Yahoo! was founded in 1994 with $33.8 million venture capital prior to Initial Public Offerings (IPOs). By the time it went public in less than two years, it was valued at over $800 million. Yahoo! led the early search engine market with a differentiated method that used people to curate the content and categorize it to make searching simpler for users.
However, in 2008, Microsoft offered close to $45 billion to buy Yahoo! But the executives decided not to take the cheque. By early 2017, Verizon and Yahoo! agreed to a meager $4.48 billion deal after a series of cyber attacks. At this point, Yahoo! had somehow managed to destroy 90% of its value in 10 years.
Though no company is great forever, but there are salient lessons every business owner can learn from the fall of Yahoo!
1. Every business is susceptible to failure
The irony is that Yahoo! one of the first tech companies to disrupt traditional media failed to adhere to this. Being the first to execute a business idea and becoming successful at it, doesn’t ensure lasting success. Take a look at the history of IBM, for instance. Consistent innovation and reinvention of a business shouldn’t be negotiable.
2. Oversight decisions matter
It is almost unbelievable that the board at Yahoo! oversaw a decline in shareholders’ value. The Founder spurned a $45 billion takeover offer from Steve Ballmer, then CEO of Microsoft because the board wanted another 10%. Years down the line, the core internet operations of Yahoo! was purchased for just $4.5 billion. Making the right business decisions is directly proportionate to a company’s success.
3. Laxity in business never goes unpunished
Jerry Chih-Yuan Yang, the then Co-founder & CEO of Yahoo!, apparently believed they didn’t need Microsoft. He also turned down the opportunity to license Google’s core technology for $1 million when the company was just getting going. The reason being that they didn’t think there was a future in paid search.
4. Low talent density
It is a known fact that great companies are made by great employees. In Silicon Valley, Yahoo! had some of the best hands. However, they also started hiring mediocre engineers and compromising on high talent density. Due to this (and other reasons), the best talent started to leave, reducing the quality of the company even more.
5. Focus –find a niche
Besides hiring mediocre talent, perhaps the other capital sin for Yahoo! was that they never really found a strategic focus as a company. Yes, they tried to be a “web” company. But, what does that even mean? Their search engine and social network weren’t the best. Even when Marissa Mayer, then President & CEO articulated that they had to become a mobile ad company, they were doing a thousand things besides that.
6. You don’t build a company solely through acquisitions
Though this has worked for Google, with the acquisition of Youtube, and with Facebook acquiring Instragram. However, in most cases, companies that do big acquisitions do have a strategic and well-defined focus. Marissa Mayers’s use of acquisitions for Yahoo! seemed somewhat like a desperate attempt to fix the issue of low talent density. At the end, those acquisitions did nothing but decrease focus and dilute culture at Yahoo!.
Yahoo! was operating in the increasingly competitive arena of Internet/Web businesses, and not paying enough attention to the issues above, necessitated its failure. I am sure that there are people who would disagree with the flaws I pointed out, but it should be noted that to sustain a thriving business, issues such as talent and fast innovation are so important.
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