Why did Yahoo! fail?

Yahoo! was a household name before Google. However, somehow, Yahoo got it wrong. And while an easy answer does not exist, a quick search on the search engine provides valuable hints towards understanding why the most popular web portal of the late nineties has been reduced to a shadow of its former self and has now been bought be Verizon.

Yahoo was founded in 1994 as a directory of websites, organized in hierarchy, as opposed to a searchable index of pages. The Company grew rapidly throughout the 1990’s and by 1998, Yahoo was the most popular starting point for web users.

In February of 2008 Microsoft offered to acquire Yahoo for $44.6 billion. Yahoo formally rejected the bid, claiming that it was not in the shareholders’ interest. However, earlier this month Verizon purchased the one-time titan of the Internet for nearly $5 billion in cash. The purchase price underscores Yahoo’s decline. What went wrong?

There seems to be agreement that the seeds of failure were planted way back at the initial formation of the Company. Industry analysts highlight two important problems which would eventually prove to be bane of Yahoo; easy money and ambiguity about its DNA.

Yahoo’s initial success brought with it huge cash flows from advertisement. This led Yahoo to care a little bit less about the technology that made success possible and more about short term cash inflows. Yahoo started seeing itself more as a media company.

When programmers pointed out to their CEO, David Filo, that Yahoo should look at Google, since most of them were using Google rather than Yahoo for internet searches. The CEO replied by saying that it was not worth the trouble since Media was generating much more revenue than search.

This led to the tech company not taking programming seriously. And while Microsoft, Google and Facebook were obsessed with hiring the best talent. Yahoo either didn’t hire the very best that the others sought, or when they did, they did not give them prominence.

Eventually Yahoo’s ‘Web Portals’ were superseded by the sleek specialised offerings of Facebook, Google, WhatsApp and others. As audiences shifted so did the revenue from selling advertising space, Yahoo faltered.