Jerry Yang and David Filo founded Yahoo in January 1994. Both of them were Stanford graduates. At first, they developed a website named “Jerry and David’s Guide to the World Wide Web”. It was simply a directory of other websites, organized in a hierarchy as a searchable index of pages.

By April 1994, Jerry and David’s Guide to the World Wide Web was renamed “Yahoo!“. The word “YAHOO” is an acronym for Yet Another Hierarchically Organized Oracle“. 

Yahoo witnessed an enormous and rapid growth throughout the ’90s and diversified its business. It was poised to become a giant and a high profile company.

Yahoo provided a search engine and a directory for other websites in a time when people could only log into a website if they knew the website address. Else there was no way to search a website.

The company started making money from the advertising banners which was the first of its kind and started to grow rapidly. Yahoo went public in April 1996 and its stock price rose by 600 percent within two years and by 1998, Yahoo was the most popular starting point for web users receiving 95 million page views per day.

Yahoo came up with a series of funny advertisements to popularize its search engine. Check this one out!!

Source: Chuck D’s All-New Classic TV Clubhouse

Yahoo’s stock became investor’s darling during the dot.com bubble and once closed at an all-time high of $118.75 in 2000. Just after the dot.com bubble crash the stuck plunged to all time lowest (literrally) at $8.11.

Despite the tremendous performance of Yahoo at its early stages, the company started bleeding in the late 2000s due to multiple factors. Here are the top 6 reasons which resulted in Yahoo’s downfall:

Wrong decisions: Yahoo refused to buy Google for 1 million dollars:

Back in 1998, two individuals, Larry Page and Sergei Brin (Google founders), offered to sell their little startup algorithm to Yahoo for $1 million. The algorithm was supposed to help the Yahoo search engine perform faster and enhance the experience of web search.

Yahoo turned down the offer mainly because it wanted its users to spend more time on Yahoo’s own platform and the other Yahoo content so that it can make more money from the advertising banners on the website.

Again, in 2002 Yahoo rejected an offer to buy Google for $5 billion when the CEO Terry Semel refused the deal after months of negotiation. Yahoo offered to buy Google at $3 billion but Google was keen on getting $5 billion. So the deal could never happened. (Thank God!!)

Failing to buy Facebook

As if saying no to Google was not enough for Yahoo. According to the book called The Facebook Effect by David Kirkpatrick, Yahoo initially offered $1 billion to Facebook but later lowered it to $850 million. David writes that Facebook made its mind in 10 minutes to decline the offer. Although, some stories say that if the offer was submitted at $1.1 billion instead of $1 billion, the board of directors would’ve put pressure on Mark Zuckerberg to sell.

Source: Y Combinator

Unsuccessful acquisitions:

Even the successful acquisitions could not bring value to the organization. Yahoo acquired two companies in 1999 that are now ranked by Forbes as some of the worst internet acquisitions of all-time.

The first was a $4.58 billion deal for Geocities, a site that enabled users to build their own personal websites. While Geocities was a pioneer in this regard, it eventually was shut down in 2009 after failing to deliver any value to Yahoo shareholders.

The second was the famous $5.7 billion deal for Broadcast.com, an online television site that was founded by Mark Cuban. Perhaps the idea was way ahead of its time and internet connections were too slow in 1999 to run this type of video content off the web..

Yahoo also bought Tumblr for $1.1 billion in 2013. Many Tumblr users were unhappy with this acquisition and started an online petition which got 170,000 signatures. Yahoo had to write down more than half of Tumblr by 2016 and ultimately sold it to Verizon.

Hiring wrong CEOs:

As experts say, Yahoo has repeatedly hired the wrong CEOs. None of the CEOs at Yahoo including Marissa Mayer had a “strategic vision” that could match what Eric Schmidt at Google brought. Some even blame Marissa Mayer entirely for the wrong decisions.

Lack of clear vision and a string of poor leaders:

It’s very clear from the strategic mistakes of Yahoo that its leadership lacked a clear vision and the overall purpose of the company. Meanwhile, Google and Microsoft were very clear about their strategic direction.

Yahoo was all over the place. During the research, people were asked to identify Yahoo with what first comes to their mind. Some said Mail, Some Media. Some said search. Clearly, Yahoo failed to create a niche for itself that its competitors successfully did.

Some former employees actually saw the slow demise of the company many years before it actually happened as they could see the bureaucratic culture with too much focus on advertising.

It became very difficult to get both investment and alignment. If you built a new product and the home page didn’t want to feature it, you were hosed.

Greg Cohn, a former senior product director at Yahoo to Reuters

Declining Microsoft’s acquisition:

This was the final nail in the coffin. In 2008, Microsoft had shown its interest to buy Yahoo for $44.6 billion but Yahoo declined that too (I really don’t know what they were thinking). Since then, the company market value has never reached such numbers. In 2016 Verizon bought Yahoo in a deal worth $4.8 billion.

Source: Associated Press

Conclusion

Yahoo is still not dead though. It is still among the world’s top 10 websites with more than 3.5 billion visits per month. Nevertheless, its place does not augur well for a bright future. Unless Yahoo comes up with any innovation that can change the future of technology, Yahoo! may die gradually in the coming years. It’s a perfect story to learn where the company despite having the right technology and right resources at disposal, failed miserably due to its strategic mistakes.

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Izzat Almalki
Author

I'm a Finance professional with passion for economics and stories of the companies. A commercial driven finance person with more than 12 years of experience in the FMCG industry working with some of the biggest brand in the world.

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