Yahoo was worth roughly $125 billion at its peak in 2000. It sold to Verizon in 2016 for about $4.8 billion, and Verizon later sold the assets on to Apollo Global Management.
The missed deals are the part everyone remembers. In 1998 Yahoo declined to buy Google for $1 million. In 2002 it tried to buy Google for $3 billion, and walked away when Google asked for $5. In the mid-2000s it failed to close an acquisition of Facebook at around $1 billion. In 2008 it rejected a Microsoft offer of roughly $44 billion. Today Google’s market value is measured in trillions.
Those are four spectacular judgement calls and they make for a good list. They are not the actual lesson.
The actual lesson is one line in the timeline that gets far less attention: from around 1998 to 2000, Yahoo used external search providers, including early Google, because it did not regard search as the core of its business. It believed sending traffic off its own portal was a bad strategy. So it rented the engine and kept the storefront.
Then it spent years buying storefronts. Geocities, Broadcast.com, HotJobs, Flickr, Inktomi, Overture, Tumblr at $1.1 billion. A senior employee’s internal memo, which became public, named the pattern as the Peanut Butter Manifesto: spreading effort thinly across everything rather than concentrating on the areas that would actually pay.
Flickr is the sharpest example. Yahoo owned the leading photo-sharing platform on the internet at the exact moment social networking was being invented, with founders who wanted to move in that direction, and did not pursue it.
Every operator recognises the shape of this even at a fraction of the scale.
The cafe that starts doing sandwiches, then a florist counter, then greeting cards, then a small giftware range, then an ice cream freezer in summer, and buys its coffee pre-ground from a national supplier because roasting is complicated and somebody else does it better. Each addition is individually defensible. Each one adds a bit of revenue. And the thing on the sign above the door, the reason anybody chose this place over the one at the station, is the only part of the operation the owner does not control.
The question that separates the two situations is simple and almost nobody asks it plainly: which single capability, if a competitor did it better than you, would end your business? That is your core. It does not matter whether it is glamorous, whether it is hard, or whether a supplier would happily handle it. It is the one thing you cannot rent.
Yahoo’s answer was search, and it outsourced search.
There is one enormous counter-entry in the ledger and it deserves stating. In 2004 Yahoo bought forty percent of Alibaba for $1 billion, which became by some distance the most valuable thing it ever owned, and for years the bulk of what the company was worth.
Jerry Yang and David Filo built the front door to the internet from a Stanford trailer in 1994.
They kept the door. Somebody else built the engine.
Source: NeTT Business News, “Yahoo: The Search Giant That Bought Everything Except A Future”
