Everything Connects

Catch a glimpse behind the scenes at Yahoo.

Before Google has ever made it huge in the industry, Yahoo was the leading authority in the internet realm. However, it is all now in the past for Yahoo. And because almost every single feature or service it offers has been outperformed by other alternatives, it is highly doubted to create a big impact if Yahoo decides to exit the scene.

Yahoo was on the verge of doing just that when an ambitious character attempted to save it with a Hail Mary. Leaving the post as vice president for Google Inc. in 2012, Mayer decided to take her impressive career record and take it to Yahoo to save it from oblivion as its new CEO.

Ever since she took on the post, Mayer has placed Yahoo at the headlines of tabloids due to her bold moves relating to media business, buying micro blogging platform like Tumblr for $1.1 Billion, and even risking huge amount of money on mobile apps. These decisions while raising brows of skeptic former enthusiasts, have redirected Yahoo and streamlined its palette for the product it offers.

Its overall success has yet been formally established.

You’ll learn

  • About Yahoo’s humble origin at Stanford University
  • About Yahoo’s most irrational decision by far
  • About Marissa Mayer’s spectacular and dramatic career climb

The early Yahoo was promising, and had no trouble finding financial support.

Back in 1993, Yahoo founders David Filo and Jerry Yang started sharing their favorite web pages link on a website they initially called as David and Jerry’s Guide to the Internet. It was one of the most humble beginnings that starter billion-dollar worth of success stories.

And since the internet was still somewhat new, the two founders were only making the smallest impact with an index of web pages that allowed other people to browse pages they liked. It was merely an innovation. Or so they thought. Much to their surprise, David and Jerry’s Guide to the Internet has reached traffic of 50,000 visits per day. And that was when David and Jerry started making a history in the internet world by introducing Yahoo! or ‘Yet another Hierarchical Officious Oracle’ to the world.

After two years, Yahoo!’s traffic kept growing progressively to reaching one million clicks a day, which made the two founders decide that Stanford University’s infrastructure was no longer sufficient. They planned to have real servers for Yahoo! through finding investors’ funding, which was a walk in the park because of the promising innovation they hold.

Sequoia Capital’s Mike Moritz took them with open arms and provided not just the funding they needed but ‘adult supervision’ to help them scale up their business. The founders were in charge of the innovation while Sequoia acted as COO and the Stanford graduate, Tim Koogle, held the CEO and chairman post.

Days after being incorporation, Yahoo! became extra desirable to the eyes of the companies that wanted to buy them out. America Online offered $2 Million for Yahoo, but the founders declined the offer and sold 25% of the company shares to Sequoia Capital for $1 Million. Yahoo! was set to go big through serious business plan starting then.

Yahoo became an online advertiser and a billion dollar company within four years.

After establishing infrastructure and securing funding, it was time for Yahoo to start generating revenue through advertising. Online advertising in 1995 was still relatively fresh, which meant that the entire online advertising market during that year could only generate $20 Million in estimation.

The renowned international news agency, Reuters, was the first to make a deal with Yahoo to have their stories published on Yahoo.com. Then, the deal with Visa and General Motors came to place their ads for only $20,000 per month. However, the advertising business picked up a fast pace since then.

Yahoo’s revenue jumped up from $70 Million to $200 Million by 1997, and the traffic reached 167 million clicks per day in 1998 from six million clicks per day in 1996. It also enlarged its employee scope from 200 in 1996 to almost 2,000 in 1999.

Since April 12, 1996, Yahoo’s market capitalization reached up to $848 Million. This brought Yang and Filo’s individual shares to $130 Million of worth. Then in 1999, their individual share jumped up to billion dollars each when the market value for Yahoo reached $23 Billion.

The secret behind this success was the exponential growth of the users that needed internet and its purpose. Yahoo started creating a business model then created an online traffic to put sense to selling ads. Then it was later on known that only 20% of the traffic was generated as end result of Yahoo’s directory, which was the site’s primary feature. The 80% was due to entirely new products by Yahoo.

Innovative projects and data insights allowed Yahoo to rapidly create hundreds of new products.

