INTRODUCTION
Yahoo! Is a global Internet services provider based in Sunnyvale, California, and owned by Verizon Communications since 2017. It was founded in 1994 by Jerry Yang and David Filo, graduate students at Stanford University in California. Yahoo! provides users access to Web sites. In simple words, Yahoo was what Google is today but with poor vision, poor execution of ideas, poor leadership and low consumer friendliness in the late 1990s and early 2000s.
After raising more than 2 million dollars in its first round of venture capital funding, it went public with a stock offering of 33 dollars and closed at 43 dollars. It was the hottest company and the hottest stock. It slowly became a household name
Yahoo was a one-in-a-million idea that came to the right minds at the right time. The 1990s was a time when the internet was an organised mess with exponential potential and there needed to be some sort of organisation and direction given to its users.
Yahoo set the precedent for what we call now search engines but in the most primitive form of it all.
The Yahoo directory at its best could be compared to a Chimpanzee before it’s evolution into human beings as we know today.
Since Yahoo was an idea one of a kind, it did not know the competition. It grew in an environment with no threats for a while and was adapted to that.
Instead of eliminating competition, Yahoo focused on expanding itself and its umbrella of sub-topics.
RISE OF YAHOO
In early 1995, Yahoo is formed and it raises around 2 million dollars in funding from Sequoia Capital. After going public in 1996, after raising 33.8 million dollars, it is valued at 848 million dollars. By early 1998, Yahoo had added email, shopping, classifieds, personals, games, travel, weather, maps, people search, celebrity chats, a kid-oriented version called Yahooligans, and an online magazine. At the time, it was competing with search portals like Excite, InfoSeek, and Lycos to provide everything on the net in one place.
It reached an all-time high of its share in January 2000, of 475 dollars before splitting. In 2001, Yahoo bought a start-up called Launch cast and turned it into the basis of its own streaming music service.
Source; Fast Company
Visible in the graph above, Yahoo had more 4,000,000,000 visitors in 2003 which is double than AOL and MSN combined. Yahoo was the most successful internet giant the world had ever seen. In 2005, it invested 1 billion dollars for 40% stake in Alibaba, a Chinese company. This stock further increased profits since Alibaba rose to become extremely successful. Its revenue in 2013 was more than 10 billion dollars and now has a revenue of more than 130 billion dollars.
THE DOWNFALL
THE GOOGLE FIASCO
In 2002, Yahoo had the chance to buy Google for $1 billion, but Yahoo executives were unsure about the deal and by the time they decided to pursue the offer, Google’s price had soared to $3 billion. In the late ’90s, search was only generating 6% of Yahoo’s income stream, and the company believed it did have more scope of improvement. Jeremy Ring, a top sales executive at Yahoo from 1996 to 2002 says Yahoo’s biggest mistake was not allowing paid search ads to coexist with organic search results. For the first couple of years after its launch, search results were considered editorial content, and Yahoo did not want to incorporate advertisements in them. Yahoo realized this misconception and acquired Overture, the company that invented paid search advertising, for $1.6 billion in 2003 but Google was already at the top. Instead of fine-tuning Overture to compete with Google’s more sophisticated system, Yahoo decided to build its own advertising platform mostly from scratch even though it had just acquired Overture. Project Panama, the new platform to maximise the profits from advertisements took nearly three years to complete. By then, the search wars were over and it was clear that Google had won. Yahoo changed it’s objectives numerous times and every time it did they were late to the game. Thus we can see that the market share of Yahoo was 33.8% in December 1995, 24.3% in December 2000, and 7.4% in December 2005. It kept on decreasing and every effort Yahoo made ended in vain.
Thus, we can see that after 2002, the search engine market was completely dominated by Google.
Yahoo created a consumer base and Google fed the consumer base’s appetite while monetizing it. Ever since Yahoo’s introduction in the internet sphere, the number of people using the internet increased exponentially. Before Google, Yahoo has more than 50% of internet users. Thus, from 1995, Yahoo’s official release to 2000 there was an 88% percent increase. Thus, we can concur that the market for internet usage was new, hungry and exploratory. Since Google’s launch in 1998, its market share was only and only increasing. Till mid 2002, it was below Yahoo at around 31% but afterward it never looked back.
BOTCHED BUSINESS DEALS
Yahoo attempted to purchase Facebook back in 2006 for $1 billion, but the initial offer was refused by CEO Mark Zuckerberg. A lot of reports indicate that the board of directors of Facebook would have forced Mark Zuckerberg to accept an offer of $1.1 billion, yet Yahoo executives would not agree to the increased bid. Although this deal wasn’t made official and is based on rumours the probability of it happening is quite high. Yahoo always put itself on a pedestal.
