The INSANE Reason That Yahoo! Lost Everything

yahoo could have been the most valuable company in the world it was once the most visited website on the internet they were worth 128 billion dollars and in the late 90s they had the chance to buy google for just one million dollars yahoo said no welcome to the dramatic rise and fall of the original internet empire [Music] imagine a world without google you want to find something on the internet but how well back in the 90s before search engines the internet was an unorganized mess which is why two friends at college jerry and david made a list of all the websites they liked a directory of sorts divided into different categories they then forwarded this list to some other friends who shared it with their friends and they shared it with their friends and before long this directory was getting thousands of views however this was never meant to be a business jerry and david had just made this directory for convenience to keep track of their favorite sites all in one place and they'd simply called it jerry and david's guide to the world wide web but then in 1994 netscape launched a web browser called navigator which loads of people started to use and the creators of this browser put a link at the top to jerry and david's directory this meant that within a few months their directory was getting millions of views which sounds great but actually it meant that jerry and david needed to invest in servers so they could handle all the traffic they also needed to hire people to sort through all the new websites people were submitting to their directory thus jerry and david realized they had no choice if they were gonna keep this going they had to make it a business first decision they needed a proper name for the business so they opened up a dictionary to try and find a catchy sounding name to use they stumbled across the word yahoo which was defined as a boorish crass or stupid person they found this amusing and exactly the fun vibe they were going for so the name was set now yahoo officially claimed that this stands for yet another hierarchical officious oracle but the truth is that the name yahoo came first they just came up with this weird acronym afterwards next jerry and david had to figure out how to make money from their directory which actually wasn't that hard yahoo had become the entry point to the internet for most people after all the internet was this new confusing thing and yahoo was the most user-friendly way to find different websites so as a result of having all this traffic yahoo had plenty of companies willing to pay them to have banner adverts on their sites but then the yahoo team had a crucial realization because they could see the data of which categories and websites people were clicking on most in their directory they were perfectly positioned to build products and services people wanted rather than just link people to other services they could build their own services that way they could get even more page views which meant even more money from advertisers for example they could see a lot of people were clicking on chat room websites so yahoo built their own chat rooms and linked to those instead they soon launched their own services for shopping file sharing games sports finance and lots more because they could see these were the things users were clicking on most often of course a company with a traditional organizational structure would never have been able to build and maintain all those different products so instead yahoo hired as many people as possible and grouped them into different product teams and each team had a leader that acted like a ceo in other words yahoo was like a collection of different startups each focused on a totally different service by the year 2000 yahoo had 400 different products and services you could use the internet all day and never leave yahoo's websites as a result yahoo's original service its directory accounted for less than 20 of the site's total page views over 80 percent of traffic to yahoo was going to all these other things they developed in other words yahoo was no longer just the directory for the internet it was the internet everything you needed all in one place yahoo had only been started in 1994 by two friends in their college dorm room and yet just six years later it had a market cap of 128 billion dollars making it the largest internet company in the world and one of the fastest growing companies in history but during yahoo's rapid rise true students with their own startup had come to yahoo and offered to sell them their business for one million dollars which was virtually nothing for a giant company like yahoo but they declined the offer unfortunately for them that little company they turned down was called google and that decision not to buy them was about to change everything [Music] when the dot-com bubble burst and the stock prices of internet companies came crashing down yahoo was hit hard investors lost confidence in them and lots of yahoo's biggest advertisers either reduced their ad spend or went completely bankrupt worse still because there were now so many different sites on the internet having a single directory that had to be manually updated just wasn't efficient anymore and googler created a much better system to help people find things faster as a result yahoo realized lots of their users were now going to google instead of yahoo so just a couple of years after rejecting the chance to buy google's entire company yahoo went to google to make a licensing deal where they would integrate google search into yahoo's websites the idea was that this way people would still come to yahoo's homepage instead of going straight to google and in the short term this made sense in the long term this was another disaster yahoo users really loved google search and by having it on yahoo site it was actually giving google free advertising not just that but google had introduced ads in search results using a clever algorithm to match the right ads to the right search terms which basically meant google's ads were more relevant for users more cost effective for advertisers and more profitable for google google then reinvested those profits into doing deals with other big internet companies like becoming the default homepage of the firefox web browser and suddenly google was in a very uniquely powerful position their search ads business was so profitable and effective that the more money google spent on promoting their search engine the more profits they made on the back end from search ads so they had even more money to spend in comparison yahoo's banner ads were much less effective and profitable so yahoo's profit margins were a lot smaller and advertisers started moving their marketing budgets to google instead of yahoo in other words just a few years after yahoo had passed on the chance to buy google google was now stealing both yahoo's users and advertisers at a rapid speed yahoo knew they needed to do something drastic and so they went back to google and asked how much it would cost to acquire them now google said they wanted 1 billion dollars and yahoo eventually agreed to this but by that point google adapt the price to 3 billion and then 5 billion the deal just wasn't going to happen after this yahoo removed google from its site completely and built their own search engine to directly compete but it quickly became clear yahoo had already lost the search war and its directory was becoming less useful by the day so if yahoo wanted to maintain their dominance they needed to focus their attention on their other services and one big opportunity for yahoo to do that came in 2006. yahoo executives sat down for a meeting with facebook founder mark zuckerberg and a deal was agreed for yahoo to buy facebook for one billion dollars now zuckerberg didn't actually want to do the deal but his board of directors and investors told him that if yahoo offered 1 billion he had to take it however at the very last minute yahoo tried to lowball facebook and said they could only offer 850 million dollars instead this negotiation tactic backfired massively zuckerberg left a meeting feeling delighted his board had told him if they offered one billion he had to take it but they'd offered less so zuckerberg turned the offer down and he got to keep running facebook himself as an independent company once again for yahoo by trying to save a few million dollars they ended up missing out on a company that is today worth around one trillion dollars the craziest part is that yahoo literally made hundreds of acquisitions and mergers including 5. 7 billion dollars recycledbroadcast.

