Semester – III
Group Assignment – I
Report on Failure of Yahoo
On (DD/MM/YY) :- 29/08/2018
Submitted by :-
177220 Krishna Tayal
177223 Manav Motwani
177248 Sarthak Agrawal
177250 Semin Naqvi
We would first of all like to offer my gratitude to Professor Dhyani Mehta for giving us an opportunity to analyse the downfall of Yahoo and to study the reasons behind it in detail. We would also like to thank all the people who have directly or indirectly contributed towards the report. We also thank Institute of Management, Nirma University for providing us the resources for better analysis of the failure of Yahoo. Atlast, we would like to thank one and all.
Sr. No. Particulars Page No.
1 Executive Summary 4
2 Introduction 5
3 Success Phase of Yahoo! 6
4 Decline of Yahoo! 8
5 Reasons for failure of Yahoo! 12
6 Recommendations 14
7 Conclusion 17
8 References 18
9 Letter of Undertaking 19
Yahoo! at its beginning was a very dominant company, infact quite often word ‘Internet’ was used interchangeably with ‘Yahoo!’. But then due to various reasons such as, failing to take full advantage of its overture execution, Botching the Flickr and Delicious acquisitions, Rejecting Microsoft’s buyout offer, Not buying or licensing Google’s technology in 1998 and many more, Yahoo! faced a drastic downfall. Now, Yahoo is over. The company is gone. Today it announced that once its deal with Verizon closes, it will rename itself to Altaba. Verizon, meanwhile, may or may not continue to keep the name of the mail Yahoo Mail or dub the instant messenger as Yahoo Messenger. There are many learning which we can get from the mistakes committed by Yahoo!, such as talent density, focus, a lesson that you cannot build company through acquisitions and that you have to be adaptive to the changes very quickly to take the first mover advantage. Yahoo was competing in the highly competitive arena of Internet/Web businesses where those flaws turn into another nail in your coffin. The lack of dynamic capabilities successfully explains the abrupt end of Yahoo!’s success. Yahoo! failed at sensing opportunities and threats and, consequently, at making timely and market-oriented decisions to respond to the changes in its environment. In addition, when it changed its resource base to react, it also failed, exposing a lower propensity to change its resource base than its history of continuous acquisitions would suggest. When, with the burst of the dotcom bubble, Yahoo!’s client base changed to one demanding more measurability and more effective means of online advertising, it failed to evolve in the right direction and became an underperformer until today. That was caused by a multitude of factors from bad initial strategic decisions and bias of Yahoo!’s decision makers to possible organizational structure and knowledge management problems.
Yahoo was founded by two undergraduates who were pursuing their electrical engineering from Stanford University namely Jerry Yang and David Filo. The company was started in 1994 and soon gained popularity. Company’s first name was Jerry’s guide to the World Wide Web which was later renamed as ‘yahoo.com’ in January 1995. The term ‘Yahoo’ stood for ‘Yet Another Hierarchical Officious Oracle’. Soon it became an instant success crossing over a million views within a small matter of time. 1996 it had its public offering it was able to raise $33 million dollar by selling 2.6 million shares which means each sharing $13 per share. Soon yahoo started yahoo mail and other services such as Yahoo! Music, Yahoo! Widgets, Yahoo 360?, photo sharing site Flickr, etc. Yahoo had employed over 13000 employees. Yahoo was earning as much as 75% of profit which was more than major fortune 500 companies earning. This was the era of success that Yahoo enjoyed in which it was asked by Microsoft to sell Yahoo at valuation of $20 billion which it denied as they thought the Microsoft is not valuing them properly.
Then in year 1998-2000 happened a dot-com crash rom which it never really recovered it missed it’s opportunity by not signing the license deal that would have cost only $1million which the founder Jerry declined. After the severe fall in the market Yahoo tried to take again its place in market by trying to acquire various companies but all were declined like Yahoo tried to purchase Google for $3billion which was turned down by Larry Page, Yahoo then tried to purchase Apple before the release of an iPhone which turned down, then Yahoo tried to purchase Facebook it was again turned down by Mark Zuckerberg. Share price of yahoo had hit its lowest. However yahoo tried to uplift themselves by buying Tumblr which yet again didn’t show any sign of improvement in terms of revenue. Instead of Yahoo’s CEO Marissa Mayer’s untiring attempt the company continued to fail. Once being a tech giant a biggest search engine it is now known as an obsolete search engine or an old mail box website, despite it continuous attempts in the end the company was sold to Verizon for $4.83 billion. A company who once was valued at more than $150 billion was now sold at $4.83 billion.
