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News analysis

Identity crisis that led to Yahoo's demise

SAN FRANCISCO • When senior Yahoo executives gathered for a management retreat in 2006, there was no outward sign of a company in crisis.

The Internet pioneer had just finished the prior year with US$1.9 billion in profits on US$5.3 billion in revenue. Yahoo, flush with lucrative advertising deals from the world's biggest brands, was enjoying its run as one of the top dogs of dot.com industry.

But for one retreat exercise, everyone was asked to say what word came to mind when a company name was mentioned. They went through the list: eBay: auctions. Google: search. Intel: microprocessors. Microsoft: Windows. Then they were asked to write down their answer for Yahoo.

"It was all over the map," recalled Mr Brad Garlinghouse, then a Yahoo senior vice- president. "Some people said mail. Some people said news. Some people said search." It proved an ominous portent of the business troubles to come.

Indeed, the demise of Yahoo, which culminated in an agreement this week to sell its core assets to Verizon Communications, has been more than a decade in the making. Many of the more than two dozen former Yahoo managers interviewed by Reuters over the past two weeks - who now occupy executives suites elsewhere in Silicon Valley - agree the company's downfall can be traced to choices made by both the executive leadership and the board of directors during its heyday in the mid-2000s.

Some missed opportunities are obvious: A failed bid to buy Facebook for US$1 billion in 2006. A 2002 dalliance with Google similarly came to naught. A chance to acquire YouTube came and went.

Skype was snapped up by eBay. And Microsoft's nearly US$45 billion takeover bid for all of Yahoo in 2008 was blocked by Yahoo's leadership.

Just as damaging was a company culture that ultimately became too bureaucratic and too focused on traditional brand advertising to prosper in a fast-moving tech business.

"It became very difficult to get both investment and alignment" around new product initiatives, said Mr Greg Cohn, a former senior product director at Yahoo.

Worst of all, once Alphabet Inc's Google had displaced it as people's first stop for finding something on the Internet, Yahoo was never able to decide on exactly what it wanted to be.

The appointment of Mr Terry Semelas as chief executive officer in 2001 turned its focus on media which proved lucrative in the short term as revenue soared from US$717 million in 2001 to nearly US$7 billion by 2007.

Yahoo couldn't help but focus on where the big money was, even though that wasn't where the future was.

Expensive effort to rebuild its search and advertising technology bore little fruit.

Market-leading products like Yahoo Mail, and early social media efforts like Yahoo Groups, were neglected; promising acquisitions, including photo-sharing site Flickr and social bookmarking service Delicious, withered on the vine.

The company saw three CEOs after Mr Semel before Ms Marissa Mayer was appointed in 2014.

The leadership turmoil "made for a difficult existence for a board, a management team, and a general employee population to get committed to the same goal", said Mr Dan Rosensweig, Yahoo's chief operating officer from 2002 to 2007.

By the time Ms Mayer arrived, Yahoo was already seen in Silicon Valley as a company from another era.

Yahoo declined to comment for this story.

REUTERS

A version of this article appeared in the print edition of The Straits Times on July 27, 2016, with the headline 'Identity crisis that led to Yahoo's demise'. Print Edition | Subscribe