What happened to Yahoo?

If you’re too young to remember, on the early internet, fifteen years ago, Yahoo was everything. Yahoo mail was great. Clubs and teams were organized on Yahoo groups. Fantasy sports were run through Yahoo sites. They were one of the better search engines too.

Now their core business was sold to Verizon for just under 5B$. What happened? We’ll look at what Kara Swisher and Eric Jackson have to say about Yahoo’s journey.

Caveat emptor, this is one data point of many. An island in the sea. I’ll try to make the case that some of Yahoo’s missteps are ones that currently successful businesses have avoided.

Finally, this post is available in podcast form; https://soundcloud.com/mikesnotes, https://itunes.apple.com/us/podcast/mikes-notes/id1055386383, https://overcast.fm/itunes1055386383/mikes-notes if you’d prefer listening. Plus, awesome sound effects.


1/ Beware majestic ducks on ponds. “They thought they would bring in this Googler and just because they worked at Google they could immediately make things right. Well, Google was an abnormally interesting place of talent all together at once. It doesn’t mean that if you pull individual parts out that they could succeed.” KS

In another Recode episode Swisher told Eric Jackson:

“I had seen a different side of her, and all the Google executives. I think they get buoyed by being at Google and everybody gets this sort of extra special polish because they’re at Google. It doesn’t mean that once they remove themselves from that paradise they do well.”

In Warren Buffett’s early letters (pre-Berkshire Hathaway) he explained the framework in terms of a duck on a pond. Buffett wrote, “the rise and fall of the lake is hardly something for him to quack about.” Uncle Warren had to create his own yardstick, to see how much was the tide and how much was him. He used the Dow Jones Industrial average. If his holdings didn’t outperform that group of stocks over three year periods he told his investors, “if our performance declines to a level you can achieve by floating on your back, we will turn in our suits.”

Buffett exceeded those returns and more. His ducks on a pond analogy continued through the success, “I like to think we’ve flapped our wings a few times.”

Swisher thinks that Mayer was a duck on a rising pond, rather than duck flapping their wings a few times.

“If you’ve done well in a bull market all you can assume is you’ve been long during a bull market,” Jack Schwager told Barry Ritholtz.

Conditions matter. Milton Hershey benefited from good conditions (a rising tide) and succeeded in building a company that still bears his name (flapped his wings). Hershey’s tide was a build up of railroad infrastructure, a population boom thanks to immigration and workers in southern Pennsylvania, and national advertising that supported brands like Hershey, Coca-Cola, and Wrigley.

Mayer had a similar tide.

  • Where Hershey’s infrastructure was railroads, hers was broadband.
  • Where Hershey’s population boom was immigrants, hers was people with smartphones.
  • Where Hershey’s brand building was national advertising, hers was mobile ads, ads sense, and the shift from newspapers.

Mayer rode a rising tide at Google, but the same conditions didn’t exist at Yahoo.

2/ It’s only about the MOST IMPORTANT THINGS (MIT). “Here’s how you succeed, build great products. If you build a great product or buy a great product…when you have that many that many years of no great products – redoing the weather app to make it prettier is not a great product – it’s what I call table stakes. It’s like when she added free iPhones and food. Okay, that’s table stakes.” KS

No word if Yahoo served table steaks.

Swisher thinks that Mayer missed the MIT. Build a great product.  Yahoo used to have great products. Their sports site was better than ESPN. Their mail app was at one time the best. Other services like fantasy sports, finance, and Flickr were all great too. Early internet users went to Yahoo everyday.

What happened?

Not enough good people. Good people lead to good products which lead to good people and so on. Don’t confuse this for a chicken and egg problem, you can buy or build the egg to start. Swisher points out that Facebook’s acquisitions like Instagram, WhatsApp, and Oculus has kept them from becoming “Grandma’s Facebook.”

Good products are the MIT for a technology company, but any company needs a MIT.

  • For young Warren Buffett the MIT was companies with a book value greater than or equal to their market capitalization.
  • Former NBA coach Pat Riley said, “the major part of my job isn’t to tell the players what to do. The most important thing I do is to create a great setting for them to work in.”
  • Stephen King says “the truth is the most important thing.” What does that mean for an author of fiction?

