Why Yahoo failed

Why Yahoo! Faced An Unimaginable Downfall

During my school projects in the 2000s, I would take recourse to the Internet for collecting important and relevant information. The word ‘Yahoo!’ was synonymous to web services, then. Times changed. Now the once-so-famous Yahoo! had taken the backseat, quite literally. All we know now is just one name that is Google. This search engine has revolutionized the web surfing techniques, revolving around the changing consumer requirements. Google was once not the web titan, as it is now. The crown belonged to Yahoo!, it got the advantage of the first mover mindset, and it thrived during the dot com bubble burst. But all these favourable situations failed to bring fortune for this web giant Yahoo!

In the year 1994, two students of Stanford, Jerry Yang and David Filo proposed to organize a directory, where the websites would be placed according to a hierarchy. The general Internet was at an infant stage and needed many more developments. Initially, Yahoo! was known as “Jerry and David’s Guide to the World Wide Web”. After a couple of months of its launch, the name was shortened to ‘Yahoo!’ With the invention of the Internet in the 1990s and the rapid Globalization, Yahoo! was accepted with whole hearts. Previously, finding websites related to a particular domain or field was a herculean task, but Yahoo! made it simpler. The hierarchical organization of websites, as designed by Yahoo!, is starkly different from the way the search engine ranks websites that is by the crawler.

Yahoo! Search, Yahoo! News, Yahoo! Mails etc were designed for the convenience of the users, and everyone was satisfied with this web giant. The company expanded rapidly and gained a majority of market share. With the dawn of the new century, Yahoo! unfortunately, made some wrong choices that led to its epic downfall. Yahoo! reached the height of its success within the very first two years. It had already launched itself as the biggest web portal, competing strongly against Excite and America Online. The share price skyrocketed by 600%, making it a global web giant. Yahoo! Directory was having 95 million users per day, which is three times higher than its immediate rival Excite. “Yahoo! therefore also offers a search engine based on indexing technology but does not finance the development of its own search engine, which is a big mistake in retrospect. Even bigger is the mistake made by the leaders of Yahoo! at this time to refuse the acquisition of PageRank technology at the heart of Google when Sergey Brin and Larry Page came to see them in 1998.”

In 2002, Yahoo! Had a golden opportunity rolling in front of them. They could have bought Google then at $3 Billion but refused to accept the offer. But, they did not hesitate to acquire Geocities at $3.6 Billion and Broadcast.com at $5.7 Billion in 1999. If they acquired Google when the chance arrived, the picture would have been different now. Yahoo! lacked foresight. They misjudged the social media and smartphone explosion. Just like Kodak, Nokia, BlackBerry, Yahoo! too derailed from the way of success due to lack of vision. Yahoo! followed the trend of making an array of acquisitions at a golden price, but failed to work on that. Acquiring is not the solution to strengthen market share and retain long term relevance. Yahoo! acquired Geocities and Broadcast.com, but could hardly develop them. Geocities helped the users to create web pages easily, but Yahoo! failed to upgrade the features.

Yahoo! went on an acquiring spree, but it was nothing but complete waste. By 2007, it acquired Flickr, Delicious, Right Media, but these companies could not compete against the rising Facebook. Yahoo!, realized that Google was conquering the global market share at a lightning speed, and understood the urgency of the situation. What did it do next? Yahoo! again acquired another company, Overture at a price of $1.63 Billion, for developing a search engine. But, Overture failed to compete against the advanced search engine techniques of Google. After facing consecutive failures over the years, Yahoo! finally stepped up for yet another acquisition.

Yahoo! also made a mistake while appointing the right leader. If the captain is not efficient enough, the ship will inevitably sink in the course of time. It did not take long, before Yahoo! made another blunder, by appointing Terry Semel as CEO. After 8 months, Semel was replaced by the co-founder Jerry Yang himself, but that also did not help the situation to get better.

