Yahoo! & the Art of Failing Spectacularly

Yahoo! was originally founded, in 1994, by Jerry Yang Chih Yuan, and David Robert Filo.  It was an early mover in the early internet era of the 1990s, and its search engine was ubiquitous.  The company was formally incorporated on the 02^nd March 1995.

From being one of the largest internet companies, Yahoo! declined, beginning in the late 2000s, was acquired by Verizon Communications, in 2017, for US$4.48 billion,  This acquisition excluded its stakes in Alibaba Group and Yahoo! Japan.  These were transferred to Yahoo!’s successor company, Altaba.  In business, the story of Yahoo! is an interesting case study, and an Exhibit B, on how to ruin a promising business.  It is a tale of bad management, spurned opportunities, and believing too much in their own marketing.

There are many reasons why Yahoo! declined rapidly, but we can look at several events that best encapsulate why.  Yahoo! was in a position where it could have acquired what became Google, Facebook, YouTube, eBay, and Snapchat, amongst many others.  It had all the advantages.  That behemoth would have been worth hundreds of billions of dollars today, and control the market.

In 1998, Lawrence Edward Page and Sergey Mikhaylovich Brin, two PhD students from Stanford University, California, offered to sell their start-up to Yahoo! for US$1 million.  Yahoo! wanted people to spend  more time on its own platform, which offered more advertising opportunities for them.  This contrasted with the PageRank system, which directed people to the most relevant web site based on its links, and connections.  Accordingly, Yahoo! declined.  Prior to that, Alta Vista had declined the same offer.  That company was eventually incorporated as Google, on the 04^th September 1998.

However, that ship had not truly sailed.  In 2002, Terence Steven Semel, the CEO of Yahoo!, began negotiations to buy over Google.  In the initial round, it is aid that Yahoo! proposed buying Google for US$1 billion.  Google’s founders counteroffered with US$3 billion.  When Semel came back with a US$3 billion offer, Page and Brin wanted US$5 billion.  Yahoo! declined.  Today, Google is worth well over US$500 billion with an annual operating revenue of almost US$70 billion.

In 2006, Yahoo! began negotiations to acquire Facebook.  Semel had up to US$1.2 billion to play with.  Mark Elliot Zuckerberg wanted US$1 billion, which was within that mandate.  However, Semel tried to give a lowball offer of US$850 million.  Zuckerberg stopped negotiations, and that opportunity was lost.  Today, Facebook is worth over US$80 billion.  Lessons were not learned.

In 2008, Microsoft gave an unsolicited offer of US$44.6 billion for the entirety of Yahoo!  This was a premium of 62% over Yahoo!’s closing price, an about US$31 per share.  Microsoft was looking at expanding into the online advertising market.  Yahoo! turned down the offer.  In the end, it still ceded its search business, at no gain to itself, and gave it up to Microsoft’s Bing.

Jeremy Ring, a Yahoo! sales executive from 1996 to 2001, and currently a politician, wrote “We Were Yahoo!” which gave an insight on the boardroom failures that lead to this.  In an interview, when asked to sum up the Yahoo! saga, he said, “Yahoo! owned the Earth, but never looked at the sky.”