How Yahoo tried (but failed) to go big, and is now going home

I remember the early days of the Internet when the Yahoo directory was my home page. Capturing, categorizing, and presenting the Internet in a clickable tree structure was doable back then, and Yahoo was best of breed. Sadly, that was the last time that Yahoo was truly dominant at anything.

When search engines replaced directories as the dominant information retrieval process, Yahoo outsourced its search tool to Google instead of creating its own, thus jump-starting the rise of a major competitor. Over the years, Yahoo has tried to build up dominance in mail, social media, picture sharing, blogging, broadcasting, e-commerce, messaging, and many other areas… most of which did OK, but none of which cracked the top 2. Time and again, it failed to occupy new market segments, many of which it helped to create.

And, that’s the ultimate sin of an aspirational giant – not being big enough. Yahoo’s end came as a slow, plodding death – a spurned acquisition offer of $45 billion from Microsoft, a succession of ineffective CEOs culminating in the disastrous Marissa Mayer, a slew of splashy and mostly failed acquisitions, and multiple efforts to rebrand.

The announcement that Yahoo’s brand and remaining businesses will be sold to Verizon for $5 billion comes as no surprise. The company had been trying to sell itself for almost a year. It will now join another faded Internet giant, AOL, in Verizon’s stable of misfits hoping to stave off the massive digital disruption currently playing out in the telecommunications industry.

Yahoo’s $40 billion stake in Alibaba and Yahoo Japan – its main remaining assets – will not go with the sale to Verizon. Now unencumbered by Yahoo’s operating businesses, these assets will presumably be sold off in a more tax-efficient manner.

Google has its search engine, Facebook has its social network, Amazon has its e-commerce site, but Yahoo tried to become a giant without the backing of a solid core business. If your strategy is to be a giant, then you’d better be big. In the end, Yahoo was not big enough or dominant enough in the markets it chose to focus on.

Michael Wade is the Cisco Chair in Digital Business Transformation, and Professor of Innovation and Strategic Information Management at IMD. His interests lie at the intersection of strategy, innovation, and digital transformation.

He is Director of the TONOMUS Global Center for Digital Business Transformation and co-Director of IMD’s new Leading Digital & AI Transformation program designed for business leaders and senior managers from all business areas who wish to develop a strategic roadmap for digital business transformation in their organizations.

Share

Get shareable link

Copy