Yahoo's Rise and Crash: How it went from almost buying Google to crashing

In 2021, a brand that was synonymous with the Internet and once worth an estimated $125 billion returned to the media with new negative news: the closure of one of its most popular services.

It was Yahoo Answers, one of the last survivors of the glory days of a company that lived through golden days but fell off a cliff due to a series of wrong decisions, culminating in July 2016.

Some 22 years after it began as a hobby for California Stanford graduate students Jerry Yang and David Filo, Yahoo agreed five and a half years ago to sell its core operating business to US telecoms operator Verizon. Few today remember how gloriously this company began. Before Google or Facebook, Yahoo was the king of the Internet.

Origins and Rise

Jeremy Ring was one of Yahoo's top sales executives from 1996 to 2001. His memoir, We Were Yahoodetails the rise and precipitous fall of what was once the company of the largest Internet on the planet.

"Our company was five years old," Ring wrote. "We were worth more than Ford, Chrysler and GM combined. Hell, we were worth more than Disney, Viacom and News Corp. combined. Every one of those big American brands could have been swallowed by us," he recalled.

Thanks to its entrepreneurial instincts and strategic acquisitions, Yahoo was way ahead of the curve in nearly every category on the Internet. But it failed to capitalize on its early advantages, leaving the field dominated by later entrants. Yahoo Briefcase, for example, did cloud storage long before Dropbox, Box, and Google Drive.

For many in the 1990s, this funny-named company was synonymous with the Internet. It started as a web directory, curated and manually categorized by humans, known simply as "the surfers."

Much more than a directory

Yahoo was the first site to add news, sports and financial sources to its web directory. Those three services remain very popular as part of Oath, Verizon's name for its AOL-Yahoo media mix. By early 1998, Yahoo had added:

At the time, it was competing with search portals like Excite, InfoSeek, and Lycos to provide everything on the web in one place. It didn't want to define itself as a portal, because a portal is a doorway to another place, and Yahoo wanted people to stay there.

Video, photo and advertising pioneer

Along the way, Yahoo broke new ground. In addition to being the first web directory, it was the first portal to offer localized directories for major cities and the first to allow users to customize their own versions of the site. Many of the apps and services we now take for granted were either invented at Yahoo or quickly found a home there.

Before there was YouTube, there was Broadcast.com, which became Yahoo TV. Before Instagram, there was Flickr. Before Evernote, there was Yahoo Notebook. Before Spotify, Yahoo Music. And so on.

More importantly from a business standpoint, Yahoo pioneered the pay-per-click advertising model that soon became ubiquitous on the Internet. The first click banner on Yahoo was an ad for MCI; To make sure people would click on it, they embedded the word "nude" within the ad text.

In 2001, Yahoo bought a startup called Launchcast and made it the basis of its own music streaming service. Before Spotify or Pandora existed, I followed a freemium model: listen to up to 1,000 songs a month for free or pay $4 a month for CD quality, no ads, and unlimited skips.

A Symbol of Silicon Valley

While Yahoo didn't exactly invent Silicon Valley culture, it quickly became its representative. It was informal at the college level. David Filo did not wear shoes. Shorts and flip flops could be worn to work. He was super entrepreneurial, which is now kind of a cliché. Early employees used to sleep at their desks after spending the night writing code or updating content.

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To the American public, Yahoo was the company with the funny TV commercials. It had personality in abundance, which for tech companies in the 1990s was very rare. It was those early TV ads that made Yahoo a global brand overnight.

When Yahoo launched a TV campaign in the US, there were at least 130 other search engines. But none of them had that cheeky name, and they were the first to come out and announce themselves in a big, memorable way.

When Yahoo was about to buy out… Google and Facebook!

The good times didn't last. Yahoo lost many of its advertisers, and nearly all of its value, in the dot-com crash that began in April 2000. It never really recovered. Now what people remember most are missed opportunities.

In 1998, Yahoo had the opportunity to acquire an innovative new Internet search technology created by a pair of Stanford graduate students for $1 million.

Instead, David Filo convinced Sergey Brin and Larry Page, who had asked Yahoo for $1 million in funding, to strike out on their own, introducing them to one of Yahoo's early investors. Google, Michael Moritz, of Sequoia Capital, who invested that figure.