When Jeff Mallett, Yahoo’s COO, realized about Yahoo’s promising potential, he knew that it would definitely work with much more propitious approach.

Yahoo started using traffic data to match the products with the customers’ behavior to make sure they would not have to guess about what their customers’ clicks and search behavior were in favor of. By doing so, they can create products that the customers truly need.

This mindset gave birth to Yahoo’s general strategy: keep an eye on the server logs and develop products quickly that cater to the new internet user. To be successful with this approach, Yahoo seeks help from a project-based organizational structure to develop new products for the purpose of producing traffic.

Mallett came up with a resolution to develop all the products without compromising creativity by grouping new hires and existing ones in teams he called as ‘pods’ or ‘virtual sevens’. He was aware of the fact that conservative organizational structure would not be enough for the kind of the modernization he was after. He gave these teams the resources necessary and the independence to come up with utterly new products to build up. They have the liberty to involve help from anybody inside their organization as he completely took off their limitations.

By doing so, Yahoo was able to offer more than 400 new products in 2000. These included chat rooms, sports, games, real estate, and a calendar along with much more products. And Yahoo was able to gather hundreds of pods and ad hoc virtual sevens. Everything was going well with Mallett’s plan—or so they thought.

Yahoo’s first big mistake was selling its name.

Just before the year 2000 ends, Yahoo’s desire for enlargement has been proven to cause more problems than they have expected. It caused Yahoo to collapse starting with the dot-com crashing that hit Yahoo’s value hard enough to shrink by 90% from $128 Billion to $12.6 Billion.

Yahoo sold out.

Yahoo’s popularity caused the market value of the start-up companies that announced collaboration with it to skyrocket. Some of Yahoo’s executives took advantage of it to make deals with more start-up companies that would pay Yahoo to become its service provider.

Yahoo catered to many service providers such as online travel agency, bookseller, etc. These start-up companies would proudly announce the partnership with Yahoo to gain as many investments as possible. Thus, this announcement has favored those start-up companies that wished to ride in Yahoo’s success.

For instance, Drugstore.com, a start-up company, was paying Yahoo $25 Million back in 1999. The intention was to be Yahoo’s premier online pharmacy partner and use Yahoo for major advertising. Despite the company’s transparency of having only $38 Million in the bank and an annual loss of almost $20 Million, a lot of investors risked buying shares causing Drugstore.com to reach a market value of $2.1 Billion.

Just like Drugstore.com, other companies that made advertising partnership with Yahoo became top-ranked as recommendations whenever a search result was initiated online. Instead of banking on quality products, Yahoo favored the partnership in recommending top companies to recommend, and those companies were offered prime advertisement despite being unstable and underperforming.

As a result, people using internet to get recommendations later on realized this and stopped clicking on Yahoo’s top-ranked ads. Advertising then became less profitable for Yahoo after losing consumer’s confidence. This became even more evident in 2000 when Yahoo’s clicks went down to 0.5%. Yahoo lost its position to demand immense amount of solid money for advertisements.

Yahoo built a traditional advertising business and recovered.

A resignation from Yahoo’s CEO during the time of losing their integrity and online advertising business profitability was called for. Warner Brother’s former CEO, Terry Semel filled the vacated post.

Semel’s tactic to bring Yahoo back its glory was uncomplicated; although much of Yahoo’s market value was damaged with the crashing of the dot-com business strategy, more and more web users were visiting the site on a daily basis. He took advantage of the traffic to build Yahoo a traditional ad sales business without involving any questionable compromises. He also invited Greg Coleman to be onboard as a seasoned sales manager. The latter hired effective sales representatives to sell ads to a link that Yahoo hasn’t publicly shown off before.

Coleman also hired over-the-phone sales representatives aside. This was the opposite of the standard sales process of Yahoo back then, which was mainly focused on selling through emails. Yahoo has won hearts from traditional company lists through Coleman’s effective strategy.

The seasoned sales manager created an analogy between Yahoo and fishing to further put into words the tactic he was aiming to implement. According to him, Yahoo was a hefty fishing boat that did not need to fish, because the fish would willingly jump into the boat to join the others. But that was during Yahoo’s first years. It may not be the case anymore, but he pointed out that there were still a lot of fish in the water, and Yahoo just needed to learn to catch them.

