What Does Yahoo's Downfall Teach Us?

If you have not heard, Verizon announced they are going to acquire Yahoo. This ends a very long, drawn out bidding process in what has been the very long death of Yahoo. Yahoo, the brand, probably will not disappear in this deal (much like how AOL is still a brand after its acquisition by Verizon). AOL and Yahoo have benefitted greatly from their once high times. AOL’s story is well known (technological advances eroding their user base). But Yahoo’s downfall has taken significantly longer. The end of Yahoo was pretty much inevitable the day they said they could no longer compete with Google (back in the early 2000s). What can we learn from Yahoo’s downfall?

Features Over Content

Building great features for users has been a hallmark of wildly successful companies the past few years. Snapchat with its well thought out and curated filters (that also generate revenue), Medium with its very handy “time to read” feature, and Google with the iOS app, Gboard, which brings a swipe-style keyboard with search built-in are features added to existing good products. Yahoo acquired Flickr then took a very long time to give users the feature of free space which was nothing new; Facebook already had unlimited image storage for its users. Yahoo acquired Tumblr which gave Tumblr some street cred but I cannot honestly think of one feature that Tumblr nailed after the acquisition to separate it from the pack of link sharing and blogging services.

Instead of building great products Marissa Meyer focused on mobile platforms which ended up not panning out too well. The Yahoo scatter beam was also focused on content deals. Huge sums of stock and cash were spent on Katie Couric and the NFL. Coupled with several failed video platform acquisitions (Hulu, Dailymotion, etc.) you could tell that despite Yahoo’s ability to acquire companies it was not going to be a major play in the content space (aside from the display content on its once great “portal”).

Video is where the web is heading. Yahoo saw that early on but failed to execute on that vision. I am sure that lots of Yahoo folks worked on lots of Yahoo product features. What set Yahoo products apart from their competitors?

CEOs Have to Build Great Teams

Marissa Meyer came in to Yahoo with a lot of fanfare and quite a few detractors. She was a brilliant, raw talent that people thought would bring new life to Yahoo. People also criticized Marissa Meyer’s lack of leadership experience. Anything was better than what Yahoo had and why not poach a Google executive? Right?

A CEO has fiduciary responsibilities but, CEOs must build a great team under them. That team has to execute at a very high level to be successful on the stage that Yahoo is performing on. CEOs have to encourage people to innovate. CEOs have to know when to say an idea is not turning into a product fast enough and pull the plug. CEOs have to build teams that know how to fail fast. Yahoo’s strategy of acquisitions, which Marissa Meyer called a necessity, did not build a fantastic team.

In my opinion, the best talent Yahoo acquihired was David Karp the CEO of Tumblr. He created an amazing product from virtually nothing that was drawing in a lot of traffic. At the time of the acquisition by Yahoo, Tumblr was the backend that powered chrisshort.net. I put my money where my mouth was too (even at the $1.1 billion value of Tumblr); I bought Yahoo stock the day the acquisition was announced. I thought the Yahoo Board of Directors would put David Karp on a prominent position and let him innovate. Giving David Karp a lot of leeway over the products, features, and development at Yahoo would have been a great idea. But, that never happened and the value of Tumblr was written down a total of $712 million over two earnings periods.

Yahoo could not keep or manage good talent in the highly competitive Silicon Valley market. Yahoo was unable to build a great team to bring it out of its funk. The Marissa Meyer detractors are sitting there saying, “I told you so.”

Do Your Damn Homework

The botched Alibaba spinoff was pretty much the nail is Yahoo’s coffin. Citing concerns about potential tax penalties, Yahoo decided against spinning off Alibaba after the IRS said it would not rule as to whether or not the deal, as structured, would be a tax free transaction. Two things immediately came to mind when I first heard of this spinoff plan (before the deal’s failure):

  • The Alibaba spinoff would only kick the can a little further down the road
  • The political climate of overseas dealings being tax free for US corporations made for horrible timing (see corporate inversion)

Clearly the due diligence for this deal was not done for whatever reason. This was either a leadership failure or flat out negligence. Either way, Yahoo did not do its homework in regards to the Alibaba spinoff. Now Yahoo is spinning off its “core business” instead.

What does Yahoo’s downfall teach us? That you must bring together a great team. The assembled players have to push people to build great features (the content will come, as exemplified by Medium, Snapchat, Facebook, etc.). That team must also do its due diligence in an effort to add value to the company. Now we all get to see how Verizon will deal with Yahoo assuming that deal gets approved, of course.

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