Sometimes, being first to the market isn’t enough to ensure survival, let alone bring success. Yahoo’s sale yesterday at a value of $4.8 billion, a fraction of what some of today’s hottest start-ups are valued at, proves that.
Sometimes, having nearly 700 million people visiting your websites every month isn’t enough either. Yahoo is the fourth most visited website in the world today.
And sometimes, a valuation of over $100 billion within six years of starting out isn’t quite enough either.
Yahoo was all of those and then some. What Google is to the internet today, Yahoo was long before we had heard of Google. It was a unicorn a hundred times over, spawning in the course of its growth a search engine, an email service, an online weather forecast and markets content engine, messenger, chat and games. None of these, however, could save the company from a fire sale after it became evident that it had no future.
Many reasons have been totted out for the decline and eventual demise of the internet’s original pioneer. Some say it never embraced the tech universe the way Amazon, Google and Facebook have. It pitched itself as a media company rather than a tech powerhouse. Others point to the string of poor CEOs the company has had as well as Jerry Yang’s stepping away from the company in 2012. But perhaps its biggest mistake was not acquiring Google and later Facebook when they were still fledgling outfits. After all, the best way to kill competition is to acquire it.
But in the end, none of these reasons is a satisfactory enough explanation for why a company that ticked off every rule in the business success handbook at the start of its odyssey, failed to live up to its promise.
So, we have to turn to divine intervention. The fates we have to accept willed otherwise and those original whizkids David Filo and Jerry Yang were just star crossed.
Of course that’s rubbish. More than the stars, they have been done in by the efficiency of a highly evolved market system which constantly weeds out the weak so the strongest survive and so that new shoots keep emerging. Once Yahoo lost the plot, it had to be allowed to die so that from the embers of its failures, new companies could be born, wiser for the lessons learnt and richer for the experiences.
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What’s admirable is the ruthlessness of Yahoo’s principal shareholders in pulling the plug on the company even though it has the cash to sustain losses for many more years apart from the massive cushion of its investment in Alibaba. Ultimately, they decided to cut their losses and allow a new management—Verizon’s—to take a shot at nursing the company back to health.
It isn’t an unusual occurrence in the US where according to the US Census Bureau, 400,000 new businesses start every year even as 470,000 are dying.
Not so in India where we let losing, lame duck companies fester. The BSE listing of Indian companies includes scores that haven’t made a dime in years. Nor do they have any prospects of ever turning profitable. This is true not just of small, marginal companies but also of a capital guzzler like Air India which has been consistently unprofitable through the few ups and the several downs of the airline business. It is a safe bet that its return on capital employed will continue to be negative. But of course, Air India is part of the government’s safety net, guaranteeing jobs to thousands just as many other state enterprises have been for years.
It isn’t as if the private sector is any exception. Churn is important for growth. It throws up newer players with more innovative products and services or at the very least, a newer way of doing things. In the process, it alters the pecking order as markets value future earnings. Sadly in India, most such rankings remain unaltered for years. Take the case of India’s most dynamic sector—the IT services industry. The top five have remained the same for over two decades with no new entrant threatening their position. In 2005, the top five software exporters in India were Tata Consultancy Services Ltd, Infosys Technologies Ltd, Wipro Technologies, Satyam Computer Services Ltd, and HCL Technologies Ltd. And here’s last year’s list: Tata Consultancy Services Ltd, Infosys Ltd, Wipro Ltd, HCL Technologies Ltd, Tech Mahindra Ltd.
In the US, the Fortune 500 list of top five companies by revenue in 2006 was headed by Exxon Mobil, Wal-Mart Stores, General Motors, Chevron, and Ford Motor Co. And check the 2016 list where the top five are Walmart, Exxon Mobil, Apple, Berkshire Hathaway, McKesson. There are three new entrants from three different industries—tech, financial services and pharma.
An efficient algorithm drives the corporate environment. By artificially propping up the weak, mostly with other interests in mind, we end up tampering with that logic. In the bargain, we end up hurting both the infirm and the incumbent. Like Yahoo, it is best to let the laggards of corporate India die, so that new winners can emerge.