How And Why Yahoo Threw Away Everything

Ethan
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THE PEAK OF YAHOO

Once upon a time, Yahoo was one of the largest internet companies in the world. They offered everything from search and email to weather and stocks. They were basically the Google of the late 1990s and early 2000s with a monstrous valuation of $125 billion way back then. But, ever since then, it’s only been downhill for Yahoo. 

Graph Showing Peak of Yahoo


Yahoo only pulls in a mere fraction of the internet traffic that it used to, and this has translated to underwhelming stats across the company. At this point, they don’t even control 3% of the search engine market which is 3 times less than even Bing, and it’s a similar case with email as well. They’re no longer even a public company and they keep getting tossed around from one owner to another for pennies on the dollar. 

In fact, Apollo Funds recently bought Yahoo and AOL, both of whom were once $100 billion companies, and other businesses all for just $5 billion. But, more than all of that, likely the worst omen for Yahoo is public perception. 

I don’t think people necessarily have a negative view of Yahoo but at the same time, it’s not positive either. If you ask the average person about Yahoo, their response would probably be along the lines of “Oh yeah, they used to be really big back in the day. I think I still have a Yahoo email from back then but I don’t use it anymore.” 

In other words, the general public has very much moved on from Yahoo, and most would point to Google as being the biggest reason for Yahoo’s downfall. And at first glance that makes sense. After all, it was Google that basically overtook every industry that Yahoo used to dominate. 

It’s the classic case of a new modern company displacing a legacy giant with raw innovation and charm. But, when we peel back the layers, you’ll see that almost all of Yahoo’s demise was actually their own fault. So, here’s what really happened to Yahoo - the company that threw away everything. 


A LUCKY BREAK

To understand what really happened to Yahoo, we first have to understand how they even became successful in the first place. Usually, when we talk about dying companies on this website, we’re talking about some legacy electronics company that was founded in the 1960s and 70s or even the early 1900s, but Yahoo doesn’t exactly fit this profile. If anything, Yahoo is more of a new-age company having not been founded till 1994. 

Yahoo actually has a very similar origin story to Google. You know how Google was founded by two Stanford graduate students, Sergey Brin and Larry Page, in the 1990s? Well, Yahoo, was also founded by two Stanford graduate students, Jerry Yang and David Filo in the 1990s. Yahoo even had a crappy original name just like Google. It was originally called Jerry and David's Guide to the World Wide Web. 

As the name suggests, Yahoo started off as a way to better navigate the World Wide Web but not by searching. Instead, Yahoo was more of an online phone book. It was basically just a massive directory of websites. That probably sounds rather clunky for 2023 standards but back in 1994, this itself was pretty useful. 

In fact, before the name Yahoo was even chosen, our duo would receive over 100,000 visitors and 1 million views to their website. Surprised by the traffic, our duo decided to make this side project an official business and name it Yahoo which stands for “Yet Another Hierarchically Organized Oracle”

And with that, Yahoo was off to the races. Just one month after being incorporated, Yahoo would raise $3 million from Michael Moritz and Sequoia Capital. And just a year after that, Yahoo would IPO on April 12, 1996, reaching a valuation of $1 billion. Let me put that another way. 

Yahoo went from 0 to $1 billion within a matter of 2 years and 4 months, and for most of that time period, they weren’t even an official company. Yeah, I think it’s safe to say that Yahoo very much stumbled into the limelight and this was likely one of their biggest shortfalls. Yahoo wasn’t some sort of super well-thought-out company. 

It was something that kind of just happened and this would become really apparent when Yahoo was tasked with maintaining and growing this success. Luckily for Yahoo though, they never had to deal with this during the 90s thanks to dotcom hype. Instead of growing a strong foundation, Yahoo would have the luxury of expanding into everything underneath the sun using dot-com money. 

For example, they would launch a bunch of international variants of Yahoo throughout 1996. This included Yahoo Japan, Yahoo UK, Yahoo Germany, and Yahoo France. They would even start their own print magazine called Yahoo! Internet Life. 

print magazine called Yahoo! Internet Life


Yeah, I don’t think you’d be surprised to hear that this magazine didn’t last all that long but Yahoo also had a few stellar launches as well like Yahoo Mail and Yahoo Finance in 1997. 

But if there was any way to describe Yahoo in the late 90s, it would be that they were all over the place. Like a lot of tech companies try to do, Yahoo was trying to be everything for everyone. And who could blame them? 

They were growing rapidly, had access to seemingly infinite capital, and would even be added to the S&P 500. It wasn’t until the turn of the century and things cooled down that Yahoo would realize that by trying to be everything for everyone, they had actually become nothing to no one. 


PURE INCOMPETENCE

Being all over the place and lacking focus was just half the story though. Much of Yahoo’s demise can actually be attributed to pure incompetence and poor decision making and likely the best example of this was their history of acquisitions. Acquisitions can be a game-changer. Some of the most successful tech ventures of all time weren’t built in-house, they were acquisitions. 

