billion adjusted for inflation!). Much has been made of the company’s recent missteps, but the problems from which the company suffered are not new. In fact, they stretch back nearly two decades and are, ironically, rooted in its substantial past success.
Do you Yahoo?
What happened to Yahoo?
Paul Graham, a well-known Silicon Valley entrepreneur and investor, describes the purchase of his company by Yahoo as confusing – he couldn’t figure out, at the time, why they seemed interested in buying his business but simultaneously seeming so disinterested in his product. He found this particularly puzzling, since his product improved search results in a user-specific manner, using early machine-learning techniques. He reasoned later that Yahoo’s ambivalence came from the fact that their customers were already significantly overpaying for ads. After all, if your customers appear happy to pay phenomenally over-inflated prices, you have little incentive to rock that boat. Customers were willing to do this, of course, because the internet was still a very new medium for advertising and the prices Yahoo quoted were considerably lower than print, which was the only valid comparison at the time. Yahoo was pulling in enormous sums of money from this kind of advertising, more than they knew what to do with at the peak of their success.
- 1994 Yahoo – which stands for Yet Another Hierarchically Organized Oracle – is founded
- 2000 Yahoo valued at $125bn at height of dot.com boom
- 2002 Google rejects a $3bn bid from Yahoo
- 2008 Microsoft’s $44.6bn offer for Yahoo is turned down
- 2013 Blogging site Tumblr acquired by Yahoo for $1.1bn
- 2015 Yahoo makes net loss of $4.4bn
- 2016 Verizon agrees $4.8bn deal to buy Yahoo
Possible reasons for the sale of Yahoo to Verizon
Unfortunately, this mega-success bred complacency at the company, and they couldn’t envision losing their dominant position to a potential emergent competitor. They had created a “Blue Ocean” market for themselves, a Harvard Business Review coined term for the creation of uncontested markets in which the creating company is literally the only player. This de facto monopoly is usually based on innovative product ideas or a technological improvement, which is clearly what Yahoo had done, and is a dream for any company. With no competitors, all potential clients are there for the taking with minimal effort! Obviously, these situations rarely last forever, as they’re incredibly attractive to new entrants, and this is precisely what happened, as new, innovative, specialized competitors began to eat away at Yahoo’s business lines. A best practice to avoid this requires us to borrow a phrase from sales: Always Be Innovating. Yahoo failed to stay ahead of the game and make the best use of their massive cash flows to out-innovate competitors. Instead, they more or less quit caring about providing the best service they could and were content to cash their ad cheques, leaving room for new entrants, like Google, to steal market share at a devastating pace. They also wrongly assumed their customers would not become more sophisticated over time and if your value-add is, essentially, naïve clients, you need to re-jig your business model, as customers have never been known for getting less-informed as time goes on. The only defense to both situations is to out-innovate your competitors.
Complacency comes from somewhere, it is also not simply the result of making lots of money – if that were the case, there would be no titans in any industry. No, complacency comes from a company that has no focus, one that has lost sight of its mission. In 2006, a management retreat posed the question to Yahoo’s senior executives of what came to mind when various companies were listed. The results were fairly predictable for some: Google made people think of search, Microsoft had people thinking about Office or Windows, eBay brought to mind an auction. When Yahoo itself was brought up, however, there was an enormous spread of answers, ranging from search to mail to news to ads to everything in between. Clearly, there was a lack of direction amongst the executives for where the company should be headed. This is potentially devastating for a business – if management doesn’t know what they’re supposed to be doing, how can the employees possibly know? The best way to avoid this is to have a meaningful mission statement with strategic goals for the business and disseminate them to employees at all levels. While this may sound somewhat cheesy, it undeniably helps drive the focus of the company home at every level of the organization. In turn, this influences employee behavior and helps to keep them on target.
Marissa Mayer, Yahoo CEO is entitled to severance benefits valued at $54.9 million in the case she is terminated without cause, according to a regulatory filing after the market closed Friday. The potential payout would also be triggered by a “change of control,” which includes the sale of the company, according to the filing. Source
By the time this management retreat was held, Yahoo was already ceding considerable ground to competitors, but they were still in a position where they could have turned things around and salvaged much of their former glory. Instead, they continued their tactics of trying to be everything to everyone in a market inhabited by extremely specialized competitors. Their clients became more sophisticated and outgrew Yahoo’s business model – the internet was no longer brand new and foreign, huge stockpiles of data were available for companies to analyze consumer behavior and use ads in more targeted ways than Yahoo could provide. They say “Pride cometh before the fall” and this was very much the case at Yahoo – their hubris bred complacency, which led to a loss of focus. In turn, this caused them to lose market share to competitors who remained on the ball and, ultimately, fall out of the spotlight. Though people are only hearing it today, the death-knell for Yahoo as sounded nearly 20 years ago. A constant desire to improve and the ability to keep growing organizations on track are sometimes difficult, especially during good times, but they’ll ensure your business succeeds in the long haul.