11 Notes on Yahoo
Today: There’s so much to say about one of the oldest and most iconic companies born in the dotcom bubble.
The Agenda 👇
Why the name?
Yahoo’s original success
Why Google took over
The Asian connection
Buying a stake in Alibaba
Lost in fragmentation
Many leaders over the years
The media quagmire
A lesson in mortality
Why did Yahoo die, anyway?
A reading list about Yahoo
Earlier this week it was announced that Verizon would sell what remains of Yahoo (and AOL) to private equity firm Apollo. The latter’s intent is to use these assets as part of building up a media business. I wish them luck for the future, but the news reminded me of all those years I spent with Yahoo as a household brand and what it tells us about how the digital economy has grown up over the last three decades.
1/ Why the name?
Do people these days even know Yahoo (except if it’s being used as their junk email addresses)? My kids certainly don’t, and when I say the name, they find it funny and a bit ridiculous. Indeed, the name also sounded ridiculous back when Yahoo (actually, ‘Yahoo!’) was a tech powerhouse in its own right.
Picking this name was probably all part of marketing the product. When things accelerate like they did in the early days of the World Wide Web, anything goes when it comes to helping a company stand out. Such is the rule of thumb in the increasing returns economy, as explained by W. Brian Arthur:
Increasing returns generate not equilibrium but instability: If a product or a company or a technology—one of many competing in a market—gets ahead by chance or clever strategy, increasing returns can magnify this advantage, and the product or company or technology can go on to lock in the market. More than causing products to become standards, increasing returns cause businesses to work differently, and they stand many of our notions of how business operates on their head.
The official background about the name is that the website initially called “Jerry and David's Guide to the World Wide Web” became Yahoo because co-founder David Filo, who’s from Louisiana, remembered the local slang definition of a “yahoo”: “Rude, unsophisticated, uncouth”. (Also “Yahoo” is a term introduced by Jonathan Swift in his Gulliver's Travels.)
(Interestingly, “Yahoo” has a specific tone in French, because “yahou” or “youhou” is our own version of “woo-hoo”. Therefore a company called “Yahoo” definitely conveys a feeling of joy and excitement 😅)
2/ Yahoo’s original success
It’s a straightforward story: Jerry Yang and David Filo started to organize the web for themselves, first under the form of a list of links (exactly like Craig Newmark started Craigslist), and then by creating categories so as to organize the links since they had become so numerous. Then their friends expressed interest in accessing the list, and they realized they had a business on their hands.
The (excellent) TV series Halt & Catch Fire (see above 👆)provides a bit of context about what was happening at the time, as seen through the eyes of Joe MacMillan, the character who’s constantly on the hunt for the next big thing and the related opportunities to gain success and wealth. So what did he see?
The Internet had just been opened as a platform for civil applications, following decisions by the US government that are well described in this article: Did Al Gore Invent the Internet?
Telecommunications companies were starting to invest in an infrastructure to make it easier for American households to use the Internet. Meanwhile, first-generation Internet service providers such as America Online (which became AOL) or Compuserve provided an interface to access a bundle of services either operated by them or from which they were deriving fees.
What changed everything was the invention of the Web browser (by Marc Andreessen). Now a key segment of the Internet, namely the World Wide Web, was not only accessible to all, it was also easy to use. The problem was: how do you find what you’re looking for?
Back then, a battle started between two categories of providers focused on organizing content:
On one hand were the likes of Rover, one of the fictitious search engines in Halt & Catch Fire, which relied on an algorithm to index the World Wide Web. It was clunky and underwhelming because, sure, there was enough content for a search engine to be relevant, but definitely not enough for an algorithm to be properly trained. Some of us remember the outcome: all those algorithmic search engines were focused on keywords embedded in metadata, and more often than not website publishers were including keywords that had nothing to do with the actual content. That’s why you would type “refinance my mortgage” and end up surfing on a porn site.
On the other hand, a portal such as Yahoo, with clear-cut categories, relied on slow and careful human curation, and at the small scale of the Web at the time, it provided a service of a higher quality. This is one reason why Yahoo emerged as a potential winner. (In the end it effectively won because it managed to get itself embedded as the default go-to website in Netscape, the most popular browser at the time—again, watch the related scene in Halt and Catch Fire above 👆)
About that, this is what I wrote in VCs: Would You Rather Be Yahoo or Google? (October 2020):
In the last season of Halt & Catch Fire Joe MacMillan and the others are competing in the emerging field of online search. We all know who won that war: Google (the search engine powered by an algorithm), not Yahoo (the web portal filled out by humans). But at the dawn of the World Wide Web, it was rational to build a web portal rather than a search engine, because the Web was still too small for a dumb search algorithm to add any value as compared with real humans indexing the Web page by page.
