Don’t cut entire divisions. Project Alpha sought to reduce Yahoo’s workforce by cutting whole divisions from the company rather than examining the work of each employee in each group and identifying the poor performers who should go and the high performers who should stay, even if that meant moving to another group. When Mayer heard that, she couldn’t believe it.
The worst part was, every quarter, managers would guide their teams toward collective goals, and then, even if all of those goals were met, they had to single out a few people and tell them they had missed expectations. Somebody always had to “occasionally miss.” Even if no one ever missed.
The birth of Yahoo. Finally, one of those two students. David Filo, made a list of all the sites he liked. He shared it with his friend Jerry Yang who also made a list. Filo combined the lists and in early 1994, Yang published the list on a web page hosted for him by Stanford. By September 1994, the site had two thousand links on its site and was getting fifty thousand visits per day. By then, Yang had begun organizing the links on the site into nineteen different categories, from Computers to Art to Business.
Yahoo held its initial public offering on April 12, 1996. The 151 percent IPO spike was $848 million. That meant the company was worth $808 million more than the valuation at which Masayoshi Son and Softbank bought in three months before.
Yahoo could have bought eBay for nothing. In 1999, Yahoo had been close to acquiring online auctions start up eBay. eBay’s board and Yahoo’s board approved the deal, but it fell apart when Mallet demanded that eBay’s CEO, Meg Whitman, report to him.
Listen to your customers to decide where to focus. It was the height of the Jeff Mallett era, when he was using “click-finding” to decide in which “pods” he wanted to invest to build products and services for users coming to Yahoo.com. When Mallett found an activity Yahoo users liked to do, he would decide whether or not Yahoo should build a product around that activity, buy a company that made that product, or partner with one that made it. For example, in the case of email, Mallett had decide to buy. So Yahoo bought a company called Four11 for $94 million and used its technology to launch Yahoo Mail.
How Google destroyed Yahoo in search. The Google logo on every Yahoo search was free advertising. It let consumers know why Yahoo search had suddenly gotten better: this thing called Google. Millions of web users went to Google.com and never came back.
There are a million reasons why Yahoo lost to Google in search, but there’s also just one reason why: Yahoo put the ads on its search results pages in the wrong order. Google put the ads on its pages in the right order. Ads were typically sold on an “impressions” basis — actually, on a per-one-thousands-impressions basis, also know as a CPM (cost per mille). They were sold that way because TV, radio, and print ads were sold that way. Then, in 1998, and entrepreneur named Bill Gross created GoTo.com, which would become Overture. Instead of charging advertisers on a per-impression basis, he thought it would be a better idea to charge them on a cost-per-click (CPC) basis. He was right. Overture, and then Yahoo, would arrange the ads on the search results page from top to bottom in the order of which advertisers were willing to pay the most per click. It was a straight auction for every keyword. To the highest bidders went the top, most valuable slot.
Ads are a winner take all market. One reason that happened was that as Google added market share, search marketers decided to quit splitting their budgets between Yahoo and Google and concentrate all their bidding power in one market — Google’s. That further drove yield, further enabling Google to buy market share, and on it went.
Yahoo could have bought Facebook. Yahoo had thought about buying Facebook since Zuckerberg created it in a Harvard dorm room in 2004. That year, a Yahoo M&A executive named Make Marquez met with Zuckerberg and Facebook president Sean Parker about a possible deal. Facebook’s first outside investor, Peter Thiel, thought Zuckerberg would be insane to walk away from Yahoo. Zuckerberg eventually said he would do the deal but only if Yahoo offered $1 billion. “We’re going to have to do this deal at $850 million, not the billion you wanted,” Semel told Zuckerberg. Zuckerberg was quiet. He looked disappointed. Nilsson felt the tension rise in the room. It felt awkward. No one on his team wanted to retrade the deal like this. It felt like reneging.
Another reason why Ad-tech is so challenging. All those users clicking around Facebook meant Facebook had a ton of display advertising inventory to sell. Facebook’s growth flooded the display advertising market with inventory. Demand from marketers could not keep up with all the new supply — budgets were not increasing at the pace of Facebook’s growth — and the average price the industry, including Yahoo, was able to charge declined steeply.
The shelf-life of tech is short, especially software. Andreessen talked about the difference between technology companies and “normal” companies. He said the output of normal companies is their product: cars, shoes, life insurance. In his view the output of technology companies is innovation. Whatever they are selling today they will be selling something different in five years. If they stop innovating, they die.