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Essay: Nine mistakes that contributed to Yahoo's downfall

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  • Reading time: 3 minutes
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  • Published: 1 February 2018*
  • File format: Text
  • Words: 821 (approx)
  • Number of pages: 4 (approx)

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Icon of the early days of the world wide web, Yahoo announced that it is selling its core business to Verizon.

Until recently, the web portal and search engine had revenues higher than Twitter and LinkedIn, and its visitor numbers outstripped the likes of Amazon, Wikipedia and eBay. So what went wrong?

Here are nine mistakes that contributed to the downfall of the early-internet darling:

Losing out on Google

In 2002, Yahoo had the opportunity to acquire Google when Sergey Brin and Larry Page said they would sell-up for $1 billion. But when Yahoo's then-chief executive Terry Semel eventually went back to the reluctant pair to accept the offer, they upped their price to $3 billion.

Paul Graham, founder of Y Combinator and a former Yahoo employee, said the company dismissed search as an important part of the business at the time.

Missing an opportunity with Flickr

Before Facebook, Instagram and Google Photo there was Flickr, a photo sharing site that Yahoo bought in 2005. At the time, Flickr's team had plans to turn the site into a social network. But Yahoo missed this opportunity and mismanaged the site into obscurity. Along the way it has done the same with GeoCities, Delicious and, most recently, Tumblr.

Not buying Facebook

In 2006, Yahoo approached Facebook with an acquisition offer of $1 billion. Mark Zuckerberg turned the offer down, but reports suggest Facebook's board would have forced him to sell if that offer had been increased to $1.1 billion. Semel refused to increase the offer.

Rejecting Microsoft

In 2008, Yahoo resisted a $44.6 billion takeover bid from Microsoft. Steve Ballmer, then chief-executive of Microsoft, tried hard to convince Yahoo to sell, but its board decided the offer was "too low". The next year Yahoo gave up efforts to create a search engine of its own and signed a deal to use Microsoft's Bing.

A string of bad chief executives

Strong leadership has helped other floundering tech companies reverse downturns equally as worrying as Yahoo's. Take Apple under Steve Jobs, Microsoft under Satya Nadella, and Google under Eric Schmidt as examples.

Yahoo, however, failed to hire a chief executive up to the task of turning the company around. Semel is regarded among many as one of the worst tech chief executives, while Carol Bartz's foul-mouthed outbursts won her few friends, and Scott Thompson resigned amid claims he lied on his CV.

Yahoo has struggled for years to regain the glory of the pre-dot com bubble burst days, fighting for air while rivals like Google and Facebook grew and thrived.

By April 18, it may be owned by one of those rivals.

What happened to the company that was once king of the net? While shareholders are fed up with the company's continued insolvency and CEO Marissa Mayer's business leadership, Yahoo's tortured history shows that this sale was inevitable years before Mayer came into power, even if her tenure put the final nail in the coffin.

With final bids for its web and news businesses due next week, here's a look at what went wrong at Yahoo, who wants to buy it and what comes next.

Plummet from greatness

From Yahoo's inception in 1995 to 2000, it grew from a promising start-up with $2 billion in venture capital to a $140 billion force of nature.

Almost as synonymous with the internet as AOL, Yahoo foresaw the profitability of the medium and tried to snatch up as many online businesses as possible, spending billions on now-defunct sites like Geocities, Hotjobs, and Broadcast.

Following the dot-com collapse, Yahoo's value fell to $11 billion in 2002, its assets and investments severely devalued, along with every other tech giant. Yahoo wasn't alone in putting too much money into concepts without considering whether they could actually ever earn profits.

Unfortunately for the 'hoo, it ignored the value of businesses that would end up profitable: search engines. Instead, the company leased its searches out to a start-up named Google in 2000.

When Yahoo attempted to buy Google for $3 billion in 2002, the latter wisely rebuffed the acquisition. Yahoo would eventually start its own search engine with sponsored links in 2004, but never came close to claiming Google's hold on the market.

That didn't stop Yahoo from buying dozens of other promising sites, trying to maintain its status as the one-stop shop for all things internet.

These investments never panned out as hoped. A senior member of Yahoo publicly complained about the company's "Peanut Butter manifesto": it bought anything and everything, instead of finding the most profitable areas like social media and advertising and sticking to them. This criticism precipitated another long period of decline.

In 2008, Microsoft attempted a hostile buyout of Yahoo's shareholders at $45 billion – $37 billion more than Yahoo's current estimated value. Jerry Yang, Yahoo's CEO at the time, convinced shareholders to resist the buyout, a decision that has those same shareholders fuming now, and likely has Microsoft sighing in relief.

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