3 Things Every Entrepreneur Should Learn From Yahoo’s Downfall

 

Case Study of Yahoo Failure: Strategic Mistakes

Jerry Yang and David Filo founded Yahoo in January 1994. They had both graduated from Stanford. They started by developing a website called "Jerry and David's Guide to the World Wide Web." It was simply a directory of other websites, organized as a searchable index of pages in a hierarchical structure. In April 1994, Jerry and David's Guide to the World Wide Web was renamed "Yahoo!" The acronym "YAHOO" stands for "Yet Another Hierarchically Organized Oracle."

Yahoo experienced enormous and rapid growth throughout the 1990s, and it diversified its business. It was well on its way to becoming a behemoth and a household name. Yahoo provided a search engine and a directory for other websites at a time when people could only log into a website if they knew the website address. There was no other option for searching a website.

The company began to profit from the first of its kind advertising banners, which grew rapidly. Yahoo went public in April 1996, and its stock price rose 600% in two years. With 95 million page views per day by 1998, Yahoo had become the most popular entry point for web users.Yahoo's stock became an investor's darling during the dot.com bubble, reaching an all-time high of $118.75 in 2000. Shortly after the dot.com bubble burst, the stock fell to an all-time low (literally) of $8.11.

Reasons for Yahoo's Demise

Despite its stellar early performance, Yahoo began bleeding in the late 2000s as a result of a number of factors. The top six reasons for Yahoo's demise are as follows:

Yahoo declined to purchase Google for one million dollars

In 1998, Larry Page and Sergei Bring (founders of Google) offered $1 million to Yahoo for their small startup algorithm. The algorithm was created to help the Yahoo search engine run faster and provide a better web search experience. Yahoo declined the offer primarily because it desired for its users to spend more time on Yahoo's own platform and other Yahoo content in order for the company to earn more money from the website's advertising banners. Again, after months of negotiations, Yahoo CEO Terry Semen rejected a $5 billion offer to buy Google in 2002. Yahoo offered $3 billion to buy Google, but Google insisted on $5 billion. As a result, the transaction was unable to take place.

Failure to Purchase Facebook

As if refusing Google wasn't bad enough. According to David Kirkpatrick's book The Facebook Effect, Yahoo initially offered $1 billion to Facebook before lowering its offer to $850 million. According to David, Facebook declined the offer within 10 minutes. According to some reports, the board of directors would have put pressure on Mark Zuckerberg to sell if the offer had been submitted at $1.1 billion rather than $1 billion.

Acquisitions That Didn't Work

Even the most successful acquisitions could not contribute to the organization's value. In 1999, Yahoo acquired two companies that Forbes now considers to be among the worst internet acquisitions of all time. The first was a $4.58 billion purchase of Geocities, a website that allowed users to build their own personal websites. Geocities was a pioneer in this field, but it was eventually shut down in 2009 after failing to provide any value to Yahoo shareholders.

The second was the well-known $5.7 billion deal for Broadcast.com, an online television site founded by Mark Cuban. Perhaps the concept was ahead of its time, and in 1999, internet connections were too slow to support this type of video content. In 2013, Yahoo paid $1.1 billion for Tumblr. Many Tumblr users were outraged by the acquisition, so they started an online petition, which received 170,000 signatures. By 2016, Yahoo had written off more than half of Tumblr and sold it to Verizon.

Choosing the Wrong CEOs

According to experts, Yahoo has a history of hiring the wrong CEOs. None of Yahoo's CEOs, including Marissa Mayer, possessed a "strategic vision" comparable to Eric Schmidt's at Google. Some even blame Marissa Mayer for the bad choices.

A lack of a clear vision and a series of ineffective leaders

Yahoo's strategic mistakes demonstrate that the company's leadership lacked a clear vision and overall purpose. Google and Microsoft, on the other hand, were unequivocal about their strategic goals. Yahoo was strewn about the place. Participants were asked to associate Yahoo with the first thing that came to mind during the study. Some suggested mail, while others suggested media. Some people suggested looking. Clearly, Yahoo did not carve out a niche for itself in the same way that its competitors did.Some former employees saw the company's slow demise coming years before it happened because they saw the bureaucratic culture with an overemphasis on advertising.

Rejecting Microsoft's Takeover

The hammer was the straw that broke the camel's back. Microsoft expressed interest in acquiring Yahoo for $44.6 billion in 2008, but Yahoo also declined (I have no idea what they were thinking). Since then, the company's market capitalization has never risen above these levels. In 2016, Verizon paid $4.8 billion for Yahoo.

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