Chapters

Chapters
What’s in it for me? Catch a glimpse behind the scenes at Yahoo.
1
The early Yahoo was promising, and had no trouble finding financial
support.
2
Yahoo became an online advertiser and a billion dollar company within
four years.
3
Innovative projects and data insights allowed Yahoo to rapidly create
hundreds of new products.
4
Yahoo’s first big mistake was selling its name.
5
Yahoo built a traditional advertising business and recovered.
6
Not buying Google when it had the chance could be the biggest mistake
Yahoo ever made.
7
Competition with specialized start-ups and lack of organization took their
toll on Yahoo.
8
Marissa Mayer quickly gained traction and experience in the tech world.
9
Mayer gave Yahoo a new direction: mobile internet.
10
Behind the illusion of success lay a poorly managed media department and
ever-dwindling revenue.
11
Mayer’s efforts weren’t enough to save Yahoo, and the fight continues.
12
Final summary
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Marissa Mayer and the Fight to Save Yahoo!

00:00
Introduction
What’s in it for me? Catch a glimpse behind the scenes at Yahoo.
There was a time before Google ruled the internet. Back then, Yahoo was the
Internet. But those days are gone: if Yahoo vanished off the face of the earth right
now, it would hardly change your internet experience. For almost all of Yahoo’s
services, there’s a better alternative out there. In 2012, someone set out to rescue
Yahoo – an ambitious character, used to achieving her goals. At just 37, Marissa
Mayer was already looking back at an impressive career at Google Inc., leaving the
company while at the post of vice president. While she’s rumoured to be shy,
Mayer’s controversial quotes and daring decisions – like buying the microblogging
platform Tumblr for the record sum of $1.1 billion – frequently make headlines.
Taking the helm as Yahoo’s CEO, Mayer made some terrible choices about the
company’s media business, but simultaneously gave Yahoo some much-needed
direction, streamlining the product palette and betting heavily on mobile apps. But
did it work? The jury is still out. In these blinks, you’ll learn about Yahoo’s very
modest beginnings at Stanford University; about the company’s most foolish
decision (so far); and about the meteoric rise of Marissa Mayer.
01:14
Chapter 1 of 11
The early Yahoo was promising, and had no trouble finding financial
support.
Like many other success stories, Yahoo came from modest beginnings. In 1993,
Yahoo’s prospective founders David Filo and Jerry Yang shared the links to their
favorite web pages on a website called David and Jerry’s Guide to the Internet. Back
then, the world wide web was relatively new and their site was little more than an
index of web pages, allowing people who were new to the internet to look up pages
they were interested in. Unexpectedly, traffic grew to 50,000 visits per day. It
seemed that David and Jerry’s site had tapped into something unique. The founders
renamed the site to the more memorable Yahoo!, an acronym for “Yet another
hierarchical officious Oracle”. They also liked the slang definition of the word
“yahoo,” referring to a rude, unsophisticated person. And so Yahoo was born. Traffic
kept growing steadily, reaching one million clicks per day in 1995. At this rate, the
infrastructure provided by Stanford University wasn’t enough to support the site.
David and Jerry needed real servers for Yahoo – and for these, they would also need
some cash. Fortunately for them, finding investors was a piece of cake. Sequoia
Capital partner Mike Moritz decided that the newbie company needed “adult
supervision” to scale up the business. This gave the founders the freedom to focus
on the innovation side. Sequoia would become COO, while Stanford graduate Tim
Koogle would take on the role of CEO and chairman. In March 1995, only days after
Yahoo was incorporated, they declined an offer of $2 million from America Online to
buy Yahoo outright, and instead sold 25 percent of the company to Sequoia Capital
for $1 million. With adult supervision in place, it was time for Yahoo to create a
serious business plan.
03:22
Chapter 2 of 11
Yahoo became an online advertiser and a billion dollar company within
four years.
Yahoo had its investor and infrastructure – now it just needed to make some money.
