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Yahoo lesson: Don't get comfortable, it'll kill your business

Date

Charles Arthur

Zoom in on this story. Explore all there is to know.

Yahoo's demise shows a company should never get too comfortable.

Don't get comfortable... author says Google founders Larry Page and Sergey Brin always look for new avenues.

Don't get comfortable... author says Google founders Larry Page and Sergey Brin always look for new avenues.

Why would anyone want to buy Yahoo? Such was the question posed by one of my Twitter followers as Thursday's bid (from private equity groups Blackstone and Bain) crossed the wires.

"It's a zombie company," he said.

Indeed, Yahoo has been stumbling about for quite a few years, with nobody quite clear what its purpose is. I asked the recently departed chief executive Carol Bartz precisely that question a year or so ago, and she burbled around the answer.

Really, all Yahoo is there to do is vacuum up spare display advertising while it provides a bit of news, and photography (hello Flickr!) and also be an intermediary for lots of email. Revenues are on a downward slide; Facebook and Twitter are sucking up the display that it used to thrive on.

And, er, that's it. Nobody can quite think of anything that Yahoo has done in the past 10 years that has set the internet alight. All of which should have newspaper and magazine editors pausing and shivering. Display adverts? News? Photography? Isn't that what ... newspapers and magazines do?

Yes, and if you aren't looking to the future and doing it with an eye on the money, then your fate is going to be the same as Yahoo's, where nobody can see a good end to the story; it's MySpace or Bebo, just bigger and with its own email server.

Indeed, the tale of Yahoo is really just the tale of so many news organisations, except this is played out entirely on the internet.

Yahoo's top layer has always been really bad at reading the weather. One of the recurring themes that kept coming up when I was researching my forthcoming book Digital Wars (about Apple, Microsoft and Google's business battles since 1998) was how down the years Yahoo has kept screwing things up. It's like a Shakespearean supporting character, a cross between Falstaff and Rosencrantz and Guildenstern: fated to make bad choices.

For example: in 1996, two Stanford PhD students approached Jerry Yang, the co-founder and chief executive, to explain that they had developed a search engine that was even better than Yahoo's own at finding stuff on the web: the most relevant results appeared on the front page.

Yang explained patiently that Yahoo didn't really want a better search engine - it made its money from display ads, so the more pages people went through, the more ads it could sell.

Yes, the PhD students were Larry Page and Sergey Brin, and their search engine would become Google.

Then, as Google was rising in 2000 to 2003, Yahoo kept failing to develop a better ad system, which cost it years and millions of dollars of lost opportunity. Then there was Microsoft's colossal US$44.6 billion cash-and-shares bid in January 2008: at US$31 per share, it was a 62 per cent premium to the company's stock price. But Yahoo had devised some internal forecasts that suggested it would quickly be worth far more. It was wrong, the credit crunch came, and Microsoft walked away.

How many news organisations have been told about the internet repeatedly, but liked the revenues from display ads too much to go more deeply into this new medium? How many haven't been brave enough to test new ways of doing things, to integrate (or even devise) new technologies and ways to connect?

It took the music industry long enough. Finally, some have twigged that apps are (or can be) the new albums. Or that survival is about changing the balance in what they do, away from reissuing CDs of stuff you've sold once on vinyl, to more live tours and interactive paid-for products.

Will the news industry figure it out in time, though, as the hull of Yahoo slowly tips out of the water and the bow starts sliding under the waves? We can all complain - as Yahoo's executives might - that the formula worked really well for a while, and it's just unfortunate that it isn't doing quite so well now. Display ads aren't dead online. They're just a bit poorly. And can't get out of bed. Any more.

Except there's no reason for Yahoo not to have done what Facebook did. Lord knows how many companies have been offered up to Yahoo, only to disappear into its maw and never emerge usefully again. Its only semi-success at getting paid has been through subscriptions to its photo site Flickr (which remains a best in class).

For the rest? Yahoo offers a case study in why you must never get comfortable. It has failed to focus on the money, buoyed by its success in one narrow area.

In contrast, Google has tried and tried to find new avenues for making money: it bought Android, the company, in 2005 (Page and Brin didn't tell their then-chief executive Eric Schmidt). It's tried multiple times with social networks. It's never satisfied.

Yahoo, and Yang, got comfortable. That's what will kill your business.

Digital Wars: Apple, Microsoft, Google and the Battle for the Internet will be published in March 2012 by Kogan Page.

