Lessons from Yahoo’s Demise

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Lessons from Yahoo’s Demise

July 27, 2016 -

While the country focuses on the Democratic and Republican National Conventions, Wall Street finds itself immersed in third quarter earnings reports. Amidst the usual news of companies both missing and exceeding analysts’ expectations, a rather remarkable acquisition was announced this week when Verizon agreed to buy Yahoo. One of the most iconic brands of the 90s dot com era, Yahoo had struggled for years to find its footing in the ever-changing world of Silicon Valley. This is the brief story of their demise and what leadership lessons we can learn from it.

Jim Collins book How the Mighty Fall chronicles companies that fail, offering a paradigm for the “Five Stages of Decline”: 1) Hubris Born of Success; 2) Undisciplined Pursuit of More; 3) Denial of Risk and Peril; 4) Grasping for Salvation; and 5) Capitulation to Irrelevance. Yahoo’s troubles can be traced through Collin’s framework.

At the height of its prominence, Yahoo was valued at $125 billion. That was back in 2000, right before the dot com bubble burst in 2001. It was popular for its email service and its search capabilities, functioning as an “all in one” internet portal with its diverse offerings all accessible through its home site. Over the next several years, though, the internet changed in two monumental ways: first, through the growth and refinement of “search”, and second, through the rise of social media. Google and Facebook emerged as the two leading powerhouses representing those phenomena, but it’s easy to forget that Yahoo had an opportunity to buy both companies for around $1 billion each in the early 2000s.
In business, it’s difficult to catch up once you’re behind, which is where Yahoo’s strategy to be an “all in one” internet portal comes in. While they wanted to continue to expand and grow into different markets, they struggled to identify their core purpose. Jack Nicas of the Wall Street Journal describes this struggle using an example from one of the company’s leaders at the time, Brad Garlinghouse: “Mr. Garlinghouse said Yahoo’s fluctuating strategies often confused employees. He recalled asking managers at a retreat in 2006 the first word they thought of when he named a company. Google, eBay and others yielded clear answers—”search” or “auction.” Yahoo didn’t. Managers said “mail,” “news,” “search,” and other things.”

Can you see the massive problem there? In the middle of a confluence of powerful internal and external changes in the internet industry, Yahoo’s own leadership couldn’t even define their central raison d’etre. Garlinghouse penned a famous internal memo at the time that would come to be known as the “Peanut Butter Memo”, where he compared the company’s struggles to being spread too thin, like too little peanut butter over a slice of bread. The company failed to be galvanized by Garlinghouse’s Jeremiad, however. The financial downturn of 2008 would provide the company with another external challenge to blame for its own failures, and soon thereafter Yahoo would turn to Melissa Mayer as a last-ditch effort to save the company.

Much of the blame is being laid at her feet, and while her brash, risk-taking management style didn’t help matters, by the time she arrived in 2012 the company was already well into the advanced stages of decline. A company once valued at $125 billion in 2000, who declined Microsoft’s $44 billion offer in 2008, ended up settling for a meagerly (in comparison) $4.8 billion bid from Verizon. Poor management, lack of clear identity, and failure to be excellent ultimately brought the company to where it is today, a sad lesson that belongs in How the Mighty Fall.

At the beginning of the book, Collins says: “There are more ways to fall than to become great.” This maxim goes beyond business and leadership. Applied to our personal lives, we can learn from Paul’s exhortation to his young disciple in 1 Timothy to remain faithful to the Gospel above all else: “The aim of our charge is love that issues from a pure heart and a good conscience and a sincere faith. Certain persons, by swerving from these, have wandered into vain discussions…” (1:5-6) Later in the chapter, Paul says that “some have made shipwreck of their faith,” (1:19) by becoming distracted with other things than following Jesus.

In life and in leadership, it is easy to lose sight of the central purpose. Distraction is all around us. Often our choice is not between what’s good and what’s bad, but between what’s better and what’s best. In distracting times such as these, we need to pray more fervently than ever for faith to remain steadfast.

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