Wu Jun: The Rise And Fall Of Yahoo And The Next Trend In The Internet World
摘要： After a lengthy period of loss, the once internet behemoth Yahoo finally sold its core business to the communications giant Verizon for merely $ 4.8 billion. Is Yahoo sold at a low price? What happened? What went wrong in Yahoo? How? What lesson can we learn? Wu Jun, author of On Top of the Tide, shared his opinions in this article.
Finally, Yahoo was sold.
For internet users who started to surf the internet in the 1990s, Yahoo must be quite familiar. At that time, Yahoo was the very symbol of the internet. As once the largest internet company around the world, Yahoo’s valuation reached a staggering $120 billion in 2001, amid the dot-com bubble. However, after a lengthy period of loss, Yahoo finally sold its core business to the communications behemoth Verizon for merely $ 4.8 billion.
Although I’ve predicted in my book On Top of the Tide that there might be a day when Yahoo went bankrupt, I still get a little sad when that day finally comes, as a twenty-year user of Yahoo.
Sold at a low price?
Above all, I’d like to clarify that Yahoo was not sold at a low price, or that Yahoo missed the golden opportunity (Microsoft planned to acquire Yahoo with $44.6 billion in 2006), as many media reports suggest.
Above all, Yahoo only sold its core business and the real estate (the office building), not all its asset. Generally speaking, a big company’s asset consists of the following aspects:
- Operating asset
- Investment asset
- Real estate
- Brand, intellectual property right and other intangible asset
For internet companies, their value mainly lies in operating asset and intangible asset. For Yahoo, however, its main asset lies in investment asset (around $40 billion investment into Alibaba and Yahoo Japan) and cash (around $5 billion).
In addition, its patents are quite valuable. Based on the price Microsoft and Google acquired Yahoo’s Nortel Networks and Motorola, respectively, its patents might be worth at least $1 billion.
Now that Yahoo sells its core business for another $4.8 billion in cash, Yahoo is still worth $50billion in total, which is even higher than the price Microsoft had planned to acquire Yahoo.
This is already a great achivement for Yahoo, especially taken into consideration the loss of lots of talents to Microsoft when Yahoo refused Microsoft’s offer.
However, compared to the time when its valuation reached 120 $billion 2001, its market valuation certainly dropped by over a half. Still, compared to other traditional internet companies, Yahoo already managed to turn out the best performance.
In fact, many of Yahoo’s peer companies are already gone, such as Netscape Communications. American Online’s full asset ended up being sold to Verizon for merely $4billion, while nobody used MSN anymore, though it is supported by Microsoft.
After Yahoo, a series of Yahoo-like companies were established in China. Among them, Sina, netEase and Sohu are some the most representative ones. The influence of these companies, similar to Yahoo, is also gradually declining. While Sina and Sohu are still struggling to make ends meet, NetEase managed to be profitable via games.
Not only internet companies born in that age are struggling today, even IT companies who prospered regardless of the dot-com bubble are having a tough time.
CISCO’s valuation dropped by 70% compared to its peak in 2000, Intel’s valuation also dropped a great deal, while Sun Microsystems’s valuation dropped by even 90%. Communication companies who prospered due to the development of internet infrastructure, such as Nortel Networks and Laucent Technologies, have disappeared from public attention for a long time.
So Yahoo’s “failure” has to do with not only its own problems, but also something greater. Maybe, it’s just the golden time for internet companies emerged in that era have gone just forever.
From internet 1.0 to mobile internet era
The time when Yahoo was established was now commonly referred to as internet 1.0 era. At that time, and entire internet industry is like a blank, so you can do almost anything you want, and you are supposed to do anything. This is a typical feature of that era.
In the era of internet 1.0, to attract users and make profit, internet companies have to develop their own contents, establish their own IT service, promote their service and then look for advertisers, all by themselves. So internet companies have to do not only IT stuff, but also communication, marketing, advertising.
When we look back, we might find that these portals’ positioning isn’t very clear. Sometimes, their businesses are even contradictory, which also explains why there are so much conflict between different departments and among the executive board in these companies.
A case in point is that Sina fired one of its co-founders Wang Zhidong exactly because it wasn’t so sure if it should become a tech company or a media company. This is almost a natural defect in companies born in the internet 1.0 era. Yahoo made a good balance on this point and succeeded becoming one of the symbols of that era.
Another feature of these companies is that they want to do everything that has something to do with the internet. This is why the product of line of large portals are commonly so long.
Yahoo’s services cover news, finance, email, hotel and plane ticket booking, search engine, video, recruiting, instant message, etc. Yahoo’s services are so plenty that many users have to search with Yahoo before knowing what to do next.
This is also true for Tencent. As a matter of fact, many people used to think that Tencent was going way out of line. Since there was so much blank to be filled in, internet companies rushed to carry out services one after another. However, their rapid development and prosperity left so many problems unsolved before going on.