So, the company’s leaders decided to turn to advertising to generate revenue. Back
in 1995, online advertising was still finding its feet. The estimated volume of the
entire online advertising market that year was only $20 million. Yahoo made its first
deal with renowned international news agency Reuters, offering to publish their
stories on Yahoo.com. Yahoo then signed a deal with Visa and General Motors to
post ads, charging as little as $20,000 per month. Business picked up speed soon
after. By 1997, Yahoo’s revenue surpassed $70 million and reached $200 million the
subsequent year. Traffic at Yahoo.com went from six million clicks per day in 1996 to
167 million in 1998. Meanwhile, the number of employees had also increased from
200 in 1996 to nearly 2,000 in 1999. This incredible growth is also apparent when
looking at how the company’s value changed over the course of its first few years.
After Yahoo held its initial public offering on April 12, 1996, the company had a
market capitalization of $848 million. This meant that the remaining share that Jerry
Yang and David Filo owned was worth $130 million each. In 1999, Yahoo had a
market value of $23 billion, which made Filo and Yang internet billionaires just four
years after they had started swapping lists of web sites with each other. Ultimately,
it was the exponential growth of the internet and its users that made Yahoo a billion-
dollar company. The basic idea behind Yahoo’s business model – to create online
traffic and sell ads – hadn’t changed. But as it turns out, only 20 percent of the
traffic was generated as a result of the site’s initial feature, Yahoo’s directory. The
remaining 80 percent of traffic was directed at entirely new products developed by
Yahoo. How did they develop these products? Find out in the next blink.
05:50
Chapter 3 of 11
Innovative projects and data insights allowed Yahoo to rapidly create
hundreds of new products.
Yahoo’s COO Jeff Mallett came from the world of computer software, where you
essentially build products and hope users like them. But he realized that Yahoo had
the potential for a much more auspicious approach. Yahoo began to use traffic data
to match products to customers’ needs. Mallett realized that with the data about
customers’ preferences gleaned from web searches, he could simply analyze their
clicks and search behavior on Yahoo to build exactly the products that these
customers wanted. He wouldn’t have to guess what people needed, because he
would already know. This was the beginning of Yahoo’s general strategy: keep an
eye on the server logs and develop products quickly that cater to the new internet
user. A project-based organizational structure helped Yahoo develop hundreds of
new products to generate traffic. But how could Mallett foster the creativity needed
to develop all these products? He knew that a conservative organizational structure
just wouldn’t cut it for the level of innovation he was aiming for. So he decided to
hire as many people as possible and group them into product teams known as
“pods” or “virtual sevens.” Mallet would take someone from Yahoo Finance, for
example, and tell her to find six other people across the organization to build an
entirely new product. They were free to collaborate with anyone inside the
organization regardless of distance or department. By 2000, Yahoo offered more
than 400 new products, including chat rooms, games, sports, real estate, a calendar
and much more. There were hundreds of pods and ad hoc virtual sevens, and just a
few classic core corporate functions such as HR and legal. Things seemed to be
going brilliantly. But soon, Yahoo’s hunger for growth would prove problematic.
07:57
Chapter 4 of 11
Yahoo’s first big mistake was selling its name.
By late-2000, things at Yahoo began to fall apart. The dot-com crash had hit Yahoo
hard, and in that year, the company’s value had shrunk by 90 percent from $128
billion to $12.6 billion. Where did it all go wrong? Put simply, Yahoo sold out. Since
Yahoo was such a popular and big company, every time a new start-up officially
announced its collaboration with Yahoo, the start-up’s market value would
skyrocket. Some Yahoo executives used this tendency to make deals with start-ups.
Start-ups would pay Yahoo to become their premier bookseller, online travel agency
or other main service provider. Then the start-up would announce this deal publicly
and people would race to invest in it, simply because it was backed by Yahoo and
the company was thus expected to succeed. In 1999, a start-up called
Drugstore.com was paying Yahoo $25 million for a major advertising partnership
and to become its premier online pharmacy partner. Although the company had
only $38 million in the bank and had an annual loss of nearly $20 million, everyone
invested and bought its shares. At the end of its IPO, Drugstore.com had a market
value of $2.1 billion. Companies that made an advertising deal with Yahoo were top-
ranked in the search results as recommendations. These deals, and not the
products’ quality, were the basis of the listing, and Yahoo offered prime
advertisement partnerships to unstable, underperforming dot-com companies. After
a while, people became aware of this and stopped clicking on Yahoo’s ads and top-
ranked items. As a result, advertising became a lot less lucrative for Yahoo;
consumers simply didn’t trust them anymore. In Yahoo’s early years, about five
percent of users would click on the advertisements Yahoo would show them. By
2000, clicks were down to 0.5 percent and falling. The times when Yahoo could
charge exorbitant prices for ads because of their success rate were over. So how did
the company react?