In 2002, Yahoo had a second chance to buy Google. This time, the company's CEO, Terry Semel, offered $3 billion for the company. Page and Brin turned it down, because they expected $5 billion.

But even that wasn't Yahoo's most famous missed opportunity. That happened in July 2006, when Yahoo tried to buy Facebook, then a university-oriented network with about 7 million members, for $1.1 billion.

Internet lore has it that Mark Zuckerberg walked away from the proposed deal when Semel cut the offer to $800 million after a drop in Yahoo's stock price. According to Peter Thiel, one of Facebook's three board members at the time, Zuckerberg never seriously considered selling.

Slammed Microsoft

Yahoo turned down offers, most famously when the company's then-CEO Jerry Yang aggressively rebuffed attempts by Microsoft to buy Yahoo for $44.6 billion in 2008. It was one of the most famous slams in Internet history.

Yahoo was abuzz with big acquisitions. For example, he bought GeoCities for $3.7bn, splurged $5.7bn for Broadcast.com, spent $1.1bn which he then dropped on Tumblr.

In light of the destination of those purchases, one can deduce that Google or Facebook would be the giants they are today if they had become part of Yahoo. If Yahoo hadn't botched those acquisitions, it could have ended up being the most valuable company in the world. Or it would have set the internet back a couple of years, because Google and Facebook would have been lost, and the world would have had to reinvent them}.

For example, in 1999, GeoCities allowed millions of people to build their own websites, with enthusiastic but ugly results. WordPress today allows you to create sites that are much more attractive, but the web lost some of its soul when Yahoo removed GeoCities in 2009.

Why Yahoo Failed?

Perhaps Yahoo's biggest mistake was not allowing paid search ads to coexist with organic search results. For the first few years of its existence, search results were considered editorial content, not to be clouded or diluted by advertising.

When Yahoo realized its mistake and acquired Overture, the company that invented paid search advertising, for $1.6 billion in 2003, Google was already leading the way in that market. Rather than fine-tune Overture to compete with Google's more sophisticated system, Yahoo decided to build its own advertising platform almost from scratch.

Codenamed the Panama Project, the new platform took nearly three years to complete. By then, the battles for the web search market were over: Google had won.

But beyond that, Yahoo never really decided what it wanted to be when it grew up. Was it a technology company? A search advertising platform? A flourishing social network?

Its second CEO, Terry Semel, tried to turn Yahoo into a new media giant. Its eighth and final CEO, Marissa Mayer, wanted to transform it into a mobile technology company. Neither was willing to divest Yahoo's legacy revenue-generating businesses, and both ultimately failed.

Yahoo Answers, the swan song

The farewell of Yahoo Answers, which closed on May 4, 2021, was understood as one more exhalation on the way to the last breath of what was once one of the biggest internet giants.

After 16 years of knowledge sharing, the platform stopped accepting new questions or answers on May 20 and kept the ability for users to download its content until the end of June. After more than 15 years of being a reference on the Internet, the question and answer site argued that it had become less popular.

In its heyday, Yahoo had the idea of ​​creating a platform where people could ask all sorts of questions for other users to answer. The question and answer page par excellence, or at least the best known and used by millions of users, was born in 2005.

Given the popularity of social networks, it is not surprising that one of the reasons, if not the most basic, is that the platform has become less popular over the years and the company seeks to redirect its investments towards other products.

The footprint of a giant

Today, Yahoo's DNA can be found throughout Silicon Valley and beyond. You can't go to any company in the Californian valley and not find Yahoo's footprint. The list of startups launched by former Yahoo employees includes WhatsApp and Slack. And former Yahoo executives sit on the boards of LinkedIn, Facebook, Google, Microsoft, Twitter, Airbnb, Dropbox, and Sequoia Capital, to name just a few.

One could even argue that Alibaba, China's massive online marketplace, might not be a $160 billion company without Yahoo's $1 billion investment in 2005.

The one who covers a lot, squeezes little and... fails

Trying to be everything to everyone was the downfall of Yahoo. It had some staples like mail, which survives today and was best in class, but most of its products were second best and late to market.

With the right leadership, Yahoo could have evolved into a combination of what Google, Facebook and Netflix are today. But he lacked vision.