Would one bet have changed the course of internet history? Former Yahoo! CEO Marisa Mayer recently gave one of her first interviews in years, and one of her most eye-catching comments was that – instead of buying social media site Tumblr – Yahoo! should have bought a streaming service such as Netflix or Hulu.
“We looked at a transformative acquisition, and we bought Tumblr. At the same time, we were also considering whether it was possible to buy Hulu or, ironically, Netflix,” she told Emerging Tech Review. “And I think Netflix was $4bn and Hulu was at $1.3bn at the time. And either of those, with hindsight being 20/20, would have been a better acquisition.”
Given Tumblr’s precipitous decline from beloved hangout for the quirkier segment of the online to a social media has-been, it might seem like a sensible bit of hindsight. And yet, Yahoo!’s track record suggests that it wasn’t choosing acquisitions that was the problem; it was how the company managed them. Indeed, that was true for the business as a whole which fell all the way down from internet leader to something of an industry joke.
Yahoo!’s market cap peaked at around $120bn at the turn of the century. But, like everyone else, it suffered during the dotcom bust. When Mayer took over, it was valued at $19.4bn, which rose to $37.6bn in 2016 over her first three three years in charge. But that rise was largely due to its 15% stake in Chinese eCommerce giant Alibaba. So when Yahoo!’s core business was sold to Verizon (which had bought AOL only a year earlier), the price tag for Yahoo! without its stakes in Alibaba and Yahoo! Japan was suddenly less than $5bn.
Of course, you could argue that Yahoo!’s biggest failure was simply not being as good at search as Google. But that misses the many opportunities the company had to use its strong position to excel in numerous other parts of the internet revolution. Here’s a look back at some of the many mistakes that turned Yahoo! from internet behemoth into an also-ran.
Bought for $1.1bn in 2013, Tumblr originally started as a short-form blogging platform launched by David Karp when he was 20. It quickly, however, evolved into a social network with a character very different to then-competitor Facebook.
Much of that character was the interactive sharing and reblogging of content, which not only developed a dedicated user base but also fed into social content on other networks. Many, many memes that broke out into the wider world started life on Tumblr.
The other defining feature of Tumblr, however, was pornography, a lot of it, and in a way that was embedded into the broader community. That Yahoo! seemed unaware that porn was a core part of the social network it was buying was farcical enough but, if anything, its response to finally realising was even more ludicrous.
Scared of the impact on advertisers and its broader reputation, Yahoo! banned porn on Tumblr… and almost immediately its number of users fell by a third. It wasn’t just about the content itself, but the signal it sent to a user base that didn’t see much of itself in Yahoo!.
Acquired by WordPress owner Auttomatic for just $3mn in 2019, Tumblr is now attempting to rebuild. It launched an interesting and entertaining ad feature last year that allowed users simply to push their posts into random strangers’ feeds. That at least tallied with the network’s previous anarchic vibe, but there seems little chance the network will ever again play such a central role in the social ecosystem.
Flickr began as something of a happy accident, a feature built for another product that creators Stewart Butterfield and Caterina Fake quickly realised was a better bet than what they had been working on. It rapidly became the go-to online photo-sharing service, providing a storage solution and a network effect that solved numerous problems.
Yahoo! bought Flickr for $25m in 2005. At first things seemed to go well, the infusion of cash, and in particular capacity to store photos, giving the service a boost. The fact that Yahoo! was more interested in the implications of having a huge annotated image library for its search battle with Google was a culture clash problem. But it also meant that keeping Flickr growing and thriving was key – even if that goal was slightly undermined by requiring all users to sign in with Yahoo!
However, when things started to go really wrong with the mobile app revolution. Flickr was in pole position to build one of the first integrated apps that used a phone camera to seamlessly take, save, organise and share images.
But, as one former executive told Gizmodo back in 2012, the development of Flickr’s app was driven almost entirely from the central Yahoo! team: “Flickr was not empowered to build its own iOS app—or any other mobile app for that matter. You had this external team with strong opinions as to what the app should do.”
The launch was a disaster: the app lacked functionality and created huge friction for users. Meanwhile, other apps which actually made taking and sharing photos easy (not least Facebook) stole a march. Flickr was bought by photo firm SmugMug for an undisclosed amount in 2018.
Geocities, Delicious, Blink…
There are plenty of reasons why Yahoo! gained a reputation as the digital place where startups go to die. Much loved, promising businesses such as bookmarking service Delicious, weblistings/nascent social network Geocities (once the third most visited site on the web) and ephemeral messaging service Blink – to name just three – all disappeared into the corporate giant.
Much of it was simply down to a corporate structure that was unable to give innovative products and teams the space to keep doing what they had been so successful at. But, arguably, those problems were exacerbated by Yahoo!’s mixed-up vision for what it itself wanted to be.
In 2014, Mayer said that the company’s future involved bringing a diverse range of services all under one roof, that roof being Yahoo!’s own app: “Once the user’s in that app experience, the easiest thing to do is stay in that app experience. That’s one reason we wanted to make our app a little more fully-featured.”
The problem was that, instead of making flipping between services seamless, funneling users through Yahoo! added friction, and the implementation often failed to match the ambition, while hurting aspects of the original services designed to add value to the overall Yahoo! experience.
Yahoo! also had a shot at being the kind of dominant consumer email provider that Gmail has become. There are relatively complicated technical infrastructure explanations for its slowness to innovate in email (and elsewhere) but the key takeaway is that, while Google built a framework for its services that anticipated growth and adaptation, Yahoo! was stuck dealing with its existing architecture, which meant slower rollouts and duplication of work.
Then, of course, there was the PR battle, and one major mis-step didn’t help. In 2016, it was revealed that Yahoo had secretly built a system to scan all incoming messages to Yahoo email accounts on behalf of US security services. That went far beyond what any major tech company had done before, and both Google and Microsoft were able to say they weren’t carrying out mass surveillance (of that kind) on their email users.
Now, Yahoo! has around 225m active email users, compared with Google’s 1.5bn+.
Activist shareholders pushed Yahoo! to sell part of its stake in Alibaba back in 2012 in a deal arranged just before Mayer became CEO. Yahoo! had paid $1bn for 40% of the Chinese eCommerce firm, and selling half of that back to the company netted what seemed like a healthy $7.6bn when Alibaba shares were trading at $13. Yet, within two years, Alibaba’s IPO saw the share price hit $68. Ouch.
By the time the separate vehicle containing Yahoo!’s stake in Alibaba and Yahoo! Japan (created when Verizon bought the rest of the business) was sold, Alibaba shares were trading at $181bn and the sale made around $40bn. Of course, by then none of that money was going back into the rest of Yahoo!, and what might have seemed like a great money-maker back in 2012 was, with hindsight, a terrible deal.
Wrong road or wrong driver?
Despite these many mistakes, Yahoo! Is still actually a pretty big business. It is ranked no.13 in the world’s most visited sites , according to Similar Web, and generated revenues of around $8bn last year. New owner Apollo Global Management, which paid Verizon about $5bn for Yahoo! in 2021, reportedly plans to sell off what remains of its smaller publishing sites such as TechCrunch and Engadget, and focus on email, Yahoo! Finance and Yahoo! Sport.
But, while Yahoo! has arguably proved more enduring than some other tech big beasts, it has left behind it a graveyard of once-promising startups run into the ground, and the company is no longer in the running to shape the internet in the way it once was. That’s down to making consistently bad decisions over the past two decades or so. It’s hard to believe that buying a streaming service would have made much difference to the Yahoo! story.