During the first year of Semel’s reign as CEO, Yahoo still had a whopping annual loss of $98 Million. But came 2005, Yahoo profited $1.2 Billion in gratitude of Coleman’s help. Yahoo’s market value once again skyrocketed from $12.6 Billion to a hefty $50 Billion in total within just a year.

Building conservative advertisement sales business worked in Yahoo’s favor. If only it did not have much bigger hurdles to surpass.

Not buying Google when it had the chance could be the biggest mistake Yahoo ever made.

Changing CEO was probably one of the benefiting decisions Yahoo has ever done. However, in 1997, it missed the biggest opportunity to guarantee domination in the internet realm.

A man with a thesis project he called BackRub came to Yahoo in hopes of selling his idea for a million dollars in order to fund his PhD and soon become a hardworking professor—nothing fancy like a CEO dream. However, Yahoo passed on his offer.

Yahoo was fully aware that the future of online searching was with algorithms, it still refused to invest in its own search engine. Yahoo just wanted to buy search functionality services from other companies so as to change search engine provider whenever deemed fit.

Page went home without a million dollars from Yahoo, but with greater opportunity in his hands, because soon thereafter, his idea would turn out to be Yahoo’s greatest regret— the google.com.

Google started stealing traffic from Yahoo right after its fast-paced growth. With improved search engine results and managing advertising, web users opted to use Google instead of Yahoo. In addition to the list, Google’s system was not just more improved but sophisticated as well. Users took joy in the fact that the results they get from Google were more reliable.

In Google’s beliefs, an ad that only pays $0.55 per click, but gets clicked twice, was better than a dollar advertisement. Thus, Google favored quality results more than profit.

Yahoo soon found it trying in vain to purchase Google after being rejected a couple of times. Yahoo even tried to top up the initial offer of Larry Page to $6 Billion in 2002, but to no avail.

Competition with specialized start-ups and lack of organization took their toll on Yahoo.

Since Google, there were other competitors that stole traffic from Yahoo. It competed with CNN in news, MySpace in social networking, ESPN in sports, and Google in online searches. And these types of competition were not something that Yahoo’s public and internal image can handle very well. Hence, it started to falter.

One of the challenges that Yahoo faced was its short of internal organization. A lot of similar projects overlapping that soon led to disorganization. And even the employees thought of that way. This was confirmed during a company retreat when one manager asked his fellow managers to write down first impression of the company he was about to mention. With PayPal; the managers wrote ‘payments’, with Google; they wrote ‘search’. But when Yahoo was mentioned, they all wrote different impressions.

This revelation made the Yahoo’s board to decide on hiring someone who understood tech business better. The goal in this decision was to give Yahoo’s vision and functionality a boost. And the board decided to go with Marissa Mayer.

Marissa Mayer quickly gained traction and experience in the tech world.

Born in Wisconsin in 1975, Marissa Ann Mayer was raised in a middle-class upbringing provided with enough opportunity to be ambitious and endowed. She was an active player of sports and took piano and ballet lessons for 35 hours a week during middle school. She had her hands full with prominent hobbies.

Growing up, Mayer was considered as a nerd for being quiet and intelligent but a little off in social skills. However, it did not stop her from showing off her strong points such as leadership. She was exceptionally good at managing developments, and it did not take much for people to figure it out.

She then went to Stanford University to take on a prestigious ‘symbolic systems’ major that consists of linguistics, philosophy, computer science, and cognitive psychology. Instagram’s co-founder, Mike Krieger, and Linkedn’s founder, Reid Hoffman, were among of the other successful alumni. Mayer soon graduated as one of the top students in her class.

Google recognized her potential and hired her right after graduation. She was able to show off her tech-savvy strategy and perfectionism, which brought her victory in the corporate ladder. Soon after, she realized her skills for designing faultless user experiences through user interface (UI) optimization. Google put this talent to good use when she was tasked to be the leading figure in charge of UI for all of Google.