Another failed business deal is the failure to merge gracefully with Microsoft.
Although Microsoft’s $44.6 billion takeover bid was rejected in 2008, Yahoo ended up signing a deal with Microsoft the very next year to use the Bing search engine after failing to develop an effective search engine of their own. At one point in time, Yahoo handled about 20% of search requests thus, the Microsoft-Yahoo combination would have about 28% share. Beginning in 2002, Yahoo spent more than $2 billion buying other search engines, including the remnants of AltaVista and Inktomi, and as mentioned before invested a great deal in Project Panama. Thus, Yahoo spent a considerable time buying and working on other search engines rather than developing one which could’ve been one step ahead of all the others. Yahoo needed to hire the best engineers money could buy and spend time developing a search engine that could solve all their problems in present time and future. Yahoo already had a brand name, they just needed a search engine that could work.
TOO MUCH DIVERSIFICATION WITH NO SPECIALISATION
Yahoo also struggled to keep up with the rapid growth of social media. While sites like Facebook and Twitter exploded in popularity in the late 2000s, Yahoo’s attempts to build its own social network, Yahoo 360, failed to gain traction. This is reflected in data from Statista, which shows that while Facebook’s monthly active user count grew from 100 million in 2008 to over 2.4 billion in 2019, Yahoo’s monthly active user peaked at around 1 billion and then was discontinued.
Other diversifications of Yahoo such as Broadcastdotcom, a company which had 100 million in revenue but never had a single dollar in profits. It was drowning in debt and was using technology that wasn’t accessible to many people at that time. Instead of trying to change it to the times, it was another wasted investment.
Yahoo Music, a pioneer in online music streaming business just couldn’t keep up with the changing trends in the industry and other streaming companies took the lead even though Yahoo Music was one of the few firsts. Spotify in 2009 faced major losses but still managed to turn the boat around by expanding in United States. The operating loss was £16.4 million for 2009 as a whole and Net loss after taxation was £16.66 million. Over the years, Spotify became the market leader by understanding needs. Being the pioneer is never enough, adapting to changes is the key. Yahoo purchased the young Tumblr microblogging organization in 2013 for $1.1 billion, but failed to turn their acquisition into a profitable component of the company. After investing hundreds of millions of dollars into the project, Tumblr essentially disappeared into obscurity and proved to be one of the last opportunities for Yahoo to redeem itself in the business world.
Yahoo ventured on to try it’s luck at manufacturing phones but was incredibly late to the business. Marissa Mayer started work on phones and wanted to profit off of the ‘smartphone era’ five years after it started. Apple and Google were the most profitable, prominent and popular mobile operating systems and there just wasn’t any space for Yahoo. Yahoo, like a chameleon changed it’s colours every few years and under the tenure of Marissa Mayers, the focus shifted on mobile phones. The biggest issue with Yahoo was that they developed everything first but failed to upgrade them as times eveolved. In 2015, The research firm eMarketer estimated that Google held a 34% share of the global market for mobile ads, facebook held 17% and Yahoo only 2%. Thus, Yahoo unlike Google and Apple did not own a mobile operating system nor did it own a popular internet browser. It could only get advertisements from the material it posted online. Yahoo used outdates programming languages which could not be tailored to a single mobile operating system and Yahoo did not have enough mobile engineers to make it right. Thus, Yahoo went through another transformative period which did not benefit the company by any means.
Its second CEO, Terry Semel, tried to turn Yahoo into a new media giant. Its eighth and final CEO, Marissa Mayer, wanted to transform it into a mobile technology company. Thus showing that Yahoo never had a particular goal in mind.
CONCLUSION
In conclusion, the rise and downfall of Yahoo is a cautionary tale of how quickly fortunes can change in the fast-paced world of the internet especially when you take advantage of your position as the industry leader. Making sure that the company’s vision is intact with the ever changing climate of the tech industry is essential. While the company was once a dominant player in the industry, it ultimately failed to adapt to new trends and technologies, leading to its decline. Yahoo failed in learning from it’s past mistakes and became an ancient relic. Series of poor judgments in business deals ultimately leading to its sale to Verizon.
SOURCES
- https://onlinebusiness.umd.edu/blog/what-happened-to-yahoo-in-6-points/
- https://www.fastcompany.com/40544277/the-glory-that-was-yahoo
- https://www.indiatoday.in/technology/news/story/5-mistakes-by-yahoo-that-killed-it-954185-2017-01-10
- https://www.businessinsider.com/one-chart-that-explains-the-rise-and-fall-of-yahoo-2016-8?IR=T
- https://hbr.org/2016/06/the-decline-of-yahoo-in-its-own-words
