Yahoo’s demise: The internet giant’s failure is a story of missed opportunities

Published: August 1, 2016
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Yahoo was the ‘go-to destination’ to find good content on internet but it failed to develop a new niche after the dot-com bubble burst. PHOTO: REUTERS

Yahoo was the ‘go-to destination’ to find good content on internet but it failed to develop a new niche after the dot-com bubble burst. PHOTO: REUTERS

ISLAMABAD: In 2013, after Yahoo acquired Tumblr, a micro blogging website, many financial analysts thought that Yahoo would move away from troubled waters and join ranks with the likes of Facebook and Twitter, if not Google.

Marissa Mayer indeed made a good bet by acquiring the blogging platform for $1.1 billion but unfortunately the acquisition failed to turn things around for Yahoo. Revenues fell, though Yahoo snatched back some market share from Google in 2015 after a deal to replace Google as the default search engine on Firefox browsers in the US.

Despite several acquisitions and organisational changes, profits continued to tumble and eventually the company was put up for sale in 2016. Now in hindsight, we can identify four reasons why a company valued at more than $100 billion in year 2000 ended up getting acquired for less than $4 billion in 2016.

Do you Yahoo!?

After 21 years, board of directors at Yahoo still has no idea if Yahoo is an internet technology company or is it a media powerhouse. For most users, Yahoo is an obsolete search engine; for some, Yahoo is synonymous to Yahoo Mail and for many, it is a finance news portal.

The organisational identity crisis resulted in an unbridged gap between its internal self-image and its market positioning. Yahoo was the ‘go-to destination’ to find good content on internet but it failed to develop a new niche after the dot-com bubble burst.

Yahoo is a buzzkill when it comes to acquisitions.

It acquired more than 110 companies since its inception but only a few had a strategic fit with its core business. Yahoo has shown a poor track record in general when it comes to managing million dollar acquisitions. Yahoo failed to monetise the $5.7 billion Broadcast.com, an internet radio company and had to close operations of GeoCities – a web hosting company that it acquired for over $3.6 billion. Yahoo did the same with Delicious and Flickr.

A hands-off approach to product development

Unlike Mark Zuckerberg at Facebook and Larry at Google, co-founders of Yahoo essentially disconnected themselves with decisions related to the product design. Product managers called the shots who would prepare extensive requirements elicitation documents for engineers to execute – with little room for feedback.

Creativity was not a priority and there was no culture of process improvement. Things never changed even when underdogs started to steal Yahoo’s thunder and grab its market share.

Missed opportunities

In 2002, Yahoo failed to close a deal with Google co-founders when they asked for $1 billion. Eventually when Yahoo’s CEO went to them with the reluctant offer, Google raised their valuation to $3 billion.

Similarly in 2006, Yahoo approached Facebook with an offer of $1 billion. Though Mark Zuckerberg declined, it was widely known that an offer of $1.1 billion would have got the deal approved by Facebook’s board.

In 2008, Microsoft approached Yahoo with a takeover bid of over $44 billion. Yang resisted the offer and made up a “stockholder rights plan” as a poison pill to make the company unattractive for takeover. Eventually in 2012, Yang stepped down from the board leaving the company in dire straits.

Final word

An internal memo written by a Yahoo employee in 2006 (called Peanut Butter Manifesto) highlighted that the company wants 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 an internet pioneer.

The writer is a Cambridge graduate and is working as a management consultant

Published in The Express Tribune, August 1st, 2016.

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Reader Comments (2)

  • Aslam Ghani
    Aug 1, 2016 - 12:31AM

    Yahoo was Kodak and Xerox of the 21st century that failed to innovate Recommend

  • thimble
    Aug 1, 2016 - 11:37AM

    Yahoo was in control of those who knew nothing about computer technology. Moreover, it has no clear direction. It became so fat that it fell down by its own weight.Recommend

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