NORTHWESTERN BUSINESS REVIEW Wednesday - Oct 01, 2014

Yahoo: The Rise and Fall of a Tech Giant


In today’s increasingly changing digital world, some technology companies thrive, while others fall. Facing difficulty in the sale of the company’s stock in Alibaba, Yahoo! Inc. is struggling to keep its relevance as the Internet media company attempts to redefine and revitalize its brand. But the story of Yahoo, a first-generation internet pioneer that was the forerunner of internet searches, is a complex one. Overshadowed by the prominence of Facebook and Google, have we forgotten Yahoo’s meteoric rise and subsequent fall and, more importantly, its central role in the growth of the Internet industry?

Jerry and David’s Guide to the World Wide Web

What the world now knows as Yahoo started out as the brainchild of Jerry Yang and David Filo, graduate students at Stanford University. In 1994, while exploring the still-mysterious world wide web, Yang began to post things in a directory of sorts online—his golf scores, his name in Chinese characters, and his favorite websites. Over time, that directory grew and grew, eventually becoming “Jerry and David’s Guide to the World Wide Web.” This massive directory garnered attention—finally a place to find all the useful and relevant sites on the world wide web!—and, after settling on the simpler name “Yahoo,” the website skyrocketed in popularity. In 1994 the website reached one million hits in one day for the first time ever, and their popularity would continue to grow. Recognizing that they should turn the hype into a business opportunity, Yang and Filo found a $2 million initial investment from Sequoia Capital.

Turning Into An Internet Giant

By 1996 Yahoo was one of the most popular sites on the web, and employed 49 people. That year Yahoo went public, offering an IPO that raised $33.8 million. By 1999 Yang and Filo were worth $8 billion each. Their quick rise was not without bumps, though. Google, then new competition for Yahoo, entered the Internet world in 2000 and, armed with a more relevant and simplistic search engine, took the upper hand in the internet search engine market, especially after the dotcom bubble burst in the early 2000s and Yahoo had to lay off some of its staff while Google was growing cheaply. Up to that point, Yahoo had used humans to add to the directory, but seeing that Google was achieving such powerful results, Yahoo integrated crawler-based automatic results into its search engine as opposed to only adding these results when their human directory had no results.

The Life Near the Top

After surviving the competition from Google, Yahoo continued to expand its role on the internet, buying smaller companies such as hotjobs, an internet job finder (which would later be bought by monster.com) in 2001, webmail provider Oddpost, and, notably, Flickr, a photo sharing website, in 2005. The biggest push from competition, though, came from Microsoft in 2007. Microsoft was looking to form a more powerful search engine than its MSN site to close the gap in popularity between Google and Microsoft; by 2007 Google already accounted for 54 percent of all online searches while Yahoo lagged at 22 percent and MSN only accounted for 10 percent. In February 2008 Microsoft made a $45 billion dollar bid to take over Yahoo, but disagreements over the amount of the deal forced Microsoft to drop the offer in May of 2008. New bids reached the table at lower numbers after Yahoo stocks dipped to around $8, but were all rejected. Subsequently billionaire investor Carl Icahn slammed Yahoo for being “irresponsible” in rejecting Microsoft’s offer, threatening to assemble a group of investors to overthrow the board of directors. Though Yahoo rejected Icahn’s threats, later in 2008 Jerry Yang stepped down as CEO and returned to his old post as “Chief Yahoo,” helping the company at a lower level. Early in 2009 Yahoo named Carol Bortz as CEO but she was removed in 2011. Finally in 2010 Yahoo agreed to power its search results with Bing, Microsoft’s search engine.

A World Without Yahoo?

Recently Yahoo has struggled to compete with the new giants Facebook and Google. 600 million people still visit Yahoo each month, but that number is eclipsed by Google; Google is the most visited website in America but Yahoo is the fourth most visited website. New Yahoo CEO Scott Thompson is performing a “strategic review,” a move which many competitors could see as a sign of weakness. Yahoo may be looking to move away from advertising-based revenue and into a different form of revenue, which they hope to finance in part with the Alibaba deal, which hangs in the balance after dispute over the tax-free transfer of money. Add to that the plan of Yahoo stakeholder Daniel Loeb to add members to its board, and the state of Yahoo looks volatile. It could be the start of a long slide downhill for one of the original pioneers of online giants. With no continuity on the board and the recent departure of Yang from the board of directors altogether, Yahoo may find its coming months very difficult and the gap between new-generation giants such as Google and Facebook could become wider and, ultimately, too large to bridge. Indeed, commentators are even speculating a takeover of Yahoo by Apple. Ultimately, Yahoo runs the risk of going the same way as its previous competition, AOL: largely irrelevant. On the other hand, Yahoo is still one of the most visited sites on the Internet, and if it determines the next steps in planning its future, it could easily find its way back to profitability. What began as a college start-up became an Internet giant; the future of Yahoo depends on its ability to redefine itself in a quickly changing Internet landscape.

About Jack Hopper

Jack Hopper covers finance and politics for NBR. Originally from Pennsylvania, he's a die-hard Steelers fan... Even if this year it's not going so well for them.

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