However, it’s not the 19th century anymore, where the larger a corporation is, the better the result. In the information, age, division of work is the unstoppable trend. To develop sustainably, you have to focus on one point and make some really brilliant product or service.
After the dot-com bubble bursts, the internet industry entered the internet 2.0 era, when commission was the trend. AT that time, content producers and internet service providers were separate. The former focused on producing great contents, while the former paid more attention on providing better services.
Google and Facebook, two of the largest internet companies today, don’t own any content. Instead, thet just provide the platform and channel to distribute contents and services. Fundamentally, Facebook succeeded not because iof ts social networks, but because it provided a great platform for both ordinary users and professional engineers to create and distribute their contents.
The inconvenient truth in the internet age brings out a certain era begets a certain type of companies, so companies from the last era won’t have a good time in the next era.
In the internet 2.0 era, many internet companies born in the internet 1.0 age were left behind. Although Google acquired internet 2.0 companies such as Blogger and YouTube at an early time, it still suffered from the competition with othe internet 2.0 companies.
Tencent also had a rough time competing with Qihoo 360 and Sina Weibo. It’s not that companies born in the last era weren’t doing well. Instead, it’s just like natural selection, and it’s almost unavoidable.
Google and Tencent again prospered because they seized the opportunity in the mobile internet era, or internet 3.0 era.
Google, with is potent Android operating system, controlled the mobile internet era, to some extent. In the competition with Facebook, it is even on the upper hand at some aspects. It is only acquiring mobile internet companies such as Instagram and Whatsapp that Facebook catch up with the trend.
One key difference between Tencent and other game companies its WeChat. In 2014, when Facebook acquired Whatsapp, with only over 100 employees at that time, many people thought Facebook must be crazy.
However, without WeChat, Tencent’s valuation ($220 billion) will drop at least by a half. From this aspect, Whatsapp was already quite cheaper than WeChat. Facebook had to buy Whatsapp, because it’s like the admission ticket to the mobile internet age. Simialrly, Alibaba insisted on putting money into making its own smartphone because it’s also sort of the admission fee to the mobile payment era.
For the last two decades, the internet industry developed so rapidly that even the boldest prophet didn’t expect to see such prosperity right now. Against this background, it’s natural that new and great companies will emerge one after another, while some old but still great companies will gradually disappear.
Frankly speaking, it’s quite a miracle for Google and Tencent to survive in the internet 2.0 era and catch up in the internet 3.0 era. Their success has to do with not only management skills, but also luck. Yahoo didn’t have the kind of luck that befell Google, so it’s historically unavoidable that it would pale into insignificance.
The evil capital
However, if we really have to spot any mistakes Yahoo made and learn the lesson, then there is something wrong with Yahoo’s genes, which took its toll on Yahoo gradually.
Every company has its genes. They are hard to be changed, but have everything to do with their future and destiny. For example, IBM is good at dealing with enterprise customers, but not individual customers. Microsoft is good at developing software, but not internet services. This is why IBM missed the opportunity to usher in the personal computer age, while Microsoft missed the opportunity to lead the internet age.
A company’s genes have a lot to do with its founder(s). Google and Baidu’s founders are all engineers, so both companies are driven by technology; Tencent and Facebook’s founders are fundamentally product managers, so both companies concentrate on user experience; Amazon and Alibaba’s founders are all businessmen, so both companies are drive by business.
It’s hard to say focusing on which point is better, whether technology, user experience or business? But having something to focus on is better than having no focus, certainly. In times of hardship, a company could always focus all its resources on a single point and make breakthrough.
However, if the founder of a company is weak, and has no clear focus, then the company will have no focus, or feature. Unfortunately, Yahoo’s founder falls into this group.
As Ph.D of Stanfard University, Yang Zhiyuan and David Filo did attach high importance to technology. However, Yahoo wasn’t a great tech company compared to Google. Yahoo’s founder wouldn’t believe that there was a point where technology could totally replace people, as Google’s founders would do.
Instead, Yahoo was very focused on user experience, and knew how to appeal to users better than Google. However, it didn’t know how to lead users, as Apple did.
In business, Mr. Yang realized that advertising applied well in the internet world, but he and David were both not great businessmen.
They were well aware of their weaknesses, so they invited professional managers to help, as is suggested in many textbooks. Even before Yahoo went public, they invited Tim Koogle to become Yahoo’s CEO, while Mr. Yangzhi became the Chief, and David focused more on engineering details. In a word, Yahoo didn’t have clear focus, and its genes was also not strong enough.
However, when Yahoo invited professional managers, Yahoo was already to a large extent controlled by capital. Yahoo’s early investors such as Sun Zhengyi didn’t intervene much in Yahoo’s business, but as the Wall Street gained control over Yahoo, Yahoo’s goal became nothing but to make the next year’s financial report look better.
Before the internet bubble burst, Yahoo’s problem was hidden by its prosperity and rapid development; after the bubble burst, however, Yahoo began to run into a series of problems as American economic growth also slowed down.
