Wednesday, July 27, 2016

Reflections on the demise of Yahoo!

By now we've all heard that Yahoo!'s web assets were bought by Verizon. According to the Wall Street Journal, Verizon paid $4.83 billion in cash for the assets. Yahoo itself will continue to hold the remaining assets but will eventually change its name and become an investment company. In total, the company was rumoured to be worth $6 billion.

For us Gen Xers this is an interesting day: we witnessed the end of a company we saw as innovative and fresh just a "few" (i.e. read ~20) years ago.

I was recently explaining to a young lad in his early 20s about life before the Internet: you had to find books at the library and it was almost impossible to connect socially with people beyond your classmates. So to use Yahoo or other search engines to access information or people was a completely new and mind-blowing concept.

As I noted in this post commemorating Google's 17th anniversary:

"It's especially memorable for those of us who were in university in the late 90s because we had access to high speed internet on campus unlike the painfully slow dial-up at home. 

I remember my first job as a coop student at the UW Federation of Students (I can't believe this quote is still hanging around from that time!) when a co-worker was explaining to me how OpenText was the best search engine (of course using my NetScape Browser). Of course back then there was a number of search engines including, Yahoo, Lyco, Alta Vista, etc. However, I stuck to OpenText for a while then eventually switched, along with everyone else, to Google...Well Lycos, OpenText (as a search engine) and AltaVista may be long gone, but it looks like plaid is back!"

So now we can add Yahoo! to the pile of "has beens" search engine.

Beyond nostalgia, I had the following reflections on the Verizon of Yahoo based on the WSJ article above:
  • Verizon is no longer just pipes: Verizon has a strategy to move beyond just serving mobile and broadband services. Verizon is adding Yahoo to its existing portfolio of content plays, such as AOL. For Verizon, it's an overall strategy to make billions through content and advertising. Net neutrality can potentially limit their ability to use this vertical integration to undermine competition, but regardless it shows how being a "pipes-only" company is not enough. Of course it is a bit ironic that former rivals, Yahoo and AOL, are now sitting in the same tent.  
  • Big Data is monetized at the expense of privacy: The ability of Verizon to combine the data plays between its various content plays is a great illustration of a point that I have noted before: for big data achieve value it must water down privacy. Since there are synergistic values (i.e. instead of just being additive) of combining the data, it could be argued that it's something that a user should explicitly consent because a user may simply not want Verizon to use their Yahoo data this way.  
  • Remember the Internet Bubble? Yahoo! had a market capitalization of "more than $125 billion at the height of the dot-com boom in early 2000", which is quite a steep decline to $6 billion. I wonder if it ever produced the cash flows to justify that valuation. 
  • Algorithms win over people: WSJ today published a good read comparing the algorithmic approach of Google, in contrast manual effort required to index the Internet. This is similar to Amazon's who found that the algorithms to better than humans in getting people to buy things: "Amabot replaced the personable, handcrafted sections of the site with automatically generated recommendations in a standardized layout," according to The Everything Store, a new book exploring the history of Amazon. "The system handily won a series of tests and demonstrated it could sell as many products as the human editors."
  • Innovation and exponential thinking: On a separate note, but related note Yahoo could have bought Google for $3B in 2002 but it didn't. It's a great example of how Google embraced leading-edge technology to deal with the exponential growth of the Internet and Yahoo's inability to recognize Google's approach as the winning approach led to its demise.

Yahoo! is now literally a shell of its former self - both in structure and the assets it holds. However, it's a good case study of how failing to identify exponential trends - and acting on them - can ultimately lead to disaster.

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