In his book On Writing (part memoir part masterclass), King writes (p186, emphasis mine):

“My mother, God rest her, didn’t approve of profanity or any such talk; she called it “the language of the ignorant.” This did not, however, keep her from yelling “Oh shit!” if she burned the roast or nailed her thumb a good one while hammering a picture-hook in the wall. Nor does it preclude most people, Christian as well as heathen, from saying some-thing similar (or even stronger) when the dog barfs on the shag carpet or the car slips off the jack. It’s important to tell the truth; so much depends upon it, as William Carlos Williams almost said when he was writing about that red wheelbarrow. The Legion of Decency might not like the word shit, and you might not like it much, either, but some-times you’re just stuck with it—no kid ever ran to his mother and said that his little sister just defecated in the tub

Honesty is paramount, King writes, “If you substitute ‘Oh Sugar!’ for ‘Oh Shit!’ because you’re thinking about the Legion of Decency, you are breaking the unspoken contract that exists between writer and reader.” Honesty is King’s MIT.

MITs will change, but your focus on them does not. Satisfy one MIT and then move on.

The recruitment problem at Yahoo reminded me of the Elon Musk technique for recruitment. Dolly Singh, head of talent acquisition at SpaceX said, “the Space X recruiting pitch was ‘if you want as hard as it gets, then great. If not then you shouldn’t come here.”

Work for Musk, change the world. Work for Yahoo, and, what? That’s what Swisher pointed out. Tesla gets missionaries. Yahoo did not.

3/ Pattern recognition. “Do they realize what they’re doing? They’re facilitating your success. It had happened before. I had seen it happen with AOL, Netscape and others, where they facilitated the success of other peoples business’s and didn’t realize the real business.” KS

Here Swisher is recalling a meeting with Larry Page when he pointed out that Google was getting more search traffic than Yahoo (who was using Google for their search). Swisher had seen this before. Swisher has good pattern recognition. Yahoo did not.

Pattern recognition is a superpower. It’s saves time, money, or opportunity. In podcast episode 027, I guessed that Louis CK has good pattern recognition skills. Like an experienced baseball player, he could wait for a fat pitch. I also guessed that Mark Zuckerberg is still building his.

Patrick O’Shaughnessy said, that he sees young people buying “expensive, exciting stuff ($TSLA, $AAPL).” But, “If history rhymes, which it often does, an older, more boring, stodgier, portfolio is probably going to do better.” This is pattern recognition.

Alex Blumberg started Gimlet Media because he saw patterns:

“This American Life worked. Planet Money worked. After Planet Money worked it felt like you can take this kind of storytelling, this kind of long form journalism and you can apply it to a bunch of different places and now we know that this is fertile ground for this kind of storytelling….then Serial comes along and demolishes everything in its path and then it was very clear that it was the right instinct.”

4/ Know thyself. “Looking back now, what I wish I had been more vocable about was that she was first time CEO. She wasn’t a good manager. There were a number of mistakes she made in how she managed people. How she set strategy….She had a lot of direct reports (n=26), that’s impossible. It sort of speaks to an overconfidence in yourself.” – EJ

Here Jackson proposes that Mayer didn’t “know thyself.” Unlike, say Teddy Roosevelt. In his book, The Rough Riders, Roosevelt was asked to lead a regiment into Cuba. Teddy wrote, “while I believed I could learn to command the regiment in a month, that it was just this very month which I could not afford to spare, and that there-fore I would be quite content to go as Lt. Colonel if he would make (Leonard) Wood Colonel.”

Roosevelt knew he didn’t have the right skills, right now, so he deferred to someone else.

It’s more than technical know-how too. When Andy Weissman spoke about evaluating founders he asks whether the company and the person can scale. Elizabeth Gilbert said she needed to write, but not in graduate school. She said that being in a room with 12 other people wasn’t the best situation for her. Gary Vaynerchuk said he needs to work, he needs to grind. Ezra Klein said he doesn’t do conference calls well. When Nasty Gal was moving from explosive growth to sustainable growth Sophia Amoruso stepped out of the CEO role because, she said, the things a CEO needs to do aren’t the things she is good at dong.