Success Phase of Yahoo!
Silicon Valley is full of giants. But one seems to be slowly disappearing. Yahoo was once an Internet titan, a ruler of the web. Now its future appears to be in question. Yahoo was once a trailblazer: it was here before Facebook and Google. It was here before we texted, tweeted, or snapped. Its place in the history of the Internet is in some ways singular: It was for many the first way they experienced the web.
Yahoo!, an acronym for Yet Another Hierarchical Officious Oracle. When the founders decided to change the company name, they could not get a trademark for the name Yahoo,
so they added the exclamation point, thus the trademarked version of the name Yahoo!.
Yahoo! acquired various companies such as Rocket mail and ClassicGames.com, which eventually became Yahoo! Mail and Yahoo! Games, respectively. Using its seemingly never ending compilation of links to other Web sites, as well as its extensive searchable database, the company helps internet users navigate the World Wide Web.
Yahoo! from like 1995 to 2000 was get big fast. That’s where they went from zero to about 300 million users. And it was all about de-centralization. They pushed down decision making all over the globe in order to get our brand out there and attract users. This is the time when hundreds of companies were going public. Capital markets were on fire. Everyone understood that the commercialization of the internet was a really, really important thing. Yahoo! didn’t know which companies necessarily were going to make it, and so financed a lot of companies. From 2000 and 2006, Yahoo! got to 188 million in that first phase. They went from 188 to close to 500 million users. The company became very, very strong in many of these what I’m calling user product areas. They also started to monetize what we do through media sales and search marketing.
Launched in 1994 by Stanford grads Jerry Yang and David Filo as “Jerry and David’s Guide to the World Wide Web,” it soon became one of the most popular sites on the web. Initially a hand-built hierarchical directory of websites organized by category, the site by 1996 had been renamed Yahoo! (with its trademark exclamation point) and its stock soared as it went public. Yahoo! indeed.
In 1996, WIRED editor Steve Steinberg visited Yahoo’s offices to take a look at how exactly it all worked. The company, he wrote, was attempting to exert some kind of order on an otherwise anarchic collection of documents. To pull this off, the company collected new URLs, via a web crawler as well as email tips from users. Twenty human classifiers would decide in what categories each site belonged. That dependence on human intelligence to organize the web had its pitfalls, namely subjectivity and scalability. And yet, at the time, in almost every way you can measure, Yahoo has successfully exerted order on the chaotic Web, Steinberg wrote.
In the late 1990s, Yahoo had expanded far beyond its roots, it launched an email service, chat, groups, games, and a website platform. It also tried to assert itself as a search engine. But search was where the company started to founder. In 2000, the company signed a deal with Google to license the upstart’s search system. “Yahoo was riding high, and upstart Google was hoping to be the next Yahoo,” contributing editor Michael Malone wrote in 2005, as he looked back at the company in 2000. But then came the dotcom implosion, with Yahoo firing hundreds of employees and seeing its stock price drop from $119 to $4. Now, even though Yahoo’s back, it seems consigned to Google’s shadow.
Decline of Yahoo!
In July 2016, 22 years after it began as a hobby for Stanford graduate students Jerry Yang and David Filo, Yahoo agreed to sell its core operating business to Verizon in what Forbes writer Brian Solomon called “the saddest $5 billion deal in tech history.”
The good times didn’t last. Yahoo lost many of its advertisers, and nearly all of its value, in the dotcom crash that began in April 2000. It never truly recovered. Now what people remember most are the missed opportunities.
In 2002, Yahoo had a second chance to buy Google. This time, CEO Terry Semel offered $3 billion for the company; Page and Brin turned him down, reportedly holding out for $5 billion.
But even that’s not Yahoo’s most famous missed opportunity. That came in July 2006, when Yahoo tried to buy Facebook, then a college-oriented network with roughly 7 million members, for $1.1 billion. Internet lore has Mark Zuckerberg walking away from the deal when Semel cut the offer to $800 million after a drop in Yahoo’s share price.