Guardian News & Media

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14 comments

  • The article is only too true. Look at IBM, it has changed from the big iron to a services company, sold its pc business and is now looking to change again to a solutions company. It should have died in the 90's but it has since reinvented itself and the shares are now worth $190 when other IT stocks are tanking. Complacency is death in the IT industry as the article clearly points out. Amazon is another good example having moved from hardcopy books to digital books.

    Commenter
    Lawrie
    Location
    Sydney
    Date and time
    December 06, 2011, 11:24AM
    • Interesting how this article appears amid the rumours of another takeover attempt of Yahoo by Microsoft. They look like they were made for each other; both of them complacent and going nowhere.

      Commenter
      Robert
      Location
      Canberra
      Date and time
      December 06, 2011, 11:55AM
      • I wasn't aware Yahoo was in decline? Profits of 1.2bn last year Staff numbers have doubled since 2004

        Commenter
        Bob Jones
        Date and time
        December 06, 2011, 12:47PM
        • The modern business is about innovation: I can't think of anything innovative that Yahoo has brought to the table in the last 15 years.
          Maybe now the weather service on iOS devices would get better if Yahoo went under (Yahoo provides that info, and as the article says, is often horribly wrong).

          Commenter
          Andrew
          Location
          Sydney CBD
          Date and time
          December 06, 2011, 1:24PM
          • Yeah Lawrie and Andrew! I'm sure people who have the time to comment on an SMH article in the middle of the day have all the answers to innovation making a company profitable....

            Commenter
            vic
            Location
            Sydney
            Date and time
            December 06, 2011, 1:27PM
            • Yahoo is in the death stages. It will not be invigorated. The best outcome they can hope for is to be sold to microsoft. They have a history of paying too much for dead technology. Yahoo share price in 2000 - $100, 2006 - $40, today $16

              Commenter
              Jeff
              Location
              Brisbane
              Date and time
              December 06, 2011, 4:43PM
              • @Lawrie Hi, have you had a look at IBM's 2010 results? Sure they sold out of their (profitable) PC business. Annual turnover of $10b just wasn't making the margins they were after - and it was only 10% of gross. Far from abandoning the traditional strengths of mainframes and software, they seem to be galloping along - just check the margins!! - while adding and growing the higher margin Business & Technology services. I used to work for them back in the 1980s, and had a very satisfying career in a meritocracy. Sure, they had to re-invent portions of the outfit when they misjudged the PC world, but they remain one of the best managed outfits around, with a huge, hugely talented workforce. Don't think Yahoo are in quite the same league.

                Commenter
                Neddy
                Location
                NQ
                Date and time
                December 06, 2011, 6:18PM
                • @robert yeah because having one of the more successful console platforms(which was just redone the other day) the largest market share operating system which with windows 7 is far better then osx lion and also having one of the smoother phone OSs according to all the reviewers is being complacent. microsoft have done heaps in recent years to turn around that dry boring image from xp and vista. learn your facts before you put a company down.

                  Commenter
                  link
                  Location
                  trashville
                  Date and time
                  December 06, 2011, 6:45PM
                  • @Lawrie - so true - they dodged the mini-computer demise of the '80s unlike so many of their ear - the Wangs, Control Datas etc

                    Complacency is a killer..

                    @Robert.. I think you're confused mate or just perhaps not wanting to see or just don't know much.... whilst Yahoo may be resting on its haunches, Microsoft has done an admirable job of diversifying its product lines (OS/Business/Consulting/Entertainment) and investments (owns a sizeable share of MSNBC, owns Skype) and growth initiatives ($500M investment in Azure for Cloud computing)..

                    Do yourself a favour and use Yaho^H^H^H^H Google to search for the number of Kinect devices sold in the first 3 months after release - enough to earn Kinect the title of "fastest-selling consumer device".. Ever.

                    Blindness is also a killer..

                    Commenter
                    Bazza
                    Location
                    Easy Street
                    Date and time
                    December 06, 2011, 7:46PM
                    • So its all about the money. This article began with a comment on lack of vision and ended with that same old, boring old, diatribe .
                      they have failed to focus on the money,
                      I am so sick of money being the focus of everything.
                      How about good old innovation or something... doing good, or something, creating something because its fabulous when you do and you get the bonus of adding to human knowledge, comfort, or something..
                      For something other than money.
                      Why does everything have to be about the money.

                      Commenter
                      reader
                      Location
                      Balgowlah
                      Date and time
                      December 06, 2011, 8:20PM

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