Why does Yahoo! fail?

How does the company that had more global visitors, more cash, more talent, and more dreams than anyone else in the Valley fall so far and fail so decisively?

I sat across the table from the management team of Yahoo! in December 2001 as they sought to buy our company, HotJobs, and got to know them over the next couple months.  Sue Decker is brilliant, Terry Semel is a wonderful, warm guy, and Jeff Mallett struck me as scarily smart.  With such wonderful people at the helm a decade ago, the most interesting question for Internetologists has to be::

Why does Yahoo! fail?

The standard arguments as to why Google beat them so thoroughly are pretty easy to brush off:

They were dumb.
Really? With all that dough and a head of HR from the cultural utopia of Southwest Airlines, they hired dumb people? That’s not what observation shows, nor does the success of Yahoos at their subsequent companies support this viewpoint.

They hired a non-internet old guy to be CEO.
In comparing the resumes of Semel and Schmidt in 2001, you can’t honestly call either a slam dunk or a “slam-down-the-phone”.  Schmidt, in particular, had just completed a run as the head of the latest company to fall victim to Microsoft, which hardly augured future world domination.

They failed to make / manage a critical acquisition that would’ve changed everything.
With the exception of Applied Semantics and Overture, neither company bought or failed to buy a company that wound up being key to their success or failure.

The unique stew that creates a culture of innovation and success at a web start-up never survives an acquisition unless the business is already large enough to stand on its own two feet and avoid “helpful” recommendations from Corporate. Yahoo! acquiring Google, or Google acquiring Facebook, would have killed the very thing that ultimately made them great. (YouTube is the exception that proves the rule, and is perhaps one of the best-managed acquisitions ever on the web.)

Both have failures in this area, whether its Yahoo!’s mishandling of Flickr or Google’s destruction of value with Dodgeball (where the Founder left to create precisely the 2.0 version of what, presumably, he’d hoped to build at the giant.)

Their products suck! Just look at 360, Music, Autos, Real Estate, or many, many others…
Yeah, like Wave, Google Video, Buzz, Orkut, Knol, Friend Connect…

They’ve got too much bureaucracy.
Like A/B testing the pixel-width of border lines.

The culture has sagged and the workforce is demoralized.
While true today, this is the result of Yahoo!’s failures over the past decade, not the source of them.

The Peanut Butter Manifesto from Brad Garlinghouse was right: Yahoo! tried to do too much and couldn’t do them all well, creating failure for lack of focus.
Google, too, has found its way into dozens upon dozens of products and features.  Google has one world-historically-great business, perhaps three good businesses, and a hundred bad businesses.

And, finally, Mark Suster advocates the Jerry was too nice” argument to explain Yahoo!’s failure.

True, the tales told of screwing early partners, screwing technical co-founders, screwing sick co-founders, and screwing early customers by Zuckerberg, Gates, Jobs, and Ellison do indicate a troubling preference for sociopathology on the way up, but could it really be that a nice guy can bring down the world’s most valuable internet company?

While all of these answers fit the facts for Yahoo! when looked at independently, none of them survive a comparative look at other successful Web properties during the same time period.  It is not simply doing too many things and becoming a jack of all trades and master of none, and it’s not simply that nice guys finish last.

These reasons don’t explain why Yahoo! fails.

The web business is a funny business – it takes 100 user observations to get something useful. 100 pageviews make for one click on an ad.  Looking at 100 home listings creates one call to the broker.  Reading 100 profiles on a dating site generates one email. Reviewing 100 flight options leads to one booking.

On the internet, it takes 100 observations to make one action.  This is the Rule of Two Magnitudes.

In order to get the user to make their 100 observations, you need their sustained attention and dedication to the task at hand.  Distractions work against you.

Think about your ow behavior. If you want to get a date, a flight, an apartment and read the latest news which course of action would you pursue:

Scan 100 headlines on a news site and read some THEN look through 100 profiles on the dating site THEN look through 100 flight options and THEN look through apartment listings on real estate sites, or….

Would you read one article, followed by reviewing one dating profile, followed by reviewing just one listing of a flight followed by reading one apartment listing THEN going back to read another article, another profile, another flight, and another apartment listing THEN repeating this 98 times?

Our human minds require time to focus and get into the context, so of course you’ll choose the first approach.

Now go to www.yahoo.com and then go to www.google.com and tell me which approach is better wired for the human brain? If homepages reveal organizational strucutre, what does each tell you about their respective visions for how to manage a human user’s interaction with the web?

While both actually give you ready access to search, email, shopping, news, video, calendar, etc., one is better aligned to how people think and take in information.