Rewriting history is always a tricky business. But given Yahoo’s less-than-stellar track record with large acquisitions–its $3.7 billion purchase of GeoCities, its $5.7 billion splurge for Broadcast.com, the $1.1 billion it dropped on Tumblr, none of which really amounted to much–it’s unlikely Google or Facebook would be the behemoths they are today if they’d become part of Yahoo.
If you could suspend your disbelief and assume Yahoo would not have screwed up those acquisitions, it could have ended up being the most valuable company in the world.
Although Yahoo did recruit some of the top notch talent in software industry from top universities and built some really cool products but they never made software as core to its identity as some of its major competitors.
In December 2015, Yahoo executive told New York Times, “I just try to ship products that I’m not ashamed of”. This is not an attitude that tends to produce excellent products.
From 2000–2016, Yahoo kept its feet in 2 boats: One as a media company and second as a technology company. In 2013, Yahoo hired television news anchor Katie Couric for Yahoo’s news site. Couric’s contract was renewed last year in a deal reportedly worth $10 million. Mayer also recruited gadget reviewer David Pogue from the New York Times to anchor Yahoo’s relaunched technology news section.
Yahoo created technology products that people use and media properties that have an audience, but its attempt to be a technology company and a media company simultaneously resulted in an organization that was less than the sum of its parts.
One other business direction that Yahoo took in past years: Venture Capital. In 2005, Yahoo invested 1$ billion in China’s hottest start up, Alibaba. This bet paid off so spectacularly that by last year Yahoo’s Alibaba shares accounted for the large majority of the company’s value.
The uncharitable way to interpret this is that the core Yahoo business was actually destroying value. another major factor in Yahoo’s depressed share price: taxes. On paper, Yahoo’s Alibaba share was worth around $25 billion. However, if Yahoo ever tried to sell its stake and pay out the proceeds to shareholders, it would have owed billions of dollars in taxes to the IRS.
When Bloomberg’s Matt Levine crunched the numbers in December, he concluded that Yahoo’s core businesses were worth just $1.7 billion, about 5 percent of Yahoo’s overall market value at the time.
In past years, Yahoo had been struggling to decide whether they want to focus on technology or media or VC funds. At the end, everything crashed and they had to go public to find a buyer.
The first big challenge to the portal business was search, which more than a decade ago provided a quick way for people to find exactly what they want. Next came social networking, which blended more sophisticated interactions into our online existence. The arrival of smartphones is changing our online activity still more with home-screen apps and an unceasing stream of notifications.
That’s not to say that portals have disappeared. Yahoo remains a top site, with 210 million users in October, according to analytics firm ComScore. That’s behind only Google and Facebook.
But it has lost much of its relevancy. Yahoo’s base of users actually grew over the last 10 years, but much of the action took place elsewhere as people gravitated toward Google to find answers and Facebook to keep tabs on friends.
It’s not that Yahoo didn’t recognize these trends. It was big in search before Google surpassed it. Its Flickr and Tumblr sites have a social element, though one that’s far short of Facebook, the billion-user social network. And it’s worked to modernize its mobile apps, especially during the last three years, under the leadership of Chief Executive Marissa Mayer. All, alas, too little, too late.
While Yahoo concentrated on its core ideas, newcomers like Facebook pioneered new online businesses and competitors Google and Amazon bet big on experiments. “Some failed spectacularly, and some succeeded,” Sappington said. “Because they placed so many bets, the ones that paid off really benefited them.”
Google and Amazon date back to the dot-com boom, but they now look radically different. Google expanded beyond search to build successful smartphone software, services for email and word processing, and a widely used Web browser. Amazon has grown beyond e-commerce to become a streaming-video provider and the power behind a tremendous amount of Internet infrastructure other businesses pay to use. Ironically, the very smartphones that have proved so vexing for Yahoo also duplicate some of the all-in-one experience Yahoo offers.
Google, Facebook and Amazon survive the brutal pace of online change in part because they’re helping drive that change themselves. Yahoo has made plenty of history on the Net, but recent years have spun away in a pattern of being reactive. In 1998, we might have heard momentous news about a tech pioneer through Yahoo itself. Today, it was over Gmail, Twitter and a jingle on my phone.