In this period, CEO Susan Decker managed to keep Yahoo profiting by controlling cost, but she failed to hold Yahoo on the right gear for the future due to her lack of experience.
Decker even chose to sell Yahoo’s huge stakes in Google at a price lower than Google’s IPO. If Yahoo didn’t sell these stakes, then they will worth much more than $48billion.
Although CEO Samuel Insull wanted to make Yahoo into a tech company, he didn’t understand technology and wasn’t quite capable for this mission. After Google went public, he managed to keep Yahoo profiting by gradually selling its stakes in Google, until he had nothing left to sell at last.
Meanwhile, Yahoo’s founders’ stake was already lower than 10%, thus their role in Yahoo became only symbolic. However, Yang Zhiyuan did make a right decision at that time, that is, acquiring 40% stake in Aliabab from SoftBank from Sun Zhengyi with $1 billion cash and Yahoo China’s asset.
Although the Wall Street controlled Yahoo, it couldn’t guide it. Different from traditional industries, the internet industry is developing and changing rapidly. Samuel and Decker might be good CEO for traditional companies, but they failed to lead Yahoo and help it also take the lead in the internet industry.
When a company’s revenue stopped to grow, the Wall Street would constantly change its CEO. So Yahoo’s CEOs changed frequently later on. That’s when investors like Ichin would often stand out and threatened to dismiss the board of directors.
From 2007 to 2012, there were six CEOs at Yahoo. What a mess! This was also why I boldly predicted that Yahoo might face its doom at that time.
In 2012, Mayor took over and brought in some fresh air. As a workaholic, Mayor did change the company a little bit, and the Wall Street also gave her some time to bring out some radical change and save Yahoo. However, it’s already too late.
From the aspect investors, the wisest thing to do is sell Yahoo when it’s still worthwhile. There's nothing wrong about it.
Yahoo never lacked money. From the day it was established to today, it always had money, let alone the huge stake in other companies. However, sometimes money isn’t enough to succeed, and what really matters is who can spend the money in what way.
To wrap up, Yahoo’s lesson to us might be that: people, not money, is more important for a company. Sometimes, money would even backfire.
A fully connected and super smart era
Although history can’t be assumed, we might still wonder if Yahoo can go back, try again and seize the opportunity? Still, it won’t be easy.
Fairly speaking, there’s nothing wrong in Yahoo’s strategic policies. Although we might regard many of its decisions wrong when we see them now, Yahoo did make the right decision at that time. In the internet 1.0, it’s reasonable to acquire and invest in companies around, because Yahoo was full of cash and could do anything it wanted. As a matter of fact, it’s quite unreasonable for Google to focus merely on one type of technology, search engine, at that time.
Google focused solely on search engine business not only because its founders were less driven by making profit, but also because it had no other choice. After A-round financing, the dot-com bubble burst, so Google couldn’t raise any money anymore. So it had no choice but do focus on one thing and did it right.
In the internet 2.0 era, Yahoo was the largest internet media group in the world. If it adapted to the trend, that is, commissioning, Yahoo would be cutting its own hands. No CEO at that position would decide to do so.
In the mobile internet age, Marissa Mayer did want to transform Yahoo, but as many engineering talents left, what could she do alone? Even a clever woman cannot cook a meal without rice, can she? When we look back and really put ourselves in others’ shoes, we might understand why they made that “wrong” decision, and we would find out that we would have made the same “wrong” decision if we were in that position.
As technologies keep moving forward, both a person and a company should not stick to the past. To survive, you need to seize the opportunity and keep up with the times. The golden era from internet companies has already gone, and the mobile internet era is also coming to its peak. So what’s the next trend?
Human beings are entering in an era fully connected and super smart.
In the internet 1.0 era, machines were connected to machines; in the mobile internet era, people and people are connected. In the future IoT era, we will find that connecting is more importuning that possessing. O2O, or sharing economy, is exactly based on this idea.
Google and Facebook don’t possess much content, but they still become two of the largest internet companies in the world; Taobao doesn’t possess any product or logistics company, but it is the largest shopping platform around the world; Didi and Uber don’t possess any car, but they are the largest “car-rental” companies in the world. One of the common feature of them is connection, whether between people and people, people and things, or things and things.
When everything and everybody is connected, data needs to be possessed by smart technologies. Thus, human brain is not enough, and we will need a super smart system, to help us process data. My prediction is that our society will be fully smart in the future, and that we will be embraced by unprecedented opportunities and challenges will on the way ahead.
Death is Yahoo's last contribution
From the rise and fall of Yahoo, we see not only the ups and downs of internet industry, but also the hardship to maintain a time-honored business in the information age. All we are left to do is seize every opportunity and keep up with the times.
Any company belongs to a certain era. When that era is gone, companies born in that age also do they fair job. To some degree, death may not be a bad thing, because that so, more resources will be released to be invested in some other more important businesses. In this sense, Yahoo’s death might be its last contribution to society.
[The article is published and edited with authorization from the author @Wu Jun, please note source and hyperlink when reproduce.]
Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.