3/ Why Google took over
In a few words: human curation worked until the Web reached a certain scale, after which machines really had to take over because there were just too many websites. For a few years, we had an alternative between rather bad search engines such as Altavista (with the keyword problem I mentioned earlier) and an incomplete and highly curated service such as Yahoo (which was good, but you couldn’t help thinking there was a lot of content you were missing out on).
It was easy to predict the future: one day, a search engine would find the formula to increase relevancy and avoid excessive keyword manipulation; soon the winner emerged in the form of Google.
I remember the first time I saw Google in action—just like some people remember what they were doing the day Kennedy died or when the Twin Towers collapsed. It was sometime in 1999 or early 2000, I was on the campus of my engineering school (Telecom Bretagne) talking with a member of the class immediately after mine called Denis de Bernardy. We were in his room and he loaded the Google website to show me the “I’m feeling lucky” feature, which he found intriguing and promising.
I immediately switched to using Google all the time, leaving Altavista behind. Not only were the search results of a much higher quality, there was also this neat interface, devoid of the many links you found on any other website, and free of advertising and other visual pollution.
From that time onward, I also stopped using Yahoo to find content online. I kept using it for news, because they had well-organized portals that highlighted short and informative articles from news agencies. Then I stopped using it altogether sometime in 2007-2008 when my interests started to shift slowly but surely from politics to technology and entrepreneurship, and there wasn’t much to find on those using the curation services provided by Yahoo.
4/ The Asian connection
An interesting part of the Yahoo story is how connected it is to Asia. First of all, Jerry Yang himself is from Taiwan and so not only is he fluent in the language, he also had an interest in seeing Yahoo expand in Asia. That went in two directions.
One is what Yahoo did in Japan, that is, a joint venture with SoftBank as early as 1996 whereby they grew what still today qualifies as the most visited website in Japan (per Wikipedia). The company went public in 1997. Later, its American shareholders gradually divested the asset, with SoftBank buying out the remainder of their shares in September 2018. But the brand Yahoo! (and the old design) are still being used in Japan under a license. More recently Yahoo! Japan merged with Line, the leading mobile messaging app on the Japanese market, of which the South Korean tech giant Naver owns a significant share (see my How Europe Missed the Mark: Lessons From South Korea in 2018).
The other Asian market on which Yahoo gained a significant foothold is Mainland China. As written in 2014 by Sue Decker, formerly the CFO of Yahoo (in HBR):
Yahoo China was launched in 1999 as a platform for email and instant messaging, translation of U.S. content (news, finance, weather) into two Chinese languages, and directory access to 20,000 web sites, an approach that the company had adopted elsewhere.
Even though it was somewhat familiar with the market, the culture, and the language, Yahoo’s top management encountered problems similar to those that later precipitated the failure of the likes of Google and Uber in their efforts to expand on the Chinese market:
They had to deal with the local political and regulatory context, notably by implementing surveillance of their users following demands from the Chinese government—what Google allegedly refused to do when they decided to exit China in 2009.
They had to battle fierce competition from local tech companies who had more room to maneuver as well as more awareness of what local users were expecting from a company such as Yahoo when it came to content and online commerce.
Online sales, in particular, was the segment on which Yahoo took brutal beatings from upstart marketplace Taobao, a branch of Alibaba. The competition was so tough that Yahoo effectively decided to close shop and leave China entirely.
5/ Buying a stake in Alibaba
Fortunately, there was something else. As explained in the video below, Jerry Yang had met Alibaba CEO Jack Ma a few years earlier as the former was visiting the country and the government had sent the latter (who was a rather good English speaker) to act as his tour guide. They forged a connection and Yang kept track of Ma’s endeavors in building what became a tech powerhouse on the Chinese market.
And here’s the sad epilogue to the story of Yahoo investing in Alibaba—they had to sell the company for parts so as to be able to not pay taxes on the huge capital gains made on that incredible investment in the most successful Chinese tech company at the time.