10:22
Chapter 5 of 11
Yahoo built a traditional advertising business and recovered.
Yahoo had destroyed the integrity and profitability of their online advertising
business, and it was time for its first CEO Ted Koogle to resign. His spot was filled by
Terry Semel, former CEO of Warner Brothers. The new CEO reorganized Yahoo’s ad
business to make it a traditional ad sales business. Semel’s strategy was simple:
although much of Yahoo’s market value was destroyed with the implosion of the dot-
com bubble, more and more web users were visiting the site each day. Semel used
this attention to build a traditional advertising business that didn't rely on
questionable dot-com companies, and hired Greg Coleman, a seasoned sales
manager. In turn, Coleman took care to hire salespeople who actually knew buyers
in the companies they were trying to sell ads to, a link that Yahoo didn't have in
place before. Coleman also hired sales representatives who knew how to sell ads
over the phone and not just by email, which was the standard practice at Yahoo
back then. Consequently, Yahoo started selling many ads to traditional companies.
Coleman liked to use a fishing analogy to describe the changes he made at Yahoo.
He said that during its first years, Yahoo was a fishing boat that didn't need to fish
because the fish would willingly jump into the boat by themselves. Although it
wasn't the case anymore, there were still plenty of fish in the water – Yahoo just had
to learn how to actively catch them. But did Coleman’s fishing approach do the
trick? Well, in the first year after Semel got the job as CEO, Yahoo still had an annual
loss of $98 million. But by 2005, Yahoo had profits totaling $1.2 billion. The
company’s market capitalization went from $12.6 billion to $50 billion in the
following year. All in all, building a conservative advertisement sales business had
been good for Yahoo. Unfortunately, there were more problems ahead, and bigger
fish to fry.
12:37
Chapter 6 of 11
Not buying Google when it had the chance could be the biggest mistake
Yahoo ever made.
Yahoo wasn’t doing too badly after its change of CEO. But in 1997, the company
missed an opportunity that would have secured its dominant role in the internet for
decades to come. Larry Page offered Yahoo his thesis project BackRub, which would
later become Google, for a meagre $1 million. He wanted the money to finance his
PhD and become a professor. But Yahoo passed up on the offer! Why? Although
Yahoo conceded that the future of online searching lay with algorithms, the
company didn’t plan to have its own search engine. Instead, Yahoo wanted to
continue buying search functionality services from other companies, giving them
the freedom to change their search engine provider whenever necessary. Obviously,
Yahoo would come to regret its decision. Soon thereafter, google.com began to grow
incredibly fast, with its search engine becoming far more popular than any other.
Google had started to steal traffic from Yahoo. The reason web users preferred
Google was its improved approach to organizing search results and managing
advertising. As we found out in the previous blinks, Yahoo chose to place the
highest-paying advertisers at the top of their search page. Google’s system was
more sophisticated, but also produced more valuable results for users. According to
Google’s reasoning, an ad that only pays $0.55 per click, but gets clicked twice as
often as a $1.00 ad, is more profitable (and more relevant for the user) and should
thus be higher up on the results page. When Google turned out to be so successful
and profitable, Yahoo tried in vain to buy it, again and again, offering up to $6 billion
in 2002. It’s now clear that Yahoo well and truly missed the boat.
14:40
Chapter 7 of 11
Competition with specialized start-ups and lack of organization took their
toll on Yahoo.