“Yang made a real mess of things, losing more than 100 executives in a crippling talent drain and, along with chairman Roy Bostock, botching a sweet $46 billion acquisition by Microsoft. When the dust settled, Google owned the search market and the advertising riches that went with it. And, like his predecessor, Yang was gone. That led to a procession of chief executives over the next three years. Some were more interim than others, but all were temporary, nonetheless. Most colorful was the famously foul-mouthed Carol Bartz, who unwisely outsourced Yahoo’s search business to Microsoft. Also, Scott Thompson, who lied on his resume and was busted by activist investor Dan Loeb.”

In 2012, Marissa Mayer became the CEO of Yahoo!, and all hoped for the best. She was the former Vice President of Google, and added many feathers to her hats with her notable achievements. After becoming the CEO, she left no leaf unturned. She tried her best for bringing back the past glory of Yahoo!.  In 2013, Yahoo! acquired Tumblr Blogging platform for $1.1 Billion. But the site was losing users continuously, and could not withstand the tough competition and popularity of other social sites. In 2019, it was sold to Automaticc, the publisher of WordPress.com.  

4 years have passed since Mayer became the CEO, and the situation deteriorated, instead of changing for the better. By 2016, $2 Billion have been invested, more than 50 companies and startups have been acquired, and thousands of executives and managers have been hired and fired. Several strategies and business plans have been implemented and abandoned. In 2017, after a lot of struggle, Verizon finally acquired the core Internet business of Yahoo! for $4.48 Billion, and Mayer stepped down from her position as CEO.

As reported by The Washington Post of 2017, “Under a newly bolstered Verizon, Yahoo and AOL will combine as part of a new media and technology company called Oath. The sale of Yahoo was first announced last summer, with a $4.8 billion price tag. But just months later, the company disclosed a series of data breaches that compromised the personal information of potentially hundreds of millions of people. Following the breaches, Yahoo and Verizon eventually agreed to discount the purchase price by $350 million.”

Yahoo! started as the legend in the Internet segment, but could not retain the throne. Whereas Google, which was also found just a few years later after Yahoo!, developed and upgraded with time, and chalked a success story. From the mistakes of Yahoo! the budding entrepreneurs and business owners can learn a great deal.

  1. Adapt with time, nothing is constant: Yahoo! started when there was nothing like it. It had the advantage of first-mover, but time changed fast. Globalization and the dot com bubble burst occurred within no time, and the company was slow to adapt. Just Indiaplaza, the company failed to grasp the needs of the consumers. Yahoo! lacked technical strength and qualified programmers, unlike Google.
  2. Choose the right leader for success: Just like the ship needs a captain, a business needs an efficient leader. Marissa Mayer was experienced, but she failed to improve the condition of the company. Under Jerry Yang, many managers and executives were hired and fired. There was clearly a lack of leadership. Google hired Eric Schmidt who had experience in Sun Microsystems and was aware of the new technologies. Yahoo! hired Terry Semel, who was a veteran of Warner Bros, and had limited knowledge about technologies.
  3. Knowing profitable investment options is crucial: Yahoo! invested billions over the years to acquire innumerable companies. But what it did not do was ample market research. Mayer spent billions in just 4 years for purchasing 50 companies, and this decision just proved to be detrimental to the company’s future. One must be aware of the profitable investment options and strategies, before coming to conclusions.

The first mover mindset and lack of adaptability in changing times played an important role in drowning the company. When Yahoo! failed, the time was ripe for Digital Revolution. Web giants like Google, Facebook are basking in glory, as they are constantly upgrading themselves, and improving user experience.

It is good if you want to follow your passion and be your own boss. You want to avoid such mistakes, but who can guide you? Google will give you hundreds of websites, but an expert will guide you thoroughly in your journey. Do you want to talk to experts in detail? Talk to our niche skilled experts now to know the diverse competitive market in greater detail! We at Vedak have an exclusive pool of experienced industry professionals and veterans who have in-depth knowledge about the business nitty-gritty. Contact us to know more. 

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