A Case study on The Rise and Fall of Yahoo! – must learn lessons for business founders.
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- Problem: wants to learn more about business and common traps to avoid
- Desire: learn valuable lessons from history.
Yahoo! Is not the internet fraud business you think it is – talking to my fellas at home, and,
Did you know that there was a time when Yahoo! refused to acquire Google twice? Yes, the Google you know today. The GenZ will probably not know these facts.
In today’s article, we will be going through the story of how yahoo came to be and the reasons behind its fall and, of course, lessons to learn from it.
Who is Yahoo!?
Yahoo! is a multinational technology company that provides internet services and products to consumers, publishers, and advertisers. It is globally known for its web portal, search engine Yahoo! Search, and related services, including Yahoo! Mail, Yahoo! News, Yahoo! Finance, Yahoo! Groups, Yahoo! Answers, advertising, online mapping, video sharing, and fantasy sports.
The Meaning of YAHOO!
The word “YAHOO!” is an acronym for “Yet Another Hierarchically Organized Oracle“.
Ever thought about why there is an exclamation mark in the name?
Since the word “Yahoo” had been previously trademarked for barbecue sauce, knives, and human-propelled watercraft, Yang and Filo thought of adding an exclamation mark to the name.
Yahoo!’s History and Business Model
The Story Jerry Yang and David Filo founded Yahoo! in January 1994. Both of them were Stanford graduates. Initially, they developed a website named “Jerry and David’s Guide to the World Wide Web”. It was nothing but a directory of other websites, in a hierarchy as a searchable index. 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 websites were organized by categories. The website also had a search engine that allowed users to search for websites by keywords. The website became popular within months and it had a list of around 2,000 websites on it. Jerry and David’s business model (Jerry and David’s Guide to the World Wide Web) was renamed “Yahoo!” in April 1994.
Yahoo! grew exponentially in the 1990s and acquired a wide range of companies, and introduced numerous new features for its customers, leaving all competition behind. It garnered immense support and earned two rounds of venture capital funding before its initial public offering in 1996. Its stock price almost doubled in the late 1990s during the dot-com bubble and reached an all-time high of $118.75 in 2000. However, its stock reached an all-time low of $8.11 in 2000 when the bubble burst, even though it was among the few who still managed to survive. As the internet era evolved in the late 1990s and early 2000s, so did Yahoo!’s home page, which had become the starting point of the World Wide Web for millions.
Revenue Generation Model
Yahoo! became enormous and grew rapidly throughout the 1990s and they were considered to be a leading company in the Internet sector. They started making money from the advertising banners Yahoo! went public in April 1996 and its stock price rose by 600% within two years At one time Yahoo! was once the MOST used web browser receiving 95 million page views per day.
Despite the tremendous performance of Yahoo! at its early stages, the company started bleeding in the late 2000s due to multiple factors, but why is NO one is using Yahoo now? How did a company that was once the pioneer of internet business valued at $118.75 in 2000 suddenly crash?
Here are 6 reasons for Yahoo’s ultimate downfall
- Lack of vision for acquired startups
Yahoo acquired some companies in 1999, which are now ranked by Forbes as some of the worst internet acquisitions of all-time
Yahoo! invested a lot of money in acquiring companies like Broadcast.com, Geocities, Flickr, Right media, Overture Services, Inc, and Tumblr, all decisions leading it one step down the hill.
The first was a $4.58 billion deal for Geocities, a site that enabled users to build their own personal websites Geocities was a pioneer in this regard; it eventually was shut down in 2009 after failing to deliver any value to Yahoo shareholders.
Before Yahoo purchased Flickr in 2005, its founders had intended to tap into social networking. However, the plan wasn’t carried forward, and they missed out on the social media boat. There was a lack of vision, and it paid less attention to cater to the community it had built. It could not retain its customers or expand the customer base because the focus was not on introducing new features or growing the community.
The second was the famous $5.7 billion deal for http://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.