The growing influence of competitors like Google started to chip away at Yahoo’s
traffic. Competing with too many specialized start-ups wasn’t helpful for Yahoo’s
public and internal image; the company had spread itself too thin. Yahoo tried to
compete with CNN in news, with ESPN in sports, with MySpace in social networking
and of course with Google in online searches. When Semel joined Yahoo, it had 400
different products and services. Of course, in every sector, Yahoo paled in
comparison to well-funded start-ups that did just one thing very well. The reality
was that no one knew what Yahoo was trying to be. On a retreat, one manager
asked his fellow managers to write down the first thing that came to their minds
when he named a company. So, when he said “PayPal,” they wrote “payments;”
when he said “Google,” they wrote “search;” but when he said “Yahoo,” everybody
wrote down something different. Another challenge facing Yahoo was a lack of
internal organization. There were too many people with similar projects and
overlapping responsibilities, which is a recipe for inefficiency. If a team’s project is
just one among many similar ones, they won’t be as committed as when a project is
“their baby.” Moreover, if too many people are responsible for the same tasks, no
single person can be held accountable for mistakes. Yahoo’s board knew they
needed someone new who understood the tech business better than the current
CEO and who could give Yahoo the vision and purpose it obviously lacked. Their
choice was Marissa Mayer.
16:31
Chapter 8 of 11
Marissa Mayer quickly gained traction and experience in the tech world.
Marissa Ann Mayer was born in 1975 in Wisconsin, where a middle-class upbringing
allowed her to shine at various hobbies. The ambitious and talented Marissa played
volleyball and basketball, took piano lessons and at one point even took ballet for as
many as 35 hours a week during middle school. Quiet, intelligent and with little in
the way of social skills, she fit the mold of a nerd perfectly. But for all her nerdiness,
it soon became clear that Marissa was quite good at giving directions. Whether in
sports or class projects, she always took over a leadership role and was supported
by her peers, who felt she was fair and exceptionally good at managing progress.
Marissa went on to study at Stanford University, undertaking the prestigious
“symbolic systems” major. This blend of linguistics, philosophy, computer science
and cognitive psychology also counts Instagram cofounder Mike Krieger and
LinkedIn founder Reid Hoffman among its alumni. Mayer graduated among the top
students in her class. Right after graduating, she accepted a job offer from Google,
where her tech-savvy approach and perfectionism were put to good use. She soon
discovered her talent for designing flawless user experiences by optimizing the user
interface (UI) of Google’s products. Very quickly, she climbed the corporate ladder
and became the leading figure in charge of UI for all of Google’s products, especially
search. Marissa’s keen eye for detail and data became notorious at Google. In one
meeting, she talked for hours about multiple shades of blue and their impact on
user experience. She always demanded that decisions be made on the basis of user
data. With a brilliant mind and considerable experience, Mayer had the potential to
become Yahoo’s saving grace.
18:36
Chapter 9 of 11
Mayer gave Yahoo a new direction: mobile internet.
As we found out earlier, Yahoo could do everything, but nothing especially well. It
was this aspect of the company that Mayer was determined to change. When Mayer
became Yahoo’s CEO, the company faced an important decision: what was it going
to become? Would it be a media company that focused on large-scale online
publishing, or the production of content such as videos and news? Or would Yahoo
be better off as a tech company, centered on developing innovative new products?
At this crossroads, Mayer chose the latter. Knowing that Yahoo’s original success
was borne out of making the early internet user friendly, she believed they could do
the same for the mobile internet. So, to turn Yahoo into a tech company, Mayer’s
first step was to scale up the mobile app team. She resolved to personally ensure
that Yahoo’s mobile products would excel. Her market research was extensive, and
yielded a list of the top-priority daily habits of mobile users, including news reading,
checking weather, checking mail and photo-sharing. Mayer was determined to
develop the best app for each at Yahoo. But one of Mayer’s top priorities in her first
months was the development of Yahoo Mail, especially its mobile version. Mayer
impressed the app team with her technical knowledge. After all, improving user
experience by smoothing the user interface design was her main area of expertise
from her time at Google, as well as her personal favorite part of the product to work
on. Soon after Mayer had joined Yahoo, new versions of Yahoo Mail, Flickr and
Yahoo’s homepage were launched. Morale was high and people were impressed with
the speed of the development process, but it wasn’t enough.
20:32
Chapter 10 of 11
Behind the illusion of success lay a poorly managed media department and
ever-dwindling revenue.
On December 2012, Yahoo’s stock was up 24 percent since Mayer became CEO.
