Three Innovation Missteps that Sunk Yahoo

Two guys in a trailer cluttered with pizza boxes on Stanford’s campus, crawling the Internet looking for new websites.  This is how Yahoo came to be.  It was a card catalog for the expansive information library that the World Wide Web was fast becoming.  And users quickly saw the value.  It was a fast, free way to find what one was looking for online.

Fifteen years later, Yahoo was languishing.  They had lost users, focus, and lots and lots of money.  They blamed their competition for this.  They envied Google’s sophisticated search technology.  Seeking to capture some of this magic, they hired from Google’s ranks. 

Marissa Mayer was brought in from Google to be Yahoo’s CEO in 2011.  She is a computer scientist with expertise in complex algorithms and artificial intelligence.  Her mission in this role was to reignite revenue for Yahoo. 

Unfortunately, Mayer brought a predictive mindset to the task at hand.  She attempted to pick winners and guess where the market was moving rather than create markets.  Looking at her tenure there were three primary missteps.  Had she been an effectual thinker, she might have approached these areas differently:

1. A focus on what Yahoo wasn’t instead of what they were.  

Mayer was to bring what was working in Google to Yahoo.  By adhering to this idea, she ignored a lot of what made Yahoo unique and its valuable internal assets.  Yahoo’s founding was rooted in both science and people.  They applied scientific logic to create search catalogs, but Yahoo was driven by human decision-making.  The employees felt strong ownership and saw a role for themselves in developing a catalog that made sense. 

Mayer attempted to replicate and squeeze into Yahoo a Google “best of” compilation.  This left committed Yahoo employees feeling frustrated and undervalued, diminishing their contributions over time.  It also led to the discarding of what made Yahoo unique in a quest for making them “just like”.  

2. A strategy of picking winners rather than creating markets.

Mayer went on a buying binge at Yahoo.  Polyvore, Tumblr, Summly, even a stake in the Chinese marketplace Alibaba were all purchased.  Most failed to be adequately integrated.  None were fully optimized.  

Yahoo never fully took on the role of making these acquisitions successes.  All told, these fifty-three or so acquisitions cost Yahoo about $2.5 billion – and that was more than they could afford to lose.  Mayer left Yahoo with no runway for innovation trial and error and exposed their vulnerabilities for a takeover.  

3. A “Build it and they will come” focus instead of a user, or better yet, customer, focus.

This is an area Yahoo has struggled with since its inception.  They had users – lots of them - but were late to the game with monetizing them.  Only after expense and VC pressure was applied were the initial founders focused on extracting revenue from their model.  Prior to that, Yahoo’s search cataloging was a hobby and then a free user based community.  

Yahoo never had a revenue model that captured the uniqueness of what they had to offer.  They jumped into the advertisement model since that was the main monetization path at the time.  But there was never a direct correlation between those who got the most value from the site and those who paid. 

Mayer took a predictive approach and attempted to guess what Yahoo users wanted and would pay for.  She placed some big bets.  In the end, she was wrong.  Only after they built things did they seek to monetize them, rather than constructing commitment based relationships that would guarantee revenue.  

We all know how this story ends – Verizon purchased Yahoo for $4.8 billion three days ago, on July 25, 2016.  For Mayer, the ending wasn’t all that bad.  She’s walking away with around $50 million reportedly. 

For the rest of Yahoo’s employees, their future is more uncertain.  But they have talent.  And they have networks.  If they combine this with effectual thinking, we might see some innovations from this group after all.   

--Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LLC