Yahoo asks the user to contemplate radically different activities within the context of their home page:
- Consume information in the form of news, gossip, horoscopes, which is cognitively different from…
-Showing fellow humans your intention to carry on a conversation, shop, look at their home for sale, etc., which is cognitively different from…
- Spending enough time consuming content like music or movies or books for a computer system to begin making inferences about what else you might like, which is cognitively different from…
- Shopping and spending time scrutinizing certain products but not others, which allows either a sales agent or a sales algorithm to determine what other physical good you might like.

The structure of the Yahoo! homepage lines up with a corporate strategy that is largely well-intentioned but nonetheless unintentionally at odds with how humans think and behave when it comes to information goods. It is at odds with the hierarchy of human cognition of information – intentions – inferences – interactions.

By contrast, Google’s early design choices, technologist’s phobia of flashiness, tremendous business success, and subsequent absence of a need to create other revenue streams at odds with their quirky Engineers’ Philosophy, led them to a strategy that, perhaps unintentionally, is better aligned with how we think.

Whether earned or not, their early success bought Google the luxury of an admirable stubbornness.  Their focus on Google’s mission — “to organize the world’s information and make it universally accessible and useful” — has meant they’ve inadvertently, and very, very profitably, focused on just one area of human cognition – the intake of information – while handing off the subsequent steps to their customers and charging a fee for it in the bargain.

For Yahoo!, it was not the amount of information they provide that hampered their success, but rather the many different kinds of information that they attempted to enable and charge for.  When monetization comes through ad clicks, jobs posted, girls flirted with, auctions posted, access to the internet paid for, stores maintained, or games purchased, you not only stretch your customers’ minds too far, you stretch your employees’ attention in too many different directions as well.  It becomes too easy to forget who your customer is.

As it turns out, Google’s motto about information was perfectly concentrated in just one layer of the information – intentions – inferences – interactions stack.  Now was that luck, or was that the entrepreneurs intuitively sensing that charging for intentions or inferences or interactions consistently led to sub-optimal readings in the data of the system? I’d argue it was done on purpose, but without consciously understanding the (very, very positive) implications of the strategy.

So the answer to “Why does Yahoo! fail?” is not simply that the company tries to do too many things with a genial king at the helm.

The answer to the question is that Yahoo! was doing too many different kinds of things, with too many different kinds of customers, and that when evidence arose that all of these different options, services, and properties made customers’ brains hurt, Yahoo!’s leadership did not have the kind of rude willpower or abrasive insight to refocus on just those things that its customers could understand.

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  1. Christopher Harvey says:

    I worked at Yahoo from 2000 to 2004. Yahoo has failed/is failing for many reasons.

    I'd say that Marc nails one of them here. Yahoo was trying to do too many kinds of things and failed to realize this and change.

    I think this is also a case of how an EBTKS (everything-but-the-kitchen-sink) strategy worked during the early days of the Internet, but later as the Internet matured other companies developed set niches and category-killers. Yahoo, the generalist, was unable to keep up with the specialists. And if leadership realized it, they didn't have the guts to make the tough calls.

    The other big problem at Yahoo was cultural. When I began there in 2000, there was still a freewheeling spirit in the halls. Have an idea for a feature or product? Go, do it right now! And you could. No need for committees and reviews and powerpoints.

    Then came the tech crash of 2000/2001. Semel came in and brought a lot of controls and adult supervision which, honestly, the company needed at the time. But when Yahoo reached the other side of the crash it retained its risk-averse ways rather than dream and reach. Soul-crushing powerpoints, power struggles and aversion to unpleasant change became the norm. And innovation suffered.

    You can see the results. Yahoo is the new AOL.

  2. mcenedella says:

    Thanks for the fantastic comments, Chris. EBTKS is indeed a great go-to-market strategy during a period of high innovation, but then the entrepreneur's job becomes trimming it down to just those successful things.

  3. “When monetization comes through ad clicks, jobs posted, girls flirted with, auctions posted, access to the internet paid for, stores maintained, or games purchased, you not only stretch your customers’ minds too far, you stretch your employees’ attention in too many different directions as well. “

    This line makes me think of my past experience with IBM. IBM focused on many things but the vision always connected 400,000 IBMers to work towards a one goal — A Smarter Planet.

    Yahoo still needs a vision, having various different workstreams isn't a bad thing from strategic perspective.


  4. Yahoo's servers and programs are unreliable and finicky, that is the main problem I have with them. Their layouts are inane and confusing, but they just generally suck at programming. Google beat them because Yahoo products are inferior and less reliable in basically every way. All of their 'cool features' just plain don't work half the time, and I literally mean HALF the time. I can't tell you how often Yahoo profiles went down, inexplicably, for days on end.

  5. Nice article guys…………..

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