Only a few months earlier, she had outbid Facebook to buy Tumblr for $1.1 billion
and morale was at an all-time high. More and more highly qualified candidates
began sending their résumés to Yahoo. It looked like Yahoo was finally out of the
woods. But it was actually far from it! Despite all its efforts, Yahoo’s search market
share was still shrinking, as was its traffic and, ultimately, its revenues from selling
ads. As it turned out, Yahoo’s rising stock value was mostly a result of the fact that it
owned parts of Alibaba, an exploding Asian start-up. Meanwhile, there was a major
aspect of the Yahoo business that was being neglected: media. Yahoo’s media
business had three thousand employees and revenues of $1.5 billion. It was a big
and stable contributor to Yahoo’s $5 billion total revenues, and would have to play a
big part in Yahoo’s future. After Mayer realized the importance of this part of
business, she began to dive into it. But as it turned out, she wasn’t made for the
media business. While her decision making regarding tech products was always
based on evidence, Mayer went with her gut when it came to media. Unfortunately,
her choices were often miles off the mark when it came to the preferences of Yahoo
users. She would turn down programs that were huge commercial successes, simply
because she didn’t like them. When actress Gwyneth Paltrow, who had a best-
selling cookbook at that time, was about to be hired as a contributing editor for
Yahoo Food, Mayer blocked the hire because “she didn’t even go to college.” It took
Mayer a while to accept that she wasn’t made for this side of the business. When
she finally did, media was placed in more capable hands at Yahoo, and Mayer
returned to the tech side of things. But Yahoo’s business was still struggling all the
while.
22:46
Chapter 11 of 11
Mayer’s efforts weren’t enough to save Yahoo, and the fight continues.
Mayer and her development teams increased their efforts even more and began to
push themselves to the limit. Mayer’s efforts to increase the speed of processes
caused problems within Yahoo and among its users. The new Yahoo Mail was
suffering multiple breakdowns, and users couldn’t access their mail. The reason was
that the development team was pushed so hard to produce results quickly, they
couldn’t properly test the underlying technology before launching. Slowly but surely,
Mayer’s ambitions began to grate on many of the company’s employees. Some of
her decisions and personal behavior saw many talented people leave Yahoo
altogether. According to Yahoo’s employees, one of the biggest problems was
Mayer’s employee rating system. Because Mayer wanted to dismiss low performers
and cut costs, managers had to grade their employees’ performance on a fixed
curve. Even on top-performing teams, someone always had to get a poor score. This
caused much frustration and eventually encouraged hostility rather than
collaboration among employees, since everyone was competing with each other.
But Mayer still didn’t give up. She engaged more actively in the development of
apps, replaced some of her executives and gave motivational speeches in front of
employees – but the numbers weren’t improving. Revenues still shrunk because
Yahoo’s media content couldn’t attract more customers. The apps, though very well
designed, just couldn’t generate enough traffic. Why weren’t things working? Well,
Yahoo’s biggest asset was that it had made the internet easy to use for normal
people back in the internet’s early days. But Google, Facebook and others were
doing that now, too. When Yahoo tried to do the same for mobile internet, Apple’s
iPhone and Google’s Android had already solved that problem for everyone. The
company hasn’t found its true purpose since. If Yahoo can target and solve one big
problem that technology users face today, then they might have a shot at future
success. In the meantime, the struggle to rescue Yahoo continues.
25:09
Conclusion
Final summary
The key message in this book: After explosive success in its early stages, Yahoo is
today struggling against its competitors and with the challenge of finding its true
purpose. Marissa Mayer, the company’s latest CEO, has given Yahoo some hope, but
has yet to create a roadmap for the company to regain relevance in the present and
for the future. Suggested further reading: #GIRLBOSS by Sophia Amoruso In
#GIRLBOSS, author Sophia Amoruso tells her story of transformation, from high
school dropout to CEO of a multimillion-dollar fashion empire. Whether starting a
business from scratch, building a powerful community or choosing the right
investors, Amoruso tells you what it takes to be a woman in business today. Got
feedback? We’d sure love to hear what you think about our content! Just drop an
email to [email protected] with the title of this book as the subject line and
share your thoughts! Cover image: © Yahoo
Mark as finished
00:00
-25:53
Marissa Mayer and the Fight to Save Yahoo!
Nicholas Carlson
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