Lesson: Don’t acquire a business because of the money you can milk out from the business, acquire because you love and want to grow the business. Did I say you shouldn’t make money? No, what I’m saying is your passion for the business shouldn’t be money-oriented, love the product and love its audience. Yahoo was money-oriented.
- Failure to acquire competitive unicorn startups
Yahoo! refused to buy Google for 1 million dollars: In 1998 Larry Page and Sergei Brin offered to sell Google algorithm to Yahoo! for $1 million The algorithm was supposed to help the Yahoo search engine perform faster Plus enhance the experience of web search.
Yahoo! turned down the offer 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 never happened.
Although things could have been different for Google had it been acquired by Yahoo! then, it was worth a whopping $120 billion in June 2021!
Failing to buy Facebook: Yahoo! initially offered $1 billion to Facebook, Facebook made its mind in 10 minutes to decline the offer some stories say that if the offer was submitted at $1.1 billion, the board of directors would’ve put pressure to sell
Would Google and Facebook be what they are today had they been acquired by Yahoo!? I don’t think so considering yahoo’s failure.
Lesson: Never lose an opportunity to draw potential enemies closer to you, doing so makes you learn of their strategy and how to beat them in the long run. Thank God Yahoo! Didn’t acquire Google.
- Putting Wrong People At The Helms Of Affairs:
One of Yahoo’s major failures is hiring the wrong CEOs; there is a saying that goes thus “an army of sheep led by a lion will defeat an army of lion led by a sheep”
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.
Lesson: don’t hire based on skills only, but hire based on attitude; nevertheless, you’ll be fortunate if you do find peeps with great skills and a good attitude. Business is hard on its own, don’t screw your hard to come by chances by placing incompetent hands at the helms of affairs
- Lack of clear vision
“Write the vision and make it plain on tablets, that whoever passes may be able to read it easily and quickly as he hastens by” – holy bible
Yahoo’s founders’ Lack of foresightedness can be considered one of the main reasons things turned out this way for Yahoo. It failed to estimate rightly where to invest and how to head forward and keep up with the ever-changing trends and advancing technology. It lacked talented and skilled people with a strategic vision for the future.
During the research, people were asked to identify Yahoo with what first comes to their mind Some said Mail, Media & some said search Clearly, Yahoo failed to create a niche for itself that its competitors successfully did. Yahoo is a jack of all trades master of none; Yes Google also runs other businesses aside from Google search engine, its sole aim is to organize information about anything and everything and make it universally accessible and useful to everyone. Facebook is all about socializing and making the world more connected. How they walk on the thin ice without backlash from users is a discussion for another day.
Lesson: Don’t be a jack of all trades master of none, choose a niche and stick to it. Oga stay one place, No dey do pass yourself. Mind you, you can be a jack of all trades master of all like Google but it takes tremendous efforts to get there. Just start from somewhere if you want to last long.
- Declining Microsoft’s acquisition: In 2008, Microsoft had shown its interest to buy Yahoo for $44.6 billion, Yahoo declined Since then, the company market value has never reached such numbers In 2016 Verizon bought Yahoo in a deal worth $4.8 billion. From $44.6 billion to $4.8 billion in 8years How come?
Lesson: Don’t hold unto false hope, know when to merge. Yahoo! Knew it had lost its place to Google but still held onto false hope. I guess no company can survive from bad leadership.
- 500 Million Users’ Data Breach And Frequent Server Crashes
Yahoo has faced two major data breaches, one of them being the largest one on the record!
In 2016, it reported a data breach of over 500 million user accounts in 2014. In December 2016, it also reported another data breach that occurred around 2013 in which hackers impacted about 3 billion of its user accounts.
Yahoo also faced frequent server crashes even during a time when it was at its zenith. This reduced the quality of user experience and gave users an incentive to switch to other efficient emerging alternatives that were coming up then.
What other factors do you think contributed to Yahoo’s downfall?
We want to hear from you in the comment section below.