Here’s what went wrong with Yahoo

Yahoo! has finally faded into irrelevance. Picture: Karen Bleier/AFP

LAST month, beleaguered internet giant Yahoo! finally put investors out of their misery, announcing it would be sold to Verizon for nearly $US5 billion.

Forbes described it as the “saddest $5 billion deal in tech history”. “In its sale to Verizon, Yahoo! gives up fighting its long march to irrelevancy,” the magazine wrote.

So what went wrong at the once-dominant internet giant? And what can other Silicon Valley tech executives learn from Yahoo!’s mistakes?

That was the question posed by one user of question-and-answer site Quora. Quora’s own vice president of engineering, Xavier Amatriain, penned this response:

I have not worked at Yahoo!, but I know lots of people who have worked there. I have also interacted with many former employees and have been able to get a good sense of what went wrong at Yahoo at different times. Given this context, these are the main takeaways for me:

TALENT DENSITY

Great companies are made by great employees. It is extremely hard, but worth it, to hire and retain the best and not fall into the temptation of hiring second-best just to fill in.

At some point, Yahoo! had some of the most brilliant minds in Silicon Valley. However, they also started hiring mediocre engineers and did not put enough focus on keeping their talent density high. Because of this (and other reasons I will mention later), the best people started to leave, reducing the talent density even more.

Some years ago I was interviewing a manager who was leaving from Yahoo! When I asked him what would he do to improve his current team at the company he replied: “If I could, I would fire 80 per cent of them.” This got stuck in my brain for being the saddest answer I have heard from someone in an interview. Not only he felt that his team was not great. He also felt he could not even take action to improve the talent density. No wonder he was looking to leave!

FOCUS

Besides their “lost war on talent” perhaps the other capital sin for Yahoo! was to never really find their focus as a company. Yes, they tried to be a “web” company. But, what does that even mean? They never had the best search engine, the best social network, or the best anything. What’s worse, they never seemed to have a strategic focus around any particular area. Even when Marissa articulated that they had to become a mobile ad company, they were doing a thousand things besides that and there never seemed to be the kind of focus a company like Yahoo! would need.

YOU CAN’T BUILD A COMPANY THROUGH ACQUISITIONS

Related to the previous one, here is another lesson: you cannot build a company through acquisitions. Yeah, I know this has worked for some companies. And, I know even Google has some successful ones like Youtube. However, in most cases, companies that do big acquisitions do have a focus and a well defined strategy. Think of Facebook acquiring Instagram or WhatsApp, for instance.

It is also fair to say that Marissa’s use of acquisitions was a somewhat desperate attempt to fix the first issue of talent density (see Why Marissa Mayer’s Ultimate Talent Acquisition Strategy Failed). But, in my opinion, all those acquisitions by Yahoo! did nothing but decrease their focus and dilute their culture (more on this later).

If you are still not sure that was a great idea, read Here’s What Happened To All 53 of Marissa Mayer’s Yahoo Acquisitions.

Yahoo CEO Marissa Mayer. Picture: Frank Franklin II/AP

Yahoo CEO Marissa Mayer. Picture: Frank Franklin II/APSource:AP

INNOVATION IS NOT (ONLY) RESEARCH

Yahoo! has been one of the most prolific labs in terms of research. A lot of great ideas have been cooked in Yahoo! Labs and/or Yahoo! Research. I can’t even remember how many “best paper awards” have gone to Yahoo! researchers in very relevant conferences. However, most of those ideas have had zero impact on the business. The reason is simple (but not easy to fix): the organisation was never set up to do quick and effective technology transfer from the idea to the business.

Think about it: Hadoop was born at Yahoo! Now there are start-ups like Cloudera or Hortonworks that built their entire business around Hadoop and worth more than Yahoo!

IT’S THE CULTURE, STUPID

At the end of the day, perhaps the most important flaw and lesson for executives is that Yahoo! never managed to build a good company culture. Don’t get me wrong, people, especially in the early Yahoo! loved the culture. It was many times described as a “big family” where people were happy, not pressured, and had lots of “freedom” to explore. However, there was no push in the culture to have real impact, innovate, or move fast. This ultimately ended up creating all the problems described above.

As a matter of fact, I will go as far as saying that Yahoo! never articulated a clear view on their culture. Even today if you go to Yahoo Careers, you will see they have no description of their culture or their values. That said, I should note that Marissa did try to change some things, like when she changed the “family-friendly” policy of working from home, which was being abused all over the place. She failed (see Marissa Mayer Breaks Her Silence on Yahoo’s Telecommuting Policy). You see, sometimes it might be too late to change a bad culture that has been settling in for years.

As an interesting side note, Netflix got many great hires from Yahoo! As a matter of fact, it is the company that contributed most to Netflix employee growth. Most of those bright people that left Yahoo! were able to flourish and grow in a company that really does value it culture and treats the company as a “professional team”, not a “family”.

SUMMARY

It is true that, as some pointed in the comments, you can find counterexamples of companies that also fail at any of those dimensions but have managed to be somewhat successful. However, I would argue that failing at all of them was what made Yahoo! ultimately fail. Plus, you have to add the fact that Yahoo! was competing in the highly competitive arena of internet/web businesses where those flaws turn into another nail on your coffin. I am sure that other businesses can thrive with even bigger flaws in other areas where issues such as talent wars and fast innovation are not so important.

This article originally appeared on Quora and was reproduced with permission.

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