Yahoo’s booboo

The overdue departure of the overcompensated Terry Semel as chief executive of Yahoo represents not only the definitive end of Web 1.0, but also a valuable lesson to other companies thinking they can successfully create undifferentiated, monolithic brands on the Internet.

Although Yahoo got off to a great start as one of the premiere web directories in the pre-Google era, it followed the now-discredited lead of America Online by stretching far beyond its core competence to become a “portal,” a jack of all trades offering not just search, but also horoscopes, email, classified ads, news, picture hosting and everything in between.

In its quest to be something to everybody, Yahoo ceased to be particularly good at anything for anyone. And, thus, it lost its way, putting its stock into an 18-month slump and leaving itself open to a take-over – hostile or otherwise.

Among the company’s strategic blunders, as noted in this excellent article by the Associated Press, was ceding search leadership to Google, which it could have bought for a mere $5 billion as recently as 2002. Today, Google, whose market capitalization is $160 billion to Yahoo’s $38 billion, makes more money in a quarter than Yahoo earns in a year.

Rather than sticking to the business that put it on the map, Yahoo until recently had strayed so far from its roots that it actually subcontracted its search function to Google. It attempted to reclaim its search advertising business only last fall with the launch of a home-brewed system that continues to sub-perform Google’s commanding pay-per-click search engine.

Beyond the mistake of forsaking search, Yahoo over the years entered one online business after another with scarcely a vision or a plan, much less a cohesive approach to capitalize on the disparate initiatives.

In so doing, Yahoo became the archetypal Web 1.0 company, grabbing eyeballs as fast as it could in hopes that the rapidly growing number of people newly attracted to the Internet would develop lifelong loyalties to its services.

While this worked for a while, it didn’t last long, as increasingly sophisticated users recognized that they could go one place for shopping, another place for videos and someplace else for email. Innovation was rapid, the barriers to change, nonexistent, and loyalty, if there ever had been any, was a relic of the past.

Thus, we entered the era of Web 2.0, an environment so thoroughly disbursed and democratized that people had a limitless choice of cheap, if not free, content and services. If they didn’t like what they saw, they could fairly well create something of their own.

Yahoo, which in retrospect stands clearly as the first geezer media company of the Internet, failed to grasp the changes in the marketplace, much less adapt intelligently to them.

“We lack a focused, cohesive vision for our company,” said Brad Garlinghouse, a senior vice president of the company in a leaked memo last fall that became known, for obvious reasons, as the Peanut Butter Manifesto. “I've heard our strategy described as spreading peanut butter across the myriad opportunities that continue to evolve in the online world. The result: a thin layer of investment spread across everything we do and, thus, we focus on nothing in particular. I hate peanut butter. We all should.”

His memo also contained valuable cautionary words for other media companies – old and new – who are struggling to stay focused in an era of rising competition and competing opportunities.

“We are reactive instead of charting an unwavering course,” he said. “We are separated into silos that far too frequently don't talk to each other. And when we do talk, it isn't to collaborate on a clearly focused strategy, but rather to argue and fight about ownership, strategies and tactics.”

For all its resources, Yahoo couldn’t get its act together. Even if you like peanut butter, don't let this happen to you.