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 02nd 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 04th 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.”
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