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David Filo and Jerry Yang started Yahoo in a trailer on the Stanford University campus, not far from the famous garage where Hewlett-Packard got started. They turned it into the most popular search engine on the planet and a business that looked like a sure thing, for a while.

As I look back on the history and development of Yahoo, what jumps out at me is that the company does not seem able to do the right thing on purpose. That goes right back to the beginning.

Yahoo didn't start out to be a business. Dave Filo says he was trying to find a way to catalog sites he found on what was then the brand new World Wide Web. Jerry Yang says they just wanted to avoid working on their doctoral dissertations.

However it happened, they got together and created "Jerry Yang's Guide to the WWW." They put it on their computers and the network for everyone to see and to use. The idea was to help people find what they wanted on the web.

That was in early 1994. Hardly anyone was on the web then, but those of us who were recommended their site to everybody we knew.

We thought it was great. Filo and Yang thought it was fun. At first the site, which looks amazingly like the current Google interface, lived on Yang's workstation while the search engine was over on David's. The two computers were named after Sumo wrestlers.

The site drew lots of traffic to the Stanford network. So, pretty soon the site, now named Yahoo, was moved to computers at Netscape Communications. Traffic kept going up.

That was just about the time when it began to dawn on people that you could make money helping people find things on the web. Within a bicycle ride of where Yahoo was set up, Infoseek was getting underway. So was Excite, which was called Architext back then. Don't remember them? Don't worry

So Filo and Yang got into the swing of the dot-com thing and acquired some venture capital. They went out and found "adult supervision" in the person of Tim Koogle, a slightly older Stanford-trained engineer who'd spent time at companies like Motorola. Don't remember him? Don't worry.

When Yahoo went public in April 1996, its stock shot up 154 percent on the first day of trading. It was the start of a wild ride. Within a year, Yahoo was getting more traffic than its top three competitors put together

Dot-com companies rushed to advertise on Yahoo. Old economy advertisers joined in. Yahoo took the money and went off on a buying spree, snapping up companies like GeoCities and talking seriously with other Internet stars like eBay.

But if you looked closely you could spot some clues that there were problems ahead. One big clue was that the management teams of companies that Yahoo bought didn't stick around for long. You can understand why if hear the story of Tom Evans.

Evans was the CEO of GeoCities when Yahoo bought them. He was a media business vet.

Before GeoCities, he ran companies like US News and World Report and The Atlantic Monthly. That didn't impress the people at Yahoo. They wanted him to take a position far from the top of their org chart.

Even worse, they didn't want to hear what he knew. And he knew the things you learn by being in business for a while and going through a business cycle or two.

If there's a business that's cyclic, it's advertising. The revenues go up and down with the economy and with the fads of the industry. Evans knew that from experience. He warned Jeff Mallett, Yahoo's President at the time, about that.

According to the Wall Street Journal, Mr. Mallett responded by exploding in anger and telling Evans, "You don't get it. You're old media."

Old media or not, Evans was right. But by the time the chickens of the advertising cycle started coming home to roost, Evans and his knowledge were long gone.

The problem was that there was an inner circle and there was everyone else. It was a bit like the Boston society described by J. C. Bossidy in his famous toast, "Where the Lowells talk to the Cabots; and the Cabots talk only to God."

When management teams get that way, they think they can do no wrong. A quote from Mallett shows how Yahoo insiders saw themselves: "Companies have come to see us as the hub [of the Web."

That's a sign of hubris. And hubris is followed by nemesis.

In early 2001 Yahoo issued an earnings warning. They told investors that they projected revenue between one-hundred-seventy and one-hundred-eighty million dollars in the first quarter of the year. That was just a tad more than half of the three-hundred-twenty million they originally forecast.

To make things worse, the dot-coms where Yahoo got most of its revenue and profit, were suffering their own problems. Many went out of business. The ones that survived saw their funding sources dry up like a puddle on hot asphalt pavement.

In March of 2001, CEO Tim Koogle announced that he was leaving so Yahoo could bring in an outsider to fill his post. Jeff Mallett would not get the job.

Only weeks later, on April 17, Yahoo announced that it had hired Terry Semel to be the new CEO. His main claim to fame was that he had run movie studios. There was no technology experience. There was no advertising experience.

Now, six years later, Terry Semel is headed for the door and Microsoft is threatening to buy the door. By now Terry Semel is probably back in Southern California where lots of Yahoo people think he wanted to be all along.

They note that he often spent weeknights in a hotel suite in San Francisco, not close to the Yahoo offices. He flew home to Southern California on weekends. In 2004 he set Yahoo to building a large and expensive facility in Santa Monica, the better to be close to the movie business.

He never seemed to get interested in the technology that makes Yahoo run. And he never got the fact that in the internet world, the technology is important.

At the same time, Yang and Filo and others at Yahoo seem to have decided that that hadn't listened to experience people before and things had gone bad. This time it would be different.

They seem to have decided that they'd follow Terry Semel even if he led them into the Valley of Death. So six years after Terry Semel showed up, Yahoo still has more traffic than anyone on the web, but it doesn't have the technology or programs to turn traffic into money.

When I step back and compare Yang and Filo with Larry Page and Sergey Brin of Google, there's one key difference that leaps out at me. Page and Brin have always treated Google as a business. Yang and Filo seem to see Yahoo as a way to do things they think are fun and avoid those dissertations.

If Microsoft is going to make something good of this, it's going to have to move fast. The waves of visitors won't last forever if Yahoo doesn't keep up with the competition.

The good people who are still at Yahoo are tuning up their resumes as you read this. They know that takeovers are nasty, Microsoft has a compete-like-a-piranha culture and they haven't shown any ability to get anything right about business on the web. Not exactly the sort of folks you'd want taking over your web business.

I don't know for sure how this will come out or even if it will come out. The Justice Department is yet to be heard from. But I figure the big winner will be Google.

Acquisitions, especially hostile ones are notoriously nasty undertakings. Raise that to a power if you're trying to mix very different cultures like the ones at Yahoo and Microsoft. By the time the melding is done there will be oceans of blood on the floor and probably a less successful Yahoo than today.

In the meantime, keep your eye on the Google boys. They've always thought this was a business.

Wally's Working Supervisor's Support Kit is a collection of information and tools to help working supervisors do a better job. It's based on what Wally's learned in over twenty years of supervisory skills training. Click here to check it out.

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Wally Bock has helped people learn to be great bosses for more than a quarter century. His latest book, Performance Talk: The One-on-One Part of Leadership, makes learning key leadership principles almost effortless by teaching through a story and providing lists of resources for further growth.

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