Who killed Yahoo?
So at long last, the wait is over. Yahoo is being acquired by Verizon. When I joined Yahoo in September of 2013, just over a year into Marissa Mayer’s tenure, I still remember the feeling of joining a refreshed company with a strong drive to bring Yahoo to being on par with any of the other big tech giants. Yahoo was the first website I had ever visited, and I really did want that desire to become reality. And from what I saw, it really did seem like Marissa Mayer was going to be the CEO that did this:
- The company was rejuvenated. The employees were re-motivated. I had long-time Yahoos tell me their personal stories of how bored and demotivated they had become and how much procrastination would consume them until Marissa Mayer came along. Suddenly, everything was new. And everyone seemed as excited as her.
- The company culture was just beaming. We had amazing free food (and I have to admit, now that I am at Google, I really miss the Yahoo cafeteria). One of the coolest things was this amazing juice bar, where you just name any fruits or vegetables you want, and they would blend it into either a juice or a smoothie. I really do miss that bar quite a bit! And then there were all kinds of events. Like shooting arrows with Jennifer Lawrence. Or posing with the cast of Guardians of the Galaxy. Amazing themed company parties. A workplace, it seemed, couldn’t get any better.
- The work environment was really productive. I had joined Yahoo from Microsoft, and at the time I was really upset that at Yahoo they won’t give me my own office; I had become accustomed to skyping with my newborn, and so cubicles did not suit my taste. But then, a couple of months into the job, Marissa announced that they are reducing the height of the cubicles! Now everyone could see each other, and needless to say, I wanted the cubicles back. Eventually they got rid of the cubes even and went to full out open office. I did finally get used to it, and when I did, I really came to enjoy the work culture. Marissa certainly successfully managed to transform Yahoo into a modern workplace.
- Marissa invested heavily in cleaning up technical debt (called Warp Drive). And this was good. Because there was a lot of it. With an insane amount of money in the bank thanks to Alibaba, it made sense for her to use that towards investing in Yahoo’s build systems. As a former engineer herself, she really understood the importance of this, and by the time I left Yahoo, Yahoo had built an amazing continuous integration and continuous deployment system that really was, and is, best-in-class. Unfortunately for Marissa, she clearly underestimated how much time the market was willing to give her to turn things around (more on that later), and so in hindsight, perhaps the 2 years of focus on tech debt may not have been the best decision, but I think if she were to go back and do it again, she would, because it really was the right thing to do.
- Marissa had true CEO personality. I could not imagine a better CEO in terms of the way she talked, the way she would motivate employees, the way she would trust us and earn our trust. She was bold and she could inspire.
Despite this, there certainly were signs of concern for me. When Mayer changed the mission statement from being a daily habit company to being a digital guide, I wondered what it meant for properties like Yahoo Games (which is what I had joined), which fit as a daily habit but not as a digital guide (it was eventually shut down). And when Mayer announced the big bet in mobile search, I could not imagine why end users would use it over things like Google Now. And certainly there were rarely any Yahoo apps in the top 10.
But there was also a lot of positive stuff happening. Sure, the old businesses were dying, but the newer investments like those in their Mobile apps, live streaming video, sports and new Ad platforms were actually showing many positive signs. And with a bit more time, I do believe the company was positioning itself very well to be able to make a much bigger impact. Warp Drive was working well. There were lots of cool innovations coming out of Yahoo hackdays and making their way into production. At Flurry, the group that I was most recently at, we were beginning to see great successes in getting customers to adopt our native ads sdks and we had a really exciting vision of what we wanted to do.
So, what happened? Who killed Yahoo?
Here is my take. Or at least the take of the version of myself writing this post. Yahoo’s ultimate demise was due to the fact that its lifeline, and therefore its value, came from the success of an external investment, rather than the success of any internal investment. The Alibaba investment for Yahoo was an unimaginable success. But it lead to consequences that the Yahoo leadership failed to control. Here is a rough layman summary of what happened:
- Even after Alibaba’s record-breaking IPO, Yahoo still owned a sizable share of Alibaba. So when Alibaba’s stock went up, YHOO went up, and as it went down, YHOO went down.
- This was naturally problematic for many parties. For Yahoo leadership, the YHOO stock was not a measure of the company success. For Yahoo shareholders, especially those that had invested in Yahoo as a proxy to Alibaba, they too wanted that value to be independent of anything that core Yahoo does. So, it was decided that Yahoo will spin off their stake in Alibaba in a special tax-free way.
- Now, the spinoff requires IRS approval to be tax free, which is a risk, and so before doing the actual spin off transactions, Yahoo filed a Private Letter Ruling, which is basically a pre-approval request to the IRS. Unfortunately, IRS declined to give any pre-approval, and so although they did not reject the request (although many in the media were confused and assumed that it was actually rejected), it certainly added risk and uncertainty.
- Now, from Yahoo’s management perspective IRS would have accepted the spin off in a tax-free way, but investors were not willing to take the risk. And so then they started demanding that Yahoo spin off the other way; i.e., spin off Yahoo and keep the Alibaba stake inside the original Yahoo company.
- All this talk created a massive amount of negative media attention, with talks of the demise of Yahoo.
- This made it impossible to hire good people.
- Without being able to hire good new people, the existing people end up feeling a lot more pressure and makes it hard to build new things.
- This eventually leads to some existing people to leave. I myself left in January.
- And for those that don’t leave, they are now demotivated, and all the free food in the world (or free smoothies) can’t fix it now.
- Without talent, you can’t execute.
So… who killed Yahoo?
The talent departures killed Yahoo. But the culprit is really the media, because their predictions of a demise were effectively a self-fulfilling prophecy because it is what lead to the departures. Although, shouldn’t we actually blame the IRS for creating the media confusion? Or maybe we blame the rogue investors that caused Yahoo to take such measures in the first place? Ok I guess the best bet is to say that Marissa Mayer should take the blame.
Or maybe it was bad luck?
It was Good Luck.