Each of these things, from the big to the small, is part of knowing yourself. Of knowing what you do well and where you need help. Swisher and Jackson think Mayer lacked some of this.

5/ Stakeholders, runway, and career capital. “This wasn’t my idea (Marc Andreessen said this to Sarah Lacy days after Marissa was hired). She should fire something like, ten thousand people…had she done that she basically would have seemed a lot more profitable for a lot longer than she did. It would have bought her more time. It would have given her an opportunity to do more things. She was in such honeymoon period at the time no one would have questioned her.” EJ

There are three things to unpack here.

  • Stakeholders.
  • Time + opportunity = runway.
  • Career capital.

Yahoo had too many employee stakeholders. Stakeholders are anything you are accountable to. The more stakeholders, the less flexibility.

Wesley Gray said he recruits a certain type of investor for his fund. He wants stakeholders that aren’t skittish.

Louis C.K. said he didn’t want advertisers on his show Horace and Pete because they were stakeholders that would influence what he was doing.

Walking the dog is a stakeholder that demands one hour a day. In a 2014 interview with Lifehacker Ira Glass was asked his best time-saving shortcut/life hack. He said nothing. That’s clearly not so. Any person that runs one of the biggest podcasts in the world, has a family, and does speaking gigs all over the country has to have some time saving trick. After thinking about it for a moment this is what Glass said:

I guess my biggest life hack—and this is the very first time I’ve attempted to use the phrase “life hack” in a sentence—is that my wife and I decided to live just a few blocks from where I work. We did this because of our dog. Since I spend at least an hour every night walking the dog, I didn’t want to spend another 60 or 90 minutes a day commuting. I don’t have the time. Like lots of people, I work long hours.

Ira Glass recognized his dog was a stakeholder on his time, so he lives near his office. Your internet bill is a stakeholder too. It demands some number of hours of work. Relationships are stakeholders. Hobbies are stakeholders. Everything you are committed to limits what else you can be committed to. Andreessen, Swisher, and Jackson think Yahoo was committed to too many employees.

Dropping stakeholders would give Yahoo more time and opportunity. You need both to increase your chance of success. Dilbert cartoonist Scott Adams puts it this way:

“I find it helpful to see the world as a slot machine that doesn’t ask you to put money in. All it asks is your time, focus, and energy to pull the handle over and over. A normal slot machine that requires money will bankrupt any player in the long run. But the machine that has rare yet certain payoffs, and asks for no money up front, is a guaranteed winner if you have what it takes to keep yanking until you get lucky. In that environment, you can fail 99 percent of the time, while knowing success is guaranteed. All you need to do is stay in the game long enough.”

It didn’t have to be this way. Mayer had the career capital to lay off a lot of people. Career capital is an idea Cal Newport has written about. His theory is that to have a great job, you have to have great skills. Mayer had a great job because she had great skills. She could have leveraged the perception of those skills – this person knows what they’re doing – and made drastic changes.

When someone asked Judd Apatow how gets to work with people like Adam McKay and Will Ferrell, he explained it’s because he has career capital. Terry Gross has career capital because she cut her teeth coming up through public broadcasting. Chamath Palihapitiya said he did whatever Kevin O’Connor asked of him and built his career capital this way.

Mayer had a reservoir of capital that she could have used.

There’s not one thing that killed Yahoo. No one person. As Ben Horowitz wrote:

“The problem with these (business) books is that they attempt to provide a recipe for challenges that have no recipes.”

This post, I hope, was more of a guided tour. These ideas were suggestions. Things that might have worked had then been different. As I’ve written before, it can be just as helpful knowing what not to do. To recap.

  1. Beware of things that succeed because of rising tides and tailwinds.
  2. Don’t forget about the MIT.
  3. Built up experiences (or read books for a shortcut) to help you recognize patterns.
  4. Know your strengths and your weaknesses. Punt what you don’t do well.
  5. Reduce stakeholders to get more options. You need a long runway to experiment. the more career capital you have, easier cutting down will be.

Thanks for reading, I’m @mikedariano on Twitter.

10 thoughts on “What happened to Yahoo?”

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