Have a look at How Jerry Yang Killed Yahoo, By Saving It by Brian Solomon, as well as to what Matt Levine wrote in Yahoo Is Looking for a New Way Around Alibaba Taxes (December 2015):
But what is much more shameful is that the whole point of Yahoo as a company right now is to not pay taxes on Alibaba. I realize that seems a bit hyperbolic, but just look at those numbers. Those Alibaba taxes are worth at least two and a half times the value of Yahoo's entire business. If there was a way to avoid paying taxes on the Alibaba shares that involved burning all of Yahoo's actual businesses to the ground, Yahoo should do that all day long, and then do it again the next day. It would still add shareholder value.
6/ Lost in fragmentation
It all makes Yahoo an interesting case study from a fragmentation perspective. It’s a company that took off in an industry, content and advertising, that lends itself quite well to expanding at a global scale. Sure, a company dealing with brands has to adapt to the local language and customs. But there are many frictions that don’t really exist in that space, whether it’s the necessity of deploying tangible assets on the ground or complying with industry-specific regulations that vary from one country to another.
Indeed, Yahoo executives must have told themselves that the world was theirs for the taking when they started considering international expansion in the mid-1990s. Not only was Jerry Yang connected to Asia because of his personal background, back then the vision of the Internet was that it would make it possible for businesses to grow across borders and unify the world into using the same products, consuming the same content and slowly embracing the same values. (We now know it was a naive idea, but I distinctly remember that it dominated our vision of what the future held.)
Fast forward to today, and we know that the world is in the process of fragmentation, even from an Internet perspective. And what I find interesting is that it could all be predicted by anyone studying the step-by-step process of Yahoo’s attempts at expanding abroad:
Trying to enter another market will inevitably pit the company against local competitors. These start from a stronger position because they know the local audience better and they can iterate on their product accordingly. This is exactly what Yahoo experienced with Taobao.
More often than not, operating on a foreign market requires complying with local regulations that are different and giving in to the demands of the local authorities. This, too, happened in China, and it was a setback for Yahoo from a PR standpoint since they’re a US company.
Even Western, democratic governments will create “problems” for a US company that tries to expand on the local market. Remember how Yahoo learned the hard way that they had to comply with French rules forbidding the sale of Nazi memorabilia?
Finally, if getting a foothold on a given market requires forming a joint venture with a local partner, the probability is high that this partner will take over the business at some point. This is what happened with Yahoo! Japan, SoftBank, and now Naver-backed Line.
In the end, Yahoo had to cut back on their global ambitions and ended up being very much a US- and Europe-focused company. That’s not nothing, but it’s not exactly how we envisioned the scale of operations of a successful tech company back in the 1990s.
7/ Many leaders over the years
I’m not sure if it’s related to the failed global expansion or not, but the problems at Yahoo have long been visible based on their frequent changes of leadership. There are many categories of story when it comes to the leadership of startups that have gone on to become successful tech giants:
Straightforward. Someone founded the company and is still leading it to this day: that’s what happened with Salesforce (where founder Marc Benioff is still CEO) and Amazon (where Jeff Bezos only recently relinquished his position as CEO after almost 30 years at the helm).
More subtle. Someone founded the company, but they’ve been forgotten because an early investor or employee took over soon after, to the point of being perceived as the actual founder: that’s what happened with the late Tony Hsieh at Zappos and Travis Kalanick at Uber.
Brutal. The company was founded by a group of people, but only one remained, staying as CEO ever since. That’s the case of Facebook (Mark Zuckerberg is the only one left of four co-founders) and Twitter (which is a very, very intricate story).
Complicated. Through successive waves of mergers and acquisitions, many people can actually claim to have been founders and/or CEOs of the company, and it’s been such a success that nobody cares about the details anymore. That’s PayPal.
Adult supervision. That’s Eric Schmidt taking over from Google’s co-founders Larry Page and Sergey Brin for a while, then graciously exiting the stage so that Page could take back over, with Page then passing the baton to Sundar Pichai.
And then there’s Yahoo, which had eight different CEOs over the course of 22 years, including Timothy Koogle, Yahoo’s version of Eric Schmidt from 1995 to 2001, co-founder Jerry Yang, who was briefly CEO from 2007 to 2009, and Marissa Mayer from 2012 to 2017.
