Remarkably just five months after Yahoo! shares hit their $118.75 valuation the company signed an agreement to let Google power the search results on Yahoo.com. The idea was to offload this seemingly utilitarian service so it could focus more time developing its Web directory and navigational guide. It was blissfully unaware that high quality search results would render both irrelevant and leave Yahoo.com as little more than a glorified Google.com re-spray.
The realisation came too late. Shortly before Google’s own IPO in 2004 Yahoo! dropped Google and returned to its own search technology. It acquired Overture Services for $1.6bn and used its search engine subsidiaries AltaVista and AlltheWeb to boost its own offering. The problem was acquiring also-rans proved no way to catch a runaway leader with a sudden market capitalisation of over $23bn. Much in the way Microsoft had undercut IBM, which hadn’t realised the value of its DOS operating environment, Google had pulled the rug from under Yahoo! and, by proxy, the competition.
Four years of decline followed before Microsoft, itself fast becoming another search also-ran, offered a massive $44.6bn to buy Yahoo! in February 2008. The price represented a 62 per cent premium on Yahoo’s current share price and here the Yahoo! story should have ended, but by April things were getting ugly. Having strongly rejected the offer, Jerry Yang instead decided Yahoo! simply wanted a bigger bid. By November reality set in and Yang made a embarrassing public u-turn claiming: “To this day, I have to say that the best thing for Microsoft to do is to buy Yahoo!. I don’t think that is a bad idea at all – at the right price, whatever the price is, we are willing to sell the company”. Ballmer calmly told Yang Microsoft had “Moved On“. Seven days after Yang’s statement it was confirmed he would step down. Six weeks later he was replaced by Carol Bartz and by July 2009 Yahoo! had again surrendered its own search technology. This time it brought in Microsoft.
It isn’t the end for Yahoo!. It’s partnership with Microsoft sees the two hold a combined market share of just 7.4 per cent as of August 2011, but Yahoo! Mail remains the second largest web mail service with nearly 300m users (behind Hotmail), it continues to be a significant player in online marketing, it leads the way in display ads and the company’s share price has steadied around $14 per share. That said with Google and Facebook dominating Yahoo’s core businesses it is hard to see what the future holds for it other than slow decline and asset stripping. The Google before Google ambition is long over.
At Stanford David Filo’s girlfriend used to call him a ‘yahoo’ in reference to his remote Wisconsin roots. The term came from a base race of creatures in the 1726 literary classic Gulliver’s Travels. Gulliver describes them as “a race of brutes having the form and all the worst vices of men.” 285 years on Yahoo’s board of “doofuses” will have their work cut out stopping life imitate art…