This includes the likes of YouTube, Android, Instagram, and WhatsApp all of which were game changers for Google and Facebook. Yahoo has had its own share of game-changing acquisitions, only it wasn’t game-changing in a good way. And it wasn’t just 1 or 2 bad deals either. Yahoo consistently made terrible deals starting with Google. 

You see, Larry and Sergey didn’t initially have massive ambitions with Google. As far as they were concerned, Google was just a school project and they were willing to sell the project for a generous exit of $1 million in 1998 to none other than Yahoo. Yahoo would of course refuse, and honestly, this is quite understandable. 

They probably see dozens of people like Larry and Sergey walk through the door and most of them likely end up as nothing. So, it’s understandable that Yahoo didn’t want to take a flyer with Google in 98, but you know what they did wanna take a flyer with the most overvalued internet company of all time: broadcast.com

I’m not even exaggerating. Broadcast.com is regularly cited as the worst acquisition of all time as Yahoo would pay $5.7 billion for the company. The company only had a total of 570,000 users, meaning that Yahoo paid $10,000 per user. If that wasn’t bad enough, Yahoo would end up shutting down the company just a few years later. And that was just the most notable example. 

Yahoo also blew $3.6 billion on GeoCities, $1.63 billion on Overture, $1 billion on Tumblr, and $850 million on Right Media. Clearly, not a very strong track record but honestly, the deals that Yahoo missed out on are even more notable. Remember how they missed out on Google in 98? Well, that was just the first time that they missed out on Google. 

It turns out that they would somehow get a second chance in 2002 and they would blow it once again. At this point, Google was no longer just a college project. It was a legitimate business that was rapidly eating up Yahoo’s market share. Yahoo realized this and offered to buy Google for $3 billion. Google would counter with $5 billion but Yahoo was not willing to budge. 

For perspective, Google would reach a $100 billion valuation just 3 years later. Alright, maybe Yahoo is just unlucky when it comes to Google. If another winner walked through, surely they would pounce, right? Well, Google isn’t the end of the story because Yahoo also missed out on Facebook in 2006, and this one was the saddest of them all actually. 

Everything was good to go. Both parties had agreed to an acquisition for $1.1 billion. But, at the last second, Yahoo would reduce their offer to $800 million and Zucerkberg would walk away. In other words, Yahoo has lost out on trillion-dollar opportunities on 3 separate occasions. Fortunately, that was the last time they massively screwed it up, I’m just kidding. After all, this is Yahoo that we’re talking about. 

In 2013, Yahoo had the opportunity to either buy Tumblr for $1.1 billion, Hulu for $1.3 billion, or Netflix for $4 billion. They would end up choosing Tumblr while Netflix became the best-performing stock of the decade. To be honest, I didn’t even know this was within the realm of possibility. They literally passed on 3 FAANG companies on 4 separate occasions while simultaneously making the worst acquisitions of history. It’s actually wild. 

They somehow managed to perfectly pick all the losers and miss out on all the winners. Sounds a lot like your average Joe trying to day trade and honestly that was pretty much what happened. Yahoo was led by extremely intelligent people but not exactly strong business people. Google actually had the exact same problem. 

Larry and Sergey are some of the smartest people in the world, but they weren’t all that great at being CEOs. And that’s why they hired a career businessman named Eric Schmidt to be CEO, and Eric is really the guy who made the business side of Google work. Yahoo, however, didn’t have an Eric, and they would continuously blow it year after year. And if you thought their history of acquisitions was terrible, well it gets even worse. 


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THE SHAMEFUL DEMISE

Despite all of their blunders and shortcomings, Microsoft, who was desperate to fight against Google would offer to buy out Yahoo in 2008 for $45 billion. While this was a lot lower than Yahoo’s peak valuation of $125 billion, it was quite generous given that Yahoo was getting destroyed by Google, but Yahoo didn’t see it this way. 

They saw it as an under-market value offer so they would decline the deal and this basically sealed their fate. Yahoo would continue getting destroyed by Google over the next decade and they would eventually get bought out by Verizon for a measly $4.5 billion. 

Today, Yahoo is still around and they still have a decent user count just because of how big they were back in their glory days. But make no mistake, Yahoo is a shell of their former selves and what happened to them is really quite a shame. Yahoo basically accidentally stumbled upon a gold mine in the 90s but they didn’t exactly know how to manage all this newfound wealth. 

They ended up expanding into every sector under the sun while not doing any of them all that well. This would’ve been the end for most companies but thanks to dotcom funding and hype, they were able to overcome these massive mistakes. 

They had a second opportunity to really double down on their core products and audience, but they never did that and Google would end up eating their lunch. Now, this would’ve surely been the end of most companies but Yahoo had even more opportunities in the form of acquisitions. 

First, there was Google, then Google again, then Facebook, then a bailout from Microsoft, and then Netflix. Yet, Yahoo would pass on all of these opportunities only to end up being bought out by Verizon for $4.5 billion. And honestly, Yahoo has no one to blame but themselves. 

You know how 70% of lottery winners end up going bankrupt within a few years, well, that’s exactly what happened to Yahoo. They got insanely lucky but without the right business mindset, they just weren’t able to keep up their success despite having every opportunity to do so.

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