Mayer became an authority of details and data. She even conducted a talk that ran for hours regarding multiple shades of blue and how such user experience was customer-impacting. She made it very clear that user data must be the basis o every decision.

Yahoo then decided that Marissa Mayer would be its saving grace.

Mayer gave Yahoo a new direction: mobile internet.

Mayer’s primary agenda when she joined Yahoo was to change its known characteristic for being able to do everything, but nothing especially well. She then had to face an important company-altering decision; to mold Yahoo into a media company of large-scale online publishing, or production content such as videos and news, or perhaps just as a tech company focused on new product innovation.

She did extensive research and worked to figure out the top-priority daily habits of mobile users depending on their usage behavior. She realized the need to develop the best app for news reading, checking weather, checking mails, and photo sharing respectively.

Mayer impressed the technical team with her reliable knowledge and the morale was high. She prioritized the Yahoo Mail development and improved the user experience through user interface design. And soon enough, Mayer was able to develop Yahoo Mail, Flickr and Yahoo’s homepage. Everything was in speedy recovery, but it was not enough to save Yahoo.

Behind the illusion of success lay a poorly managed media department and ever-dwindling revenue.

By December 2012, Yahoo’s stock was up 24% since Mayer joined the company. One of her achievements was outbidding Facebook in buying Tumblr for $1.1 Billion. Morale skyrocketed and more highly qualified candidates wished to join Yahoo.

However, Yahoo’s market share was still decreasing and so was its traffic and revenues from selling ads. Apparently, the rise in its stock value was mostly due to its part ownership of Alibaba, an exploding Asian start-up.

Despite the efforts, there was still a major aspect that Yahoo has been neglecting unintentionally—its media business. The irony was that media business was a big and stable contributor of $1.5 Billion to Yahoo’s $5 Billion total revenue. And this business has three thousand employees that would suffer if the neglecting continues.

Mayer was able to figure it out and decided to jump right into it to fix the problem. But the only struggle was Mayer’s decision-making approach based on her guts. In one instance, she blocked the hiring of Gwyneth Paltrow as a contributing editor for Yahoo Food despite being a best-seller of a cookbook author only because ‘she didn’t even go to college.’

It took a while for Mayer to realize that she was not made for the media business. It was then placed in the more capable hands at Yahoo as Mayer returned to the tech side of the business.

Mayer’s efforts weren’t enough to save Yahoo and the fight continues.

Efforts were made but still not enough to rescue Yahoo, and so Mayer decided to speed things up and push themselves to the limit. But this only made things even more complicated to fix. Yahoo Mail then suffered multiple breakdowns and the users temporarily lost accessibility to their mails. The reason behind this was Mayer’s orders to speed up the process, thus, not giving enough time to test the technology before launching.

Mayer’s personal behavior and ambitious approach soon created a negative impact towards the other employees of Yahoo. Some of her decisions caused many gifted employees to leave the company.

Her employee rating system was one of the biggest dilemmas that affected the employees so negatively that some opted to just part ways with Yahoo. In this system, managers were to rate the performance of their employees in hopes to dismiss low-performers in order to cut on costs. However, managers were obligated to always rate based on a fixed curve, which means someone always had to get the lowest score.

Instead of collaborating with ideas and cooperating toward success, employees developed hostility toward each other, because someone has to have a low performance during deliberation. Employees got more and more frustrated.

Mayer tried to fix this approach by dynamically engaging in developing apps, replacing executives, and conducting motivational talks to inspire employees, but to no avail when it comes to improving numbers. The media and apps still could not produce enough traffic.

Yahoo indeed made the internet easy to use for average people to utilize it back in its successful days; however, Google, Facebook, and the others were already able to do it. Apple’s iPhone and Google’s Android already had solved the mobile internet crisis for their users.

This concludes that Yahoo still hasn’t found its exact function. If Yahoo can solve a huge predicament that impacts user experience, then it may still be able to establish a huge mark alongside Google, Facebook, and the others. Until then, Yahoo remains in dire need of rescuing.

Final Summary

Marissa Mayer may have given Yahoo the hope it needs to still believe in the company, but has yet to come up with a compelling scheme that will enduringly put Yahoo back in the map.

TEASoftware