By Varun Garg

Edited by Shambhavi Singh, Associate Editor, The Indian Economist

 Yahoo was founded in 1994 by two lowly electrical engineering graduates from a trailer on the campus of Stanford, and was listed on NASDAQ soon after. The supernova touched the $500 mark in 2000 and made a number of investors bathe in wads of notes in their bathtubs. That joy turned into tears when the shares traded at $19 in 2010! It turned down a $45 billion offer from Microsoft while Facebook and YouTube rejected Yahoo’s offer to buy them. These deals cost the company dear.

 WHAT HAPPENED?

Yahoo never had a dearth of users, and during the company’s heyday, a large number of users meant several clicks on the advertisements as well. For about a decade, Yahoo dominated in display advertising revenue and innovation. This meant high revenue for Yahoo and equally importantly, a lot of data.

Banner ads were still ringing the cash register at Yahoo into the next decade, so it spent a great deal of time on trying to make them even more profitable via targeting. The traditional model was just selling ad space and relying on the total number of page views to gauge buyers’ excitement.

By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet and Yahoo’s revenue growth. Hence, they invested in new Internet start-ups. The start-ups in turn used the money to buy ads on Yahoo to procure traffic. This caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in.

The space Yahoo used for targeted ads actually represented a small amount of its total inventory, but it was able to get advertisers to pay a premium by showing specific ads to specific demographics. It was free money!

 WHAT IS WRONG ABOUT THAT?

One of the key issues for Yahoo was the necessity of selling display ads, which arguably meant it needed to act like a media company So Yahoo’s mission was to create more content — articles, games, email, search engines — to which it could draw users and place ads.

No one was sure whether Yahoo was a media company, a search company, or a technology company, and that “back and forth” caused a lack of cohesion among the teams and resulted in an identity crisis.

Also, Yahoo lost its users because it didn’t evolve its business model to really embrace the search experience. To sell advertisement space, search is a great way to make money because users tell you exactly what they are looking for. Understanding users’ needs and intent is most valuable in targeted advertising, which clearly failed to enlighten Yahoo.

Lack of founder involvement in product development, lack of guts to try out anything new so as to not displease any segment of users, poor internal communication necessary to cut down on the euphoria and a very pathetic hiring bar led to below par programmer. This rang the death knell for Yahoo.

THE CURRENT SCENARIO

Besides closing down business in several European nations, Yahoo has begun massive layouts in its Indian arm as well. It has become synonymous to failure. It is a company that no one likes anymore. The company isn’t dead, but its body has been prematurely autopsied countless times by technology journalists and analysts trying to diagnose what went wrong and how the next great CEO will fare, while still trying to count the time left on the clock.

Varun Garg did his schooling from Don Bosco, Kolkata. He topped the country in his ISC examinations and is currently studying in SRCC. He has been an avid participant in theatre, economics, traveling and politics in college. To top this, he acted in a play that went commercial twice in reputed theatre halls of Delhi. He however is attracted most to sports and is immensely passionate about cricket, having represented his state while in school.  Mythological fiction is something that piques his interests further. He is currently preparing for his MBA while struggling with the inadequacies of college academics!

Posted by The Indian Economist | For the Curious Mind