The story of Yahoo's shifting strategy
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In 1998, when Tom Hall did the first round of research for what would become Ruthless Focus, Yahoo was the "Darling of the Dot Coms." Success seemed inevitable. But it wasn't.
David Filo and Jerry Yang started Yahoo while they were working on their doctoral dissertations at Stanford in 1994. Business wasn't the idea.
Jerry Yang wanted to find everything on the web. That seemed possible back then. He created "Jerry Yang's Guide to the WWW." He and Filo split the site and the search engine between their two servers.
Yang's guide became wildly popular. It was so popular that soon they had to move it to new computers because it overloaded the Stanford system.
That was the Era of Dot-Com Mania. Yang and Filo were at the epicenter of it all. People were throwing money at anything internet in those days, and they threw some of it at Yahoo.
They brought in Tim Koogle to add some business savvy. Koogle was an engineer, and he was slightly older than Yang and Filo. His main credential was that he had worked at Motorola. That seemed like it was enough.
Yahoo went public in April 1996. The stock price shot up 154 percent the first day.
Within a year, Yahoo was getting more traffic than its top three competitors combined. Everybody, it seemed, wanted to advertise on Yahoo. It looked like it was in the advertising business.
When the first luster of internet advertising wore off, Yahoo started having trouble. In early 2001, they told financial analysts they would not make projections. In March 2001, Koogle announced he was leaving.
Only weeks later, Yahoo hired Terry Semel. He had run movie studios successfully. They said he was perfect for Yahoo because Yahoo was a media company.
Semel lasted six years. By then it was clear that Yahoo, the media company, wasn't doing so well. Founder Jerry Yang took over as acting CEO. Here's how things stood then.
Yang and Filo didn't start out to make Yahoo a business. It became a business because people gave the two men an awful lot of money to make it a business.
To their credit, they brought in people with some business experience who should have made some clear choices. But Yahoo drifted from a search engine with no real business plan to a company that made money from advertising to a media company.
If Yang and Filo had started with a clear idea of what kind of company they wanted, the story might have been different. Even if Yahoo did get into trouble, the company could do what Chico's and Apple did: bring back the founder and rediscover the core business.
But no one, including Yang, seemed to have a clue about what Yahoo really was or what it ought to be. That was painfully obvious in June 2008, when Jerry Yang was interviewed by Wall Street Journal technology columnist, Walt Mossberg. Here's the exchange.
Mossberg: We know what the business of General Motors is. We know what the business of Apple is. What is the business of Yahoo?
Yang: We want you to start your day at Yahoo. That is homepage, that is mail, that is search, that is mobile. That is an incredibly powerful position that happens to be a position that we occupied for a lot of our history. That's our consumer goal, dream, aspiration.
What Yang described is all very wonderful. It's just not a strategy. It didn't answer the two important questions:
How are we going to beat the competition?
How are we going to make money?
Now Carol Bartz has been the CEO for more than a year and a half. She comes with a great track record. And she's been busy.
But there still doesn't seem to be a coherent strategy. Maybe that will come but right now it looks like Yahoo has a bundle of strategies and no clear way to tie them together.
Check out, Ruthless Focus, at Amazon.
Posts about Ruthless Focus
Ruthless Focus: How to use key core strategies to grow your business
The Story of the Book
Annotated Table of Contents
Keep it Simple, Strategist
Strategy: Staying with What Works
Ruthless Focus on the Business Basics
Theo Albrecht, Trader Joe's, and Ruthless Focus
Ruthless Focus: What about Toyota?
Ruthless Focus: Three Kinds of Crisis
Tom Stemberg, Staples, and the Two Strategy Questions
How Doing Acquisitions is like being a Fighter Pilot
Learning about Differentiation from Barbeque
Danger, Trader Joes!
Categories: Ruthless Focus, Strategy, books
Tags: Ruthless Focus Strategy Books
'We want you to start your day at (with?) Yahoo.'
Maybe he meant Yoo-Hoo, the chocolate drink
Great story - I love reading your company snapshots. Very entertaining and informative. Thanks!
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Thanks for those kind words, Anna, and for the reminder of Yahoo the drink. Made me think of Yogi Berra.
And thanks for mentioning the snapshots because it allows me to make this shameless plug. If you like the company stories, then you'll probably like Ruthless Focus. It's based on twenty-six stories, including the Yahoo story in this post.
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Well, if the company is profitable, does it matter whether they have a clearly defined strategy? (I don't know that Yahoo is profitable.) Just wondering.
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Thanks for adding to the conversation, Heath. I don't think it matters at the moment. But one purpose of strategy is to help you know what to say "no" to. Another is to help you identify things that are worth trying. That's all essential if you want long term competitive advantage and profitability.
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Great post and food for thought - as always, Wally!
I like the idea of a bundle of strategies - and dislike the idea of one strategy for several reasons.
Seems to me that 3 Cs could tie these strategies together dynamically - for new treks to the peaks.
1. Curious - so that people stay open to new discoveries, and 2). Committed - to innovative inventions needed to lead the business forward, and 3). Caring - so that workplace well-being leads to higher productivity.
What do you think?
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Hi Ellen. I think we disagree. It seems to me that "tying" strategies together is an idea that doesn't work for most businesses. Each strategy increases the complexity and, therefore, the effort and attention it takes to make things work.
In Ruthless Focus, we write about the two common forms of multi-strategy businesses. Holding companies, like Berkshire Hathaway don't have the problem because, while they have several businesses, they make no effort to coordinate their strategies. Each one stands on its own.
The other form is the conglomerate. The ones that work, even for a while, usually do so under the leadership of one talented and totally devoted person. An example is ITT under Harold Geneen.
The one big exception in US business is GE. They're a special case because they've been around so long. I maintain that what ties GE together is a culture that's developed over more than a century including obsessive concentration on developing leaders.
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Quite a few companies have a 'strategy' that sounds like, 'We want you to start your day with us' or 'Increase revenue by 10%.' You're right, that's not a strategy. It's more like something you should say when you see a shooting star.
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That definitely got me chuckle, Laura, thanks. Creating a strategy is not the same as planning. It involves answering two key questions. How are we distinctive? How will we make money from that? If you have the answers to those questions, planning can take over.
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