Yahoo’s demise: Nice guy founders are partly to blame

During the 2000s, Yahoo’s biggest mistakes were failures of will

As graduate students at the Stanford School of Engineering in 1994, Jerry Yang, a math-oriented Taiwanese immigrant, and David Filo, a quiet programmer from Louisiana, created a directory of links called Jerry and David’s Guide to the World Wide Webk. Photo: Bloomberg
As graduate students at the Stanford School of Engineering in 1994, Jerry Yang, a math-oriented Taiwanese immigrant, and David Filo, a quiet programmer from Louisiana, created a directory of links called Jerry and David’s Guide to the World Wide Webk. Photo: Bloomberg

San Francisco: The epilogue in the long, sad story of Yahoo!, the web portal with the perpetually ebullient exclamation mark, is finally being written. After emerging as the top bidder in a five-month auction, Verizon Communications has agreed to buy the historic web franchise’s core assets for $4.83 billion.

Yahoo chief executive officer Marissa Mayer will assist with the transition until the sale is complete and then depart the company with a comfortable parachute worth more than $50 million in cash and stock. So let’s not weep for her. But inevitably, a passel of eulogies will be crafted about her failed four-year attempt to turn around the company. These reflections will be largely unfair, because the decline and demise of Yahoo isn’t totally her fault. It’s at least partially the fault of its founders, Jerry Yang and David Filo.

The early story of Yahoo is now Silicon Valley mythology. As graduate students at the Stanford School of Engineering in 1994, Yang, a math-oriented Taiwanese immigrant, and Filo, a quiet programmer from Louisiana, created a directory of links called Jerry and David’s Guide to the World Wide Web. It was a handy map to what was then an unnavigable digital landscape, and web surfers loved it. The following year, when Sequoia Capital invested in the newly renamed start-up, it brought in a former Motorola executive named Tim Koogle to be CEO.

The move reflected the reigning conventional wisdom of the time—bring in an experienced chief executive and go public early. But while they stepped aside to become “chief Yahoos,” as their business cards said, Filo and Yang stayed intimately involved. Filo, as the technical leader, wrote the very first version of Yahoo search and made the bulk of decisions about the company’s underlying technical architecture. Yang stayed close to strategic decisions and was instrumental after the dot-com crash in replacing Koogle with Terry Semel, the longtime co-CEO of Warner Brothers.

Semel brought with him a core group of native media execs whose names are now familiar in Silicon Valley, like Jeff Weiner, the CEO of LinkedIn, and Dan Rosensweig, CEO of textbook rental service Chegg. This was the origin of what would become Yahoo’s enduring split-personality: Was it a technology company or a media company? Sitting on perhaps the most valuable piece of real estate on the web, shuttling between its offices in Santa Monica, California, and Sunnyvale, Yahoo executives tried to be a little bit of both.

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We now know what it takes for technology companies to succeed: fierce, often unpleasant, founders who are able to make hard choices and place unpopular bets. During the years that Yahoo was banking on the media business, Jeff Bezos of, for example, expanded into unprofitable lines of online retail, brooked a painfully hollow stock price, cut workers, and finally spawned a completely different business in the cloud, called Amazon Web Services. At Google, Larry Page and Sergey Brin brought in Eric Schmidt as CEO, but they governed as a triumvirate of equals, inventing an insanely profitable text advertising business that augmented web search results, rather than distracting from them like Yahoo’s eye-ball burning banner ads.

During the 2000s, Yahoo’s biggest mistakes were failures of will. Semel, billed as a “deals guy” from Hollywood, could have bought Google in 2002, as Fred Vogelstein reported in Wired. Yahoo also came close to buying Facebook in 2006, until Semel lowered his offer from $1 billion to $850 million after a disappointing earnings report, alienating an already reluctant Mark Zuckerberg in the process, according to David Kirkpatrick’s book, The Facebook Effect.

These acquisitions probably looked like risky, uneconomical moves that Yahoo investors might hate. That’s the whole point. Web companies need the unique power of founders to do unpopular things. Page advocated for Google to buy the money-losing video sharing site YouTube in 2006; Zuckerberg made what seemed like an outrageously overpriced bet on the photo app Instagram in 2012. This is how tech companies survive—the ability to take risks.

Yang took over as CEO from Semel in 2007 but was either too nice or too unwilling to make hard decisions. In retrospect, he should have fired more employees, and banked hard toward technology and the emerging smartphone revolution. In what now looks like his biggest blunder, he turned away one of the best exits Yahoo would ever see, Microsoft’s unsolicited $45 billion bid in 2008, an effort by then CEO Steve Ballmer to compete with Google.

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In what should now be the canonical photo of Yahoo’s decline, from the Allen & Co. conference in Sun Valley, Idaho, that June, Yang was pictured sitting with Page and Brin, his head in his hands, presumably bemoaning the overture from the big, lame software blunderbuss from the north. The photo reveals Yang’s confusion at the time about Yahoo’s true enemy. It was not Ballmer and his gang of Windows fanatics. It was the Google guys, there listening supportively across the table from him.

After that, it was pretty much over for slow-footed Yahoo, trying to navigate a fast-changing internet landscape with uninspired CEOs like Carol Bartz and Scott Thompson at the helm. In periodically leaked missives, executives bemoaned that Yahoo was spreading itself too thin over too many lackluster products. Without a steadier hand from its founders, Yahoo had lost its way culturally as much as strategically. It was fat with layers of accountants, lawyers, and product managers, people whose job it was to mitigate risk, rather than take it. Yang didn’t respond to requests for comment, and Filo declined to comment through a spokeswoman.

The founders did make big contributions. In 2005, Yang helped orchestrate what would be the company’s best deal: the sale of its businesses in China to Alibaba, along with a $1 billion investment. He deserves tons of credit for that. It’s also likely that his voice was not always heard. In 2012, Yang left the company’s board of directors after its disastrous decision to hire PayPal’s Scott Thompson as CEO and then promptly fire him upon discovering he fibbed on his résumé. For his part, Filo has been the picture of corporate loyalty in an age sorely lacking it. He joined the Yahoo board when Mayer took over the company and, by all accounts, remains an inspirational figure.

But by that time, the mistakes of the past loomed too large. Perhaps there was a short window of opportunity for Mayer to bet the company on a bold acquisition or a new product, but it closed fast. She made strange moves, spending a huge chunk of her figurative and literal capital on a $1.1 billion deal for the also-ran social network Tumblr in 2013. Tumblr, like so many other Yahoo acquisitions (Flickr, et al.) went nowhere fast, perhaps because there were not enough nutrients in the Yahoo soil for any startup to thrive.

Others have chronicled more of Mayer’s mistakes. But now it’s all ancient internet history, to be parceled out and puzzled over by business school students. It’s time for us to mourn Yahoo. Sorry, I mean—Yahoo! Bloomberg