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$125 BN. That's how valuable Yahoo! was at its peak; that was more than Ford, Chrysler,
and General Motors combined. And it all began as a hobby.
Yahoo! brought us many of the services we take for granted today, including cloud storage
and setting up your website.
But the name Yahoo! has disappeared, consumed in the food chain that is the tech world.
How did it get to this? We'll tell you all about Yahoo! in this episode of Company Forensics.
"Jerry and David's guide to the World Wide Web" isn't a cheap adventure film. It's Yahoo!'s
original name. In early 1994, Stanford grads Jerry Yang and David Filo began compiling
the websites they liked in a directory.
Their site separated pages into categories and subcategories. Simple, even primitive,
now, but back then, it was a success.
They went with Yahoo!. According to some articles, the name stands for "Yet
Another Hierarchically Organized Oracle." But, both Filo and Yang say they liked the
definition of a yahoo: "someone rude, unsophisticated, uncouth."
They even added advertising, which would be their blessing and their curse. With a solid
idea, they sought investment and met with Sequoia Capital, who agreed to invest nearly
$2 million. With money in their pockets, Filo and Yang hired a management team that included
Jeffrey Mallett and Tim Koogle, two principal characters in this video.
In 1995, Koogle stepped in as CEO and pushed for an IPO in 1996, even with a reported loss
of $600 000. But it was the age of the internet bonanza; Yahoo! showed promise, and investors
were interested.
The IPO was a hit: initially, the share value was $13 but, by the end of the day, it increased
to 154%, netting Yahoo! an $848 million market cap.
At the time, Yahoo! 's first-day gains were the third-largest of any IPO on record.
A sign of things to come because it was to grow a lot.
Yahoo! was no longer only a website directory. It was changing internet culture, with catchy
TV commercials and a new, trendy slogan: "Do you Yahoo!?"
It also expanded its catalog, with personalized content, news and websites under the MyYahoo!
Service.
Plus, kids could navigate the internet in a safe environment with Yahooligans!
Their big move came in 1997 when they launched Yahoo! Mail, based on Rocketmail, a company
they had purchased.
Users not only had email access wherever there was internet service, but also personalized
web services like Classifieds, Yahoo! Chat, and storage (3 MB, but hey, it was something).
Centralized email and tools, plus personalized content, all within one account? Do you see
the value of what Yahoo! was doing? And it was also global, with specific references
for individual countries or regions, such as Yahoo! Brazil and Yahoo! Hong Kong, thanks
to its ability to personalize content.
By 1999, Yahoo! rode a killer wave of speculation around the Dot-com world. The stock, set initially
at $13, reached an impressive pre-split value of $475 at the height of the Dot-com bubble,
by January 3, 2000.
Up to this point, their expansion sounds logical. Some ideas were good, like mailing lists and
creating personalized websites, but Yahoo! got into everything it could. And it was a lot.
Here's a list of firsts Yahoo! did, either through mergers or inhouse.
Its Yahoo Briefcase, which launched in 1999, provided cloud storage, way before Dropbox
and Drive.
Long before Spotify and Apple Music (check out our video), Yahoo! launched Yahoo! Music
in 2001. Back then, it allowed a freemium service: 1000 songs per month for free, or
ad-free and unlimited skips for $4 per month.
Yahoo! also had radio when it purchased Broadcast.com for $5,9 BN, a lot but it showed promise.
Broadcast provided channels for specific tastes and topics. Think of the potential: first
radio, then video. It could've been YouTube. But, all it did was make Mark Cuban a billionaire.
Hey, at least somebody won.
The company was also at the forefront of cultural change, with an almost punk-rock attitude.
Former employee Tom Parker recalls how quickly Yahoo! became a poster child for a carefree
attitude within Silicon Valley.
But, if you look at where we are now, we don't associate any of these technological breakthroughs
with Yahoo!. Not even the culture. And it's all their fault.
Some external elements aided Yahoo! 's fall, the biggest of which is the Dot-com
crash. After the bubble burst, Yahoo's stock went from $475 pre-split value to just $8.11,
in nine months.
But a lot of its flaws were internal, especially in the leadership department. Remember Tim
Koogle? Yes, he turned Yahoo! into a profitable company, but he also made critical mistakes.