An interesting theory was developed by Steve Blank in Why Tim Cook is Steve Ballmer and Why He Still Has His Job at Apple (2016). In short, visionary founders (in these cases, Steve Jobs and Bill Gates), if they have the ability to handpick their successor, will always go for someone that complements them, which comes with two biases: a ruthless focus on efficiency and maximizing profits, to shareholders’ delight, and a relative incapacity to orchestrate radical innovation and launch new products.
My theory is that leadership can serve the storytelling of a company if you approach it as would the writer of a script for a Hollywood movie: you need to simplify and bring the number of characters down. Many successful companies were founded by two or three persons and they’re all still there, enjoying their work as a team. But from a media perspective, typically all except one disappear in the shadows.
For instance, do you know Airbnb’s co-founders not named Brian Chesky? Yeah, that’s what I thought—me neither. (They are Joe Gebbia and Nathan Blecharczyk, respectively chief product officer and chief strategy officer of the company.)
And I think that it is exactly why Yahoo has been lost in space. When we think about the early companies that made it in Silicon Valley in the 1990s and then survived the dotcom crash, we don’t mention Yahoo often because its leadership has been impossible to spot from the outside.
None of the co-founders were the CEO at the beginning. Timothy Koogle basically disappeared after his years as first CEO. Then there was a succession of executives that didn’t make their mark, as well as Jerry Yang’s late stint as CEO. Then there was Marissa Mayer, who botched her bold attempt at turning Yahoo around. It’s clear, from the outside, that the board picked Mayer because they wanted to solve the narrative problem and install a figure that would eventually be identified with the company (what Reid Hoffman called a “refounder”).
8/ The media quagmire
Much has been written about Marissa Mayer as CEO of Yahoo, so I won’t develop much (have a look at the reading list below). But what strikes me is the following:
Mayer took over at a time when the media industry was already undergoing a major transformation due to the shift to the Entrepreneurial Age. There had been a time when you could emulate the old approach to doing media, just on the Internet, and Yahoo had been a major force in making it happen. But by then the Internet was forcing a dramatic upgrade of how media were produced and what exactly drove value creation in the industry.
Like many CEOs, Mayer was able to precisely diagnose this. She understood that the media landscape was slowly but surely polarizing between two extremes: one was the rise of social media, where content is produced by a multitude of users interacting with one another, and the other was the emergence of prominent and influential personalities with an ability to drive conversations across social media and guide value creation as a result.
Most of what Mayer did was in line with this vision. She acquired Tumblr to try and get a foothold in the social media space; then she hired prominent journalists whose mission was to turn Yahoo into more than a platform—a media company in its own right, as explained by Sarah Ellison in Vanity Fair:
While Mayer worked away on new products, she also seemed to harbor an ambition to turn Yahoo into a media juggernaut—even if she didn’t have any experience in the field. And it didn’t seem to matter if Yahoo already had a massive audience. Successful or not, Mayer had little interest in the sort of content that Yahoo was creating—the sort of content, that is, for people searching for pictures of Kim Kardashian’s backside. The glamorous C.E.O. wanted instead to upgrade her site by hiring a roster of big-name journalistic talent. “One of her initial observations of us,” one former Yahoo executive told me, “was that we don’t have big-enough names.”
In retrospect, it sounds like the right thing to do, isn’t it? Except what works today is the combination of Twitter and Substack, not Tumblr and the defunct Yahoo operation. Maybe it was a lost cause because of the Yahoo legacy; maybe it was too early (smart people like Marc Andreessen were already envisioning radical change in the media industry at the time, but it was likely a bit early to make bold bets).
Or maybe Mayer wasn’t the right person. Indeed, she’s portrayed mostly negatively these days, by people who claim that her character explains her failure, but maybe it was simply not the right company or the right time, and she would have done great things in another setting?
9/ A lesson in mortality
In any case, Yahoo is a business case I use a lot because it’s such a rare example of a tech company that was everything and that has now almost entirely disappeared. Sure, we all know that Facebook displaced Myspace, but Myspace was never much of a tech giant. Yahoo, on the other hand, has been displaced by Facebook, indeed, and before it by Google, despite having really been a global tech giant—a household name with many products that most of us were using every day!
But such a tale, that of a tech giant being displaced by another because of key technological trends or leadership missteps, might be something of the past. Here’s Ben Thompson in his landmark The End of the Beginning (January 2020):
Today’s cloud and mobile companies — Amazon, Microsoft, Apple, and Google — may very well be the GM, Ford, and Chrysler of the 21st century. The beginning era of technology, where new challengers were started every year, has come to an end; however, that does not mean the impact of technology is somehow diminished: it in fact means the impact is only getting started.
