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Yahoo – (FROM $125 Billion to $5 Billion) The FALL of an internet pioneer

Yahoo vs Facebook vs Google

How an internet darling went from $125 Billion to $5 Billion.

A story of how Yahoo after winning the race, lost the battle.

1. Early Days

Yahoo was founded by Jerry Yang and David Filo in 1994 – the early internet era. Yahoo is an acronym for “Yet Another Hierarchical Officious Oracle” They were among the first to develop an internet directory.

1.1. Beta Version and Domain

Yang and Filo started off Yahoo with the beta link: akebono•stanford•edu/~yahoo

And then migrated to yahoo. com in January 1995

Yahoo early days screenshot

1.2. The dot-com bubble

Yahoo! went public with an IPO in 1994. Its stock price was at an all-time high of $118.75 but plummeted to an all-time low of $8.11 both in 2000.

So, what led to Yahoo’s downfall? There were some business decisions that turned the tide against Yahoo. In some cases, Yahoo was playing against itself.

2. Lack of a future vision

Yahoo didn’t have a search engine in it’s early days.

It first launched as a directory of web pages – Yahoo! Directory.

Which made the process…
• Serious human-time investment
• Used indexing ➡️ Slow and Inaccurate

Yahoo Lack of a future vision

Despite that, Yahoo Directory was very successful.

In 1998, Yahoo! Directory has more than 95 million page views/day.

But it was still missing a crucial feature – an actual search engine.

People were joining the internet revolution is hoards.

Yahoo seriously needed a better alternative to directory.

The problem?

Yahoo itself wasn’t even focussing on building a search engine.

But, an opportunity came by.

3. Missed Opportunity #1

Larry Page and Sergey Brin wanted to sell PageRank algorithm – the heart of Google’s technology – to Yahoo for a mere $1 Million. Yahoo couldn’t envision PageRank’s (now Google Search) potential and passed on the offer.

This is going to turn out to be crucial error from Yahoo’s management. Today, Google Search makes up for >50% of Google’s revenue today. Google retained PageRank and the rest of history.

Yahoo Missed Opportunity

4. Finally a Search Engine. Well, sort of

Yahoo never invested in its own search engine to build on its huge website directory.

In 2000, they eventually went back to Google to build its search layer on top of Google’s.

This gave Google – an already better search algorithm – more power.

It was able to develop much faster.

Yahoo was panicking.

It went on an acquisition spree.

Acquiring 19 companies during 1998-2000 to build its own search engine and platform.

Yet, they missed a very crucial acquisition which could’ve changed the internet as we know today.

5. 2001: New CEOs, New Vision

In 2001, both Yahoo and Google appointed new CEOs.

This came at a time when the search engine war was heating up.

Google roped in Eric Schmidt, a tech visionary and the man for the internet economy.

Meanwhile, Yahoo appointed Terry Semel, a strong but traditional leader.

Google was gearing up for the future.

Yahoo instead was banking on a classical business mind to lead them through changing times.

While not a lot of people could see it, Yahoo’s fortunes were to change completely under Terry Semel.

But, for worse.

6. Missed Opportunity #2

Yahoo was still lacking a search engine when it was approached by a highflying Google in 2002.

Google proposed a $3 billion acquisition.

Yahoo said it was overvalued and rejected to buy Google AGAIN!

Here’s the funny part,

Yahoo had already acquired a web-hosting and a streaming platform for a total of $9.5 billion in 1999.

7. Yahoo still needed a search engine

So, Yahoo acquired Overture.

A company that was developing a search engine for $1.63 billion

But, unfortunately Yahoo was very late to the party.

By 2003 already, Google has all but won the battle of search engines.

This wasn’t all.

After failing to acquire some companies which could’ve changed Yahoo’s fortunes completely.

Yahoo also acquired some companies which propelled its decline.

8. Golden Ticket Acquisitions for nothing

Yahoo has a “rich” history of big-money acquisitions that don’t pay off.

A few examples…

• Broadcast a streaming platform for $5.7B from Mark Cuban
• GeoCities web-hosting and one of the first website builders for $3.6B

Yahoo could’ve tried to build on them. But, it let them die slowly.

Most recent one, Tumblr.

• Yahoo acquired Tumblr for $1.1 Billion in 2013
• Tumblr continued to loose users under Yahoo

Yahoo eventually sold Tumblr to Automaticc (WordPress’s parent) for $10 Million

A striking 100x lesser than its initial value.

9. Missed Opportunity #3

In 2006, Yahoo reaches out to Facebook.

Zuckerberg agreed to sell of Facebook for $1 billion to Yahoo.

But, Yahoo said that the asking price is an over-estimation of Facebook’s potential.

Instead, Yahoo acquired a bunch of startups – Flickr, Delicious and Right Media.

To build it’s own social media platform.

Yahoo failed to integrate them into its ecosystem.

Another big mistake by Terry Semel.

Yahoo never came close to building a social media platform.

If Yahoo wouldn’t have missed these 3 opportunities.

Today’s internet economy would’ve been completely different.

Yahoo failed to envision future at all.

10. Microsoft and Yahoo

Microsoft offered to buy out Yahoo 3 times in 2005, ‘06 and ‘07.

In 2008, Yahoo’s then CEO Jerry Yang rejected a $44.6 Billion offer.

But then very next year, Yahoo inked a 10-year deal with Microsoft to mutually use their search technology.

11. Yahoo’s UI problem

While Google opted for a very simple UI consisting of only a search bar.

Yahoo has a very messy UI. Even today it’s home page is full tiles of content and ads.

This UI has become a part of Yahoo and hasn’t changed much in more than 10 years.

Yahoo UI

12. Failure to adapt to mobile

Even as all its competitors were developing their mobile platforms.

Yahoo overlooked it completely.

The clunky UI made it practically impossible to adapt to mobile.

And when it did, it just looked bad.

Yahoo Failure to adapt to mobile

In retrospect, this turned out to be the final nail in the coffin for Yahoo.

Today,out of a total 4.66 Billion internet users 4.32 Billion of them are on mobile.

13. Marissa Mayer as CEO

The first major shift towards mobile only happened when Marissa was appointed as Yahoo’s CEO in 2012.

She realised there was big platform shift and Yahoo needed to get on it.

But, it was too little too late

Following a ray of sunshine in July 2013,

When Yahoo reported that all of its webpages were visited more times than Google.

Things got quickly turned around by a data leak of 1 billion+ Yahoo users.

14. Yahoo’s stock fell, never to rise up again.

There were employee related problems.

And in 2017, Yahoo was acquired by Verizon.

After multiple attempts at building and rebuilding, Yahoo failed terribly.

As a result it was eventually acquired by Verizon for $4.48 Billion – about $120 Billion less than its peak valuation.

Verizon made some failed attempts at reviving Yahoo.

In 2021, Verzion sold off Google to Apollo for $5 Billion.

Conclusion

• Yahoo of today still exists and is fairly popular
• It is still among the Top 15 most visited websites in the world
• Yahoo still has about 1 billion active monthly active users.

Yahoo was first to market in almost every internet category.

But, it failed to capitalize on its lead and the field was dominated by new entrants

Yahoo Briefcase was the first to do cloud storage but it got overwhelmed by Dropbox, Google Drive, and Box

But it is a classic case of “what could’ve been”

All the acquisitions and opportunities that Yahoo has missed cost them a lot.

In numbers,

Yahoo vs Facebook vs Google

This was the story of Yahoo.

It is crazy how individual business decisions can completely change the picture.

This also points to the fact,

Opportunities are hard to come by, we should take our time before making decisions.

Written by Aditya Gaur