10e20 Blog

Yesterday, an interesting article appeared on Wired about critical mistakes that Yahoo has made that has caused them to “blow it.” Reporter Fred Vogelstein takes an in-depth look the failures of Yahoo over the past few years that has allowed Google to pull ahead of the former giant.

The 5-page article, summarized, goes a bit like this:

• Yahoo could have acquired Google in the summer of 2002. They offered $3 billion but Google wanted $5 billion. Yahoo didn’t think of this as a strategic move on their part given that Google’s revenue was only $240 million at the time, whereas Yahoo’s revenue was $837 million.
• Consequently, Yahoo needed to do something that directly competed with Google in order to stay in the lead. Yahoo CEO Terry Semel decided to focus its energies on advertising by investing in Overture.
• Google saw that they could compete Overture by offering the very efficient AdWords program.
• Yahoo also decided to focus on improving its search and acquired Inktomi. For awhile, this seemed to be very promising.
• Then problems began occurring as it became difficult to integrate Overture ads into search results.
• Commitments to Overture customers (mostly Microsoft) and the direct conflict of Microsoft’s own emerging search made these integration issues even more difficult because of of the desire to please all customers.
• Yahoo decided it had to fix the problems inherent in Overture in what we now know as Panama. But at first, bureaucratic constraints within the organization made it difficult.
• Panama’s initial development had three main problems: it lacked an easy-to-use automated system, it needed a good mechanism for determining ad-relevancy, and in order to be effective, it depended on a very robust cash-management system. This caused setbacks and delayed its launch (expected for March of this year).
• So what have we learned? During technological-challenged Terry Semel’s tenure at Yahoo, the systems faltered. Semel is a good marketer and had a great background prior to being appointed CEO of Yahoo, but it looks like he missed the ball on this one likely due to his misunderstanding of software and technology and how both work.

(Yahoo responded to Wired and mentioned that overcoming challenges within Yahoo were “heroic.” And given Yahoo’s drastic reorg late last year, perhaps they are right. Those who have survived this are heroes.)

All right, I concede: maybe Yahoo really can’t be a Google rival in the areas that it is trying so hard to compete in. Maybe they won’t be the best search engine (but still, people still prefer them). I don’t think that we should be ready to prepare a “eulogy” for Yahoo so soon, however.

Let’s consider one of the points that Vogelstein only emphasizes slightly: Yahoo’s brush with social networks. Yes, they let YouTube slip by and the suspicions of them acquiring Facebook have led only to months of speculation (but nothing more). Still, I think that Yahoo has something unique. Ultimately, it comes down to this: despite Yahoo’s small 0.3 increase in search from November to December, search and advertising may not necessarily be Yahoo’s forte.

Yahoo is certainly jumping at smaller social properties, which ultimately, if integrated well, could make Yahoo a different kind of beast and not a direct rival to Google. Let’s hope Yahoo does something exciting in 2007 in these areas, and if they could pull ahead with its advertising platform as well, all the more power to them.