Bhupesh Bhandari: Yahoo!: a tale of complacency

So, Verizon has agreed to acquire the core internet operations and real estate assets of Yahoo! for $4.8 billion. After the transaction, Yahoo! will be left with its investment in Alibaba. In 2005, it had bought 40 per cent in the Chinese e-commerce giant for a billion dollars. In 2014, when Alibaba went public, Yahoo! sold a chunk of its shares but it still owns a 15 per cent stake, which is valued at around $31 billion. Then, there are investments in Yahoo! Japan and some patents, which could be collectively worth around $10 billion.

The money that Verizon has agreed to pay is a fraction of the $125 billion valuation Yahoo! commanded at its peak in 2000. In 2008, Microsoft had made an unsolicited offer to buy Yahoo! that valued it at $45 billion. The management wanted more and thus spurned the offer. The investors were furious. Since then, the pioneer of the internet economy had been on a downward slide. It is a story of missed opportunities and also of failure to evolve with changing times.
 

Starting off as a directory of websites, Yahoo! was the portal to go to in the mid-1990s. It offered news, email and a chat room. For a whole generation of people, it was their first internet experience. That was fine to begin with, but people were bound to ask for more. Yahoo! had little new to offer.

Over time, others came from behind and easily overtook it ['Yahoo' deleted]. That it needed to do something about its business model became evident in the dot-com crash of 2000, when Yahoo!'s stock fell as much as 90 per cent. Investors had realised that the internet space was changing and Yahoo! was unable to keep pace with it.

Yahoo! was done in by Google. At one time, Yahoo! had got Google on board to power its search engine. But, in a very short time, Google out-grew Yahoo! and became the biggest brand in the world. Once its search engine was established, it launched Gmail, a rival to Yahoo mail. There again it swept the market.

By the time Yahoo! woke up to the ['Google' deleted] challenge, it had lost precious time.

YouTube, later acquired by Google, showed the great value that lay unlocked in the video market. Specialist news sites gave better feed. All of this pushed Yahoo! into an identity crisis. After a while, nobody knew what it stood for. It offered a little bit of everything, but none in a grand way. Yahoo! flirted with several CEOs. Yet, nobody could fix this basic issue.

This further eroded people's perception of the company. While others had rock-stable management, which made them look purposeful, Yahoo! began to appear like a rudderless ship. While Google flirted with futuristic products like glasses and driverless cars, which gave it the aura of a great technology innovator, Yahoo! seemed to be stuck in a time warp. Each CEO tried to tweak the offering, but nothing could stem the tide.

The costliest mistake that Yahoo! made was not boarding the social media bus. Advertisers loved the social media because of the engagement it was able to create. Yet, Yahoo! had nothing to show.

Actually, Yahoo! had the opportunities to expand its search and social media offerings, but it squandered those opportunities. These must be counted as the biggest mistakes in the history of the corporate world. In 2000, Yahoo! had discussed buying Google from its promoters, Larry Page and Sergey Brin, for $1 billion but couldn't close the deal.

In 2004, Yahoo! had initiated talks with Mark Zuckerberg to buy out his social media venture, Facebook, for a billion dollars, and again the talks fell through. Both these investments would have taken Yahoo! way ahead of its rivals.

The story of Yahoo! is reminiscent of the Indian business families which failed to change with the times and were thus pushed into oblivion. Complacency, in both the cases, was the culprit.

The important question is what does Verizon, a telecommunications company, intend to do with Yahoo! It is more or less understood that it will push Yahoo! content to its subscribers along with AOL properties like The Huffington Post, TechCrunch and Engadget, which it had acquired last year.

But Verizon will have to think of ways to improve what Yahoo! has to offer. Or else, it will fail to create an impact. Unfortunately, the internet space can be very unforgiving. The past matters little. Consumers switch off a website at the first sign of boredom.