John Gruber wrote a very good piece on Yahoo’s decline.
I would argue that Yahoo lost its way early. Yahoo was an amazing, awesome resource when it first appeared, as a directory to cool websites. Arguably, the directory to cool websites. It was hard to find the good stuff on the early web, and Yahoo created a map. Their whole reason for being was to serve as a starting point that sent you elsewhere.
Then came portals. The portal strategy was the opposite of the directory strategy — it was about keeping people on Yahoo’s site, instead of sending them elsewhere. It was lucrative for a while, but ran its course. And it turned out that the web quickly became too large, far too large, for a human-curated directory to map more than a fraction of it. The only way to index the web was algorithmically, as a search engine. And one search engine stood head and shoulders above all others: Google.
Yahoo reportedly had an opportunity to buy Google in 2002 for $5 billion. Yahoo, under the leadership of CEO Terry Semel, declined. And that was the end of Yahoo. We all know hindsight is 20/20. There are all sorts of acquisitions that could have been made. But I would argue that acquiring Google in 2002 (if not earlier) was something Yahoo absolutely should have known they needed to do. The portal strategy had played itself out. All they were left with was their original purpose, serving as a starting page for finding what you were looking for on the web.
Buying Google in 2002, at whatever cost, was the only way for Yahoo to return to those roots. Google wasn’t just something shiny and new — it was the best solution to date (even now) to the problem Yahoo was originally created to solve. In a broad sense, buying Google would have been to Yahoo what buying NeXT was to Apple in 1997: an acquisition that returned the parent company to its roots, with superior industry-leading technology and outstanding talent.
This highlights the importance of having a leader who understands the essence of a company, not just what the company does on the surface. Whichever Marissa Mayer might be, it is probably too late to turn things around.
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