Back in 2000, AOL and Time Warner joined forces (check our AOL fall video), threatening Yahoo!
online presence. Rumors said that Yahoo! would merge with another big company in the
e-commerce world, eBay.
The reason is that Yahoo! relied heavily on ads for income, and eBay would've allowed
the company to branch out into other sources of income. But, Koogle rejected the idea,
which led to conflict with another veteran, President Jeffrey Mallet.
Even with the Dot-com crash sequels, eBay still
turned in $184 million in revenue and, to this day, still operates. Meanwhile, advertising
plummeted, and Yahoo! 's wallet shrunk. Soon after, Koogle stepped down as CEO.
You might've heard of Sergey Brin, Larry Page, and a search-engine prototype they created
in 1998, called Google. Well, initially, they tried to license their engine to other companies.
Then they met up with David Filo, and he gave them one tip: to launch the engine by themselves.
He even introduced them to Michael Moritz of Sequoia Capital, who would become one of
Google's first backers.
Let's cut Filo some slack because he couldn't have imagined the success. But, that's because,
in part, Filo didn't believe in search engines.
In an interview, Y Combinator creator Paul Graham, recalls:
Because Yahoo! relied heavily on ads, it was easier to outsource its searching services.
They even signed an agreement with Google in 2000 to do so. But Graham's warning echoed:
Google was too important not to take into consideration.
By 2002, under CEO Terry Semel, Yahoo! saw the potential in search engines. The company
even tried to buy Google for $1BN but took too long to decide. By the time Semel and
the board agreed to buy it, Google's price had gone up to $3BN, and Yahoo! backed out.
Yahoo! bought Inktomi, to up their "searching"
game. And the final product wasn't bad per se.
Compared to Google, it was limited as it worked through bidding instead of bidding and statistical
analysis, as Google did. The rival's efficiency slowly lured users away from Yahoo! in the
search engine war, a war it would eventually lose.
We wish we could say the search engine war alone killed Yahoo! But, no. It was doing
too much at the same time.
For example, Flickr: it was one of the best, if not the best, photo-sharing service at
the time. After buying it, the potential was there to create the next big thing in social
networking.
Yahoo! forced Flickr staff to think more about integration than innovation. Experts say that
all that mattered was Flickr's database, and not creating new services and improving customer
care.
And Yahoo! didn't see the signs. In a Gizmodo interview, a former Yahoo! employee stated
that:
By the way, Yahoo! tried and failed, again due to internal lethargy, to purchase Facebook.
Yahoo had too much in its hands: music, Real Estate, cars, jobs, classifieds, attempts
at social networking, but nothing stood out. What do I mean? Well, Spotify is for music.
Google is for searching. YouTube for video. And Yahoo!?
Yahoo's failure to find an identity came from the top. Leadership, at Yahoo!, was always
lacking. Here are some examples.
Under CEO Jerry Yang, in 2008, Yahoo! famously rejected Microsoft's offer for $45 BN, because
Yang felt it undervalued the company and still believed in the success of ads alone. This
decision cost him his job.
Between 2011 and 2012, amidst desperate times, 4 CEOs tried to fix Yahoo! before Marissa
Mayer, its last CEO, got the job. She showed promise, as the stock doubled in less than
a year, but there was little else to celebrate.
She also made the controversial Tumblr purchase, for $1,1 billion, only to have it float along
with no innovation nor control over the content. No one understood why they had bought Tumblr
in the first place.
Then there's the Alibaba IPO. Back in 2005, Yahoo! invested $1BN in the Chinese giant.
During Mayer's tenure, in 2014, Yahoo! sold millions of shares back to Alibaba, just before
the IPO. But the offering was so successful that it meant Yahoo! practically had left
$36 BN on the table.
A weak stock, wrong decisions, mediocre products, and a lack of identity; the king was slowly
dying.
And Verizon brought the ax to finish the job. In 2016, the telecom giant announced it would
buy Yahoo! 's core business for $5BN, pocket change compared to what it was once worth.
Ironically, Yahoo! ended up in the same dustbin as AOL, another former giant.
Two former kings now were pawns for another company, but it wouldn't end there, because
their names were quickly erased, under Verizon's branch, Oath, which struggles to stand out.
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Maybe it's another Yahoo!
Hopefully not. See you next week.