com and yet they turned down facebook and google they also missed out on deals for ebay and even youtube just imagine how different the internet and the entire world might look if yahoo had bought those companies when they had the chance maybe you'd be watching magnate's media on yahoo video right now instead but let's pause for a moment it's very easy for us to look back at these mistakes with hindsight but at the time these were just small companies in a sea of countless other small companies even if yahoo had bought google facebook and ebay there's certainly no guarantee they'd have gone on to be so successful because the most crucial reason for yahoo's decline wasn't really external competition it was the giant mess happening internally an employee at the company wrote a memo listing all of the problems yahoo needed to address this later became known as the peanut butter manifesto because it used the metaphor of spreading peanut butter to describe how yahoo was spreading their resources way too thin the employee wrote how yahoo were trying to focus on everything and thus focusing on nothing in particular the most damning example of this was that on a company retreat employees were asked to write down the word that first came to mind when they heard a company's name for google everyone wrote search for paypal they wrote payments for ebay they wrote auctions for yahoo everyone wrote something different nobody inside the company knew what yahoo was or what it was trying to be the memo also pointed out that yahoo had too many people with overlapping responsibilities for example yahoo had acquired a photo sharing site called flickr yet they still had a totally separate team working on a service called yahoo photos which did the same thing basically treating the company like a group of startups had fueled its growth but now it was sending the company into chaos yahoo was segregated into all these little independent disconnected teams rather than being a united company with a cohesive vision the different products and services even used different code systems had different designs and colors and most of them weren't integrated well with each other at all and yet despite this giant mess inside of yahoo in 2008 they were thrown a lifeline microsoft offered to buy them for over 44 billion dollars microsoft felt they needed to join forces or else google was going to become too powerful but yahoo turned microsoft's offer down saying that it undervalued their potential just a few months later they would come to regret that decision too as their share price plummeted further and the company's value dropped to 14 billion dollars less than a third of what microsoft had offered one of the biggest reasons for this was yahoo's lack of direction and its revolving door of ceos in 2007 terry samuel was ceo then 2007 to 2009 the original founder jerry yang took over from 2009 to 2011 it was carol bartz then scott thompson took over and lasted just the first half of 2012 before marissa mayer came in during the summer of 2012. that's five ceos in six years nobody could agree on who should run yahoo and when each new ceo didn't get fast results they switched to someone else which just created even more chaos it's reported yahoo changed their mission statement at least 24 times showing that even upper management had no idea what yahoo's plan or vision actually was all this turmoil meant yahoo was very indecisive unless they were slow to adapt to the rise of mobile internets yahoo's phone apps were embarrassingly bad compared to rivals and this meant yahoo's most popular services like yahoo mail started losing users because people started using email apps instead of yahoo's websites it also didn't help but yahoo introduced an internal rating system for employees where managers had to rate a certain percentage of their team as exceeding their targets and a certain percentage as missing so even if the whole team had done really well some people had to get bad ratings the idea was that it would help weed out the less talented employees and help yahoo become more efficient but in reality it made employees feel like they were competing against each other and created a cutthroat culture where people would backstab each other rather than collaborate as a team but the biggest reason of all for yahoo's sudden decline is actually pretty simple before we get to that i want to tell you about today's video sponsor masterworks if yahoo represents the old internet masterworks definitely represents the new by using cutting-edge technology masterworks is disrupting the antiquated art industry it's the first and only online platform that allows regular investors like you and i to buy and sell shares in multi-million dollar artwork from andy warhol picasso banksy and countless other incredible artists no matter what your budget you can start investing with masterworks in just a few clicks you create an account browse their artwork and then diversify your portfolio with one of the oldest and most stable assets around art has outpaced the s p by 174 from 1995 to 2020. that's almost triple the appreciation of real estate gold and 90 of cryptocurrencies during the same time so if you'd like to invest in some masterpieces yourself just check out the link in the description and you can get started with masterworks today then let's get back to our story when yahoo first launched its directory solved a genuine problem it made the early internet much easier to use but as soon as search took over and replaced the need for directory yahoo never really found its purpose it was the epitome of jack of all trades master of none yahoo did loads of things very averagely but it was no longer the best at anything eventually all their hundreds of products and services got beat by better alternatives yahoo shopping got beaten by amazon yahoo messenger got beaten by whatsapp yahoo mail overtaken by gmail yahoo answers by quora all these other companies focused on being the best at one specific thing before expanding into other areas whereas yahoo no longer had any clear identity at one point yahoo truly was the king of the internets but through a combination of bad decisions indecisiveness mediocre products fierce competition and poor leadership it lost it all in 2017 verizon bought yahoo for 4.

48 billion dollars which is less than one-tenth of the price microsoft had offered them but verizon couldn't revive yahoo either and it was sold again in 2021.