THE 20 YEAR ROLLER COASTER FOR YAHOO FINALLY ENDS.
The saga surrounding one of the world’s most recognizable internet stocks has come to a close.
Yahoo has finally sold its operating business to the highest bidder. The winner was Verizon – and the price was $4.8 billion.
That’s worth less than 1% of the company it had multiple opportunities to buy: Google (now Alphabet).
In 2000, Yahoo was worth $125 billion. In 2008, it rejected a $44 billion buyout from Microsoft. On July 25 2016, it sold to Verizon for $4.83 billion. The lesson here is, if you won the last computing platform and are on the cusp of the next one you’re not built for, you might want to sell the company.
Mobile fell on an unsuspecting Yahoo like a piano on a cartoon villain. It was a web portal. You could search and browse through a huge variety of websites. But the mobile age spurred by the iPhone’s launch in 2007 changed behavior. Instead of searching or browsing one omni-site to navigate around the Internet, we downloaded and opened different dedicated apps.
Meanwhile, content consumption patterns changed too. Instead of hour-long sessions sifting through expansive content and news sites on a desktop computer, we sought tiny snippets of mobile entertainment to fill the moments of downtime during our lives on the go.
Yahoo wasn’t built for either. It was hesitant to adapt. A few products like Yahoo Sports and Yahoo Finance were snackable enough. But the core properties had evolved to survive in a different environment. They got mobile versions mostly in design, not in function. Not only did usage slip away, reducing Yahoo’s ad inventory, but it missed out on the ad targeting data generated by social networks.
And so Yahoo’s value sank like a stone.
The executives running Yahoo have a rough track record in reading industry tea leaves. It’s not just about the deals they made, but it’s also the deals they failed to make.
In the end, a lack of execution with acquisitions proved to be the company’s Achilles’ Heel.
In 1998, Yahoo was approached by two young Stanford Ph.D. students to buy their search engine algorithm. Larry Page and Sergey Brin had created PageRank – a quick way to find the most relevant website for a given search query. Yahoo skipped out on buying it for $1 million, rationalizing that it would take people off of Yahoo’s website, while decreasing traffic and ad revenues.
Even later on when Google’s search business was well-established, Yahoo CEO Terry Semel balked at Larry and Sergey’s $1 billion asking price. He would eventually agree to it, but by then it was too late. The Google guys had already decided to up their price to a heftier $3 billion.
Around that same time, Yahoo was turned down by a 22-year-old Mark Zuckerberg. Yahoo offered to buy Facebook for $1 billion, but Zuckerberg declined. This was a moment that billionaire Facebook investor Peter Thiel lauds as the major turning point for the company that allowed it to become the behemoth it is today. Some sources even say that if the offer was increased to $1.1 billion, that Facebook’s board would have forced Zuckerberg to take it.
But it’s not just the offers made that were missed opportunities. Yahoo also turned down a hostile takeover from Microsoft in 2008 for $44.6 billion that valued the company for far more than it is worth today.
DEALS THAT BOMBED
Finally, the deals that did close were unable to add any value to the company.
Yahoo famously made two acquisitions in 1999 that are now ranked by Forbes as some of the worst internet acquisitions of all-time.
The first was a $4.58 billion deal for Geocities, a site that enabled users to build their own personal websites. While Geocities was a pioneer in this regard, it eventually was shuttered in 2009 after failing to deliver any value to Yahoo shareholders.
The second was the famous $5.7 billion deal for Broadcast.com, an online television site that was founded by Mark Cuban. Perhaps way ahead of its time, internet connections were too slow in 1999 to run this type of video content off the web.
Yahoo also bought Tumblr for $1.1 billion in 2013. While it is not ranked as one of the worst acquisitions of all time, it is not doing particularly well either.
YAHOO’S SAVING GRACE
There was one M&A decision that wasn’t a whiff. In 2005, the company bought a 40% stake in emerging online retail company Alibaba. The remainder of those holdings, now worth $30 billion, make up the majority of Yahoo’s market capitalization today.
In the context of the recent Verizon deal, the Alibaba shares are likely being spun off into a separate investment vehicle.
The takeaway, though, is that tech teams must be vigilant about preparing for platform shifts. It’s usually not competitors that kill a company. It’s paralysis in the face of change. Now, the horizon is filled with augmented and virtual reality, voice, and artificial intelligence.
LESSON TO LEARN
The best CEOs are getting ready. Google bought DeepMind’s AI and is implementing it across the company. Facebook bought Oculus to break into VR and AR. Uber has a self-driving car lab. And Amazon is throwing resources at Echo voice controls. If these strategies pan out, they could insulate the companies from disruption.
When the tectonic shift comes, if you keep running a company on the fault line, the earthquakes will pull you into the ground.
The tech giants that survive for decades don’t wait for the earth to swallow them. They relocate their business to where the future is with sweeping product changes, bold acquisitions, and a willingness to do what’s uncomfortable but necessary. It’s easier to pivot than make a comeback.