Reasons for Failure of Yahoo!
There is no one single reason that Yahoo “went wrong”. There are product reasons, strategic reasons, and cultural reasons.
• Focusing so much for years on and search in general, when they ended up losing to Google and eventually outsourcing this to Microsoft.
• Becoming too unfocused. Yahoo tried to do everything and triggered the famous Peanut Butter Manifesto from Brad Garlinghouse that summarized this problem well.
• The shift from a desktop world where everyone used home pages to a mobile and social world. Yahoo failed to build their own successful mobile and social products or to acquire any. Yahoo got too bloated, and nobody would ever make the cuts needed to both headcount and its products/properties.
• Buying Flickr, then letting it languish. Buying Flickr for $35 million was a bargain when you see how huge social photos are today. They could have turned Flickr into the next Facebook or Instagram and instead didn’t invest properly in it.
• Failing to acquire Google and then Facebook. Yahoo had opportunities to buy both of these companies when it was clear they were going to be big successes and instead wouldn’t pay what was needed. For example, they had a deal to buy Facebook for $1.1 billion pretty much accepted, then Yahoo’s earnings came out and the value of the deal dropped to 800M due to stock compensation and Zuckerberg balked when Yahoo wouldn’t change the deal to put the price back up. Think about the value of Facebook today and that Yahoo didn’t acquire them over a $300M difference.
• Leadership changes. Looking at companies like Google and Facebook you’ll see that the same leadership has essentially been in place the whole time. Yahoo has had a shifting cast of CEOs and executive teams that has never provided a longer term vision and execution path to take shape.
• Acceptance of lower quality employees. By the time I worked at Yahoo from 2007-2010, there were still a ton of great A-quality people there, but there were also a lot of B or C-quality people who were not outstanding at their work. This starts to eat away at the company and make the A-players go work elsewhere.
• A corollary here is that there was no clear decision maker at Yahoo! when it came to product. This created an environment of confusion and sluggishness – there was no urgency to fundamentally improve existing products or a fire in the belly to create new products ; product categories.
• There was little to no internal communication on company strategy ; priorities or on alignment of efforts across products or an open discussion of the tough issues facing the company. At all hands meetings, execs talked about how Yahoo!’s an amazing company making a big impact on the world and never really talked candidly about the fact that Yahoo! was churning increasingly inferior products compared to its competitors.
• Yahoo! lacked the culture and discipline around basic execution hygiene e.g., having a clear product launch process, diligently noting action items and decisions at meetings, a consistent product review process, etc. Product managers and engineering managers didn’t think that their job was to closely track the execution of the project, resulting in a slew of program / project managers being added to projects.
The fundamental cause for Yahoo!’s downfall was that its growth wasn’t managed properly by its founders and executives. While the mistakes I described above might appear elementary, they’re all too easy to make as the growth of a company outstrips the capabilities of the very people that got the company to that stage.
Yahoo was once worth $125 billion, and just sold for less than 4% of that amount. What happened to Yahoo, and how could its demise have been avoided? Here are 3 things every business can learn from the downfall of what was once a tech giant.
Capitalize on shifts in user behaviour
One of the primary reasons why Yahoo lagged behind rivals like Google and Facebook is that they failed to successfully transition from one of the largest desktop web properties to a strong mobile competitor. The unfortunate thing was that Yahoo was in a prime position to take advantage of the shift to mobile. Yahoo attracts a billion visitors each month who read and respond to email, check the weather, read the news, check sports scores, share images, and much more – all the things we are accustomed to doing on our mobile phones every single day.
And although they have had some success with their Fantasy Sports, Finance, and News apps, they have seen declining user numbers in the categories of email (Yahoo Mail), social (Tumblr), photos (Flickr), weather, and more.
On the desktop web, Yahoo made their billions by simply showing display ads to their website visitors. When smartphones became the primary way users accessed information, Yahoo could not build high-quality mobile advertising experiences fast enough. This impacted Yahoo’s advertising business in a couple of ways. First, because Google and Facebook were making the transition to mobile much more quickly, Yahoo’s display ad business was losing market share, and fast. And Yahoo was also slow to create the capability to measure the effectiveness of ad campaigns across multiple devices, and thus couldn’t prove the worth of their platforms to garner the budgets of large advertisers they had courted in the past.