Indeed, this is exactly what we see in consumer startups in particular: few companies are pure “tech” companies seeking to disrupt the dominant cloud and mobile players; rather, they take their presence as an assumption, and seek to transform society in ways that were previously impossible when computing was a destination, not a given. That is exactly what happened with the automobile: its existence stopped being interesting in its own right, while the implications of its existence changed everything.
This makes Yahoo rather unique: we might not witness another fall of such a tech juggernaut in our lifetime! Old tech companies, yes—corporations like HP or IBM. But those that were born in the dotcom era, went on to become giants, and are still successful today, are probably going to be spared with the many problems Yahoo had to deal with, and to be here for a very, very long time.
10/ Why did Yahoo die, anyway?
I have written a similar “11 Notes” essay on Amazon, so let’s try a comparison:
Leadership. Again, compare having Jeff Bezos at the helm for 27 years with changing the guard eight times over the same period. This impacts the culture: Amazon’s has its pros and cons, but at least it seems to have stayed the same—whereas Marissa Mayer really had to try and implement a cultural reboot from 2012 onward, and that’s the hardest thing to do in business.
Early and hasty international expansion, which absolutely looked like it was the right thing to do, but came at a cost (incl. the price to pay for having invested in Alibaba).
Not diversifying far from their base. To my knowledge, Yahoo never ventured beyond content, advertising, and communications—except, maybe, when they tried online commerce here and there. Compare this with Amazon not only being a retailer—they’re also the best at logistics, the leading player in cloud computing, and much, much more now.
Not having a real connection with their end users. Google was so terrified by the idea of being a company that displays banners and sponsored links that they did everything to have their users create an account, thus having an ability to nurture a direct and more rewarding relationship. Many products were born from that effort, starting with Gmail and Android. Yahoo, in comparison, had its own webmail, but, unlike Google, they never leveraged it to create a Yahoo account providing access to an exceptional user experience across a broad range of products.
I am not sure many people can apply the lessons from comparing these two iconic companies, Yahoo and Amazon, born in the early 1990s. But it shouldn’t prevent us from drawing on and reflecting on Yahoo’s legacy in the Entrepreneurial Age. Thanks for reading!
11/ A reading list about Yahoo’s recent history
With $4.5B to Spend, Marissa Mayer Should Forget the Small Deals and Find a PayPal or a YouTube (Sarah Lacy, PandoDaily, September 2012)
How Marissa Mayer Wants Yahoo To Be Like AOL And Ask (Nicholas Carlson, Business Insider, October 2012)
The Truth About Marissa Mayer: An Unauthorized Biography (Nicholas Carlson, Business Insider, August 2013)
Yahoo Faces Moment of Decision, Again (Michael J. De La Merced, David Gelles, The New York Times, September 2014)
An Insider's Account of the Yahoo-Alibaba Deal (Sue Decker, Harvard Business Review, December 2014)
Yahoo Is Looking for a New Way Around Alibaba Taxes (Matt Levine, Bloomberg, December 2015)
Marissa Mayer vs. “Kim Kardashian’s Ass”: What Sunk Yahoo’s Media Ambitions? (Sarah Ellison, Vanity Fair, March 2016)
Yahoo's Starboard Value Wants to Nominate New Board (Bryan Logan, Business Insider, May 2016)
How Yahoo derailed Tumblr (Seth Fiegerman, Mashable, June 2016)
Verizon's purchase of Yahoo, explained (Timothy B. Lee, Vox, July 2016)
How Jerry Yang Killed Yahoo, By Saving It (Brian Solomon, Forbes, July 2016)
Marissa Mayer’s Media Problem at Yahoo Is Now Verizon’s to Solve (John Herrman, The New York Times, July 2016)
Marissa Mayer Is Being Scapegoated for Yahoo’s Cyber Scandals (Jeffrey Sonnenfeld, Fortune, October 2016)
Tumblr the Day After (Matt Mullenweg, Unlucky in Cards, August 2019)
What makes a good acquisition? (Bo Ren, Medium, August 2019)
Why Verizon sold AOL and Yahoo for about 1% of their peak valuation (Sara Fischer & Dan Primack, Axios, May 2021)
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From Munich, Germany 🇩🇪
Nicolas