Yahoo was not only slow to recognize the impending shift to mobile, but they also could not capitalize on the move toward social experiences. They failed to take advantage of their Flickr acquisition, which was bought for the chump change amount of $35 million in 2005. Flickr really could have been Instagram. And Yahoo tried to go big into social by purchasing Tumblr for over $1 billion, but that acquisition has faltered. Technology changes at the speed of light. In order to keep up, you have to understand how these changes impact user behaviour and how your company needs to adapt. Whether you’re a technology company, a manufacturer, or a services provider, a deep understanding of your core customers will help you adapt to the changes that occur in their behaviours and help your company endure.
Know your mission and focus on your core capabilities
For the longest time, Yahoo had no idea what kind of company it was.
It still doesn’t.
Is it a media company that pumps out news, finance, sports, and other information?
Is it a technology company that creates technical products that improves our lives?
Is it an investment vehicle, per its hugely valuable investment in Alibaba?
Is social and mobile important to the company?
No one has known for a long time.
Google’s Mission is to organize the world’s information and make it universally accessible and useful. And while they have their hand in many different businesses, from self-driving cars to healthcare, their approach to each and every one is data- and technology-driven. Facebook’s mission is to give people the power to share and make the world more open and connected. Everything they do is related to connecting people with technology.
It’s hard to count how many mission statements Yahoo has had over the years. The lesson here? Be clear on your mission and what kind of company you are, and focus on that. Don’t try to be a copycat and emulate others’ success. If you know who you are and what you are good at, it will be clear to your customers how you can help them, and you’ll find success.
Form a strong culture with the best people
You can’t forge a strong company culture when leadership isn’t consistent, and of course, if you have no idea what kind of company you are. And a weak company culture will allow weak candidates to become employees and let them cruise. No one will love your products when your goal is to ship products you’re not ashamed of. And that mindset has everything to do with the culture of where you work. Amazon has a culture that may not be for everyone, but it’s a strong culture that clearly focuses on building innovative products at any cost. Zappos’ culture is solely focused on customer service so much so that it offers customer service reps $2,000 to leave the company after training them. Southwest Airlines strives to be the most loved airline and gives their employees a lot of leeway to make passengers happy. Culture is one of those “hand-wavy”, subjective concepts that no one can really put a finger on, but it has such a huge impact on the employees that you hire, how they do their jobs, and the overall quality of your company. So be sure to understand your mission, align your company around that mission, and let that drive how you do business.
One of the most influential internet companies of our day is gone. But it didn’t have to happen that way. If Yahoo had garnered a deeper understanding of their users, focused on a few things they were good at, and forged a strong company culture, the company may still be alive today. These are lessons that can be applied to any business, regardless of size, industry, or geography. An internal memo written by a Yahoo employee in 2006 highlighted that the company wants to do everything and be everything – to everyone. The “fear of missing out” and the inability to focus on a core business contributed to the downfall of an internet pioneer.
• ‘Yahoo – where did it all go wrong?’. Retrieved from www.bbc.in.
• ‘Truth behind the Failure of Yahoo!’ Retrieved from www.industryleadersmagazine.com.
• ‘Yahoo’s ten biggest mistakes.’ Retrieved from www.econsultancy.com.
• ‘Yahoo: 9 reasons for the internet icon’s decline.’ Retrieved from www.telegraph.co.uk.
• ‘The Glory that was Yahoo!’ Retrieved from www.fastcompany.com.
• ‘Yahoo’s Demise Is a Death Knell for Digital News Orgs.’ Retrieved from www.theatlantic.com
Letter of Undertaking
(IBE Group Assignment – 1)
We, Semin Naqvi, Sarthak Agrawal, Manav Motwani, Mohit Detwani and Krishna Tayal bearing Nirma ID 177250, 177248,177223, 177227 and 177220 respectively, of INSTITUTE OF MANAGEMENT, Nirma University, hereby declare and undertake that we have done this assignment on our own. All data presented is either written by us or has been given reference for.
Signature of Group Members Date: 29 August 2018
Semin Naqvi –
Sarthak Agrawal –
Manav Motwani –
Krishna Tayal –
Mohit Detwani –