Yahoo-Verizon deal closes. It’s the fall of a giant, end of an era
So long, Yahoo.
Of late it has been a laughingstock, but the company is also remembered fondly for its pioneering contributions to the technology industry and Silicon Valley.
Yahoo Inc.’s tumultuous $4.5-billion sale to Verizon Communications Inc. closed Tuesday, and now the company has disappeared, subsumed into a telecommunications giant.
“Yahoo’s imprint and impact on the valley will long outlive its own history,” said Carl Guardino, chief executive of the Silicon Valley Leadership Group. “For so many years, [its] creative culture and the individual leaders left an indelible mark on the valley.”
Yahoo’s drawn-out, painful demise seemed as much about the laws of nature as the laws of business, as it struggled in vain to keep its strength while a wily predator gobbled up its sustenance. Once Google came onto the Internet scene with a better algorithm for searching, Yahoo’s kicking and flailing at a digital advertising market that had left it behind provided drama that time after time captivated Silicon Valley. It made for an epic tale that showcased the power of rapidly changing technology to both create and destroy.
“It was difficult to watch such a quintessentially Silicon Valley success story run its course,” Guardino said. “But it’s a deep reminder that there is a cycle of life for people and companies.”
During its ascendance, Sunnyvale-based Yahoo was a hiring machine, with more than 14,000 employees in 2007.
“They were a major provider of job creation in their heyday,” said San Jose analyst Tim Bajarin of Creative Strategies. “They were a powerhouse.”
But the financial crisis of 2008 was staggering for the company, which was still on its heels when CEO Marissa Mayer came on board in 2012, the fourth chief executive in as many years.
Mayer, Bajarin said, “inherited a mess” but then failed to deliver on “discipline, structure and vision.”
Despite spending billions of dollars on acquisitions, launching digital news magazines and hiring high-profile anchor Katie Couric for Yahoo News, Mayer was unable to halt Yahoo’s slide.
One reason for that failure was the executive team she brought in, and how she led them, said Pivotal Research analyst Brian Wieser.
“It starts with people and putting the right people in place,” Wieser said. “You can get away with the manager at the top who may not have the right experience, but if you don’t pick the right people and give them the autonomy that they need, you’re going to have a disaster.
“I never doubted that Mayer would be an expert in search. I always doubted she would be on anything else.”
Mayer is not joining Verizon — last week, the company approved golden parachute compensation for her of $23 million. Yahoo’s email and other digital services will be run by Tim Armstrong, who has been in charge of AOL. Armstrong is now chief executive of a new Verizon subsidiary called Oath, which will consist of Yahoo and AOL services.
Also hampering Yahoo’s growth was “hubris” among executives, Wieser said.
“There was not an appropriate degree of paranoia around prospects of competition taking your business away,” Wieser said. “They lost positions of strength time and time and time again.”
While Yahoo was trying to find new ways to generate revenue and jettisoning workers in a desperate bid to stay afloat, Google and Facebook were eating its lunch, dominating the digital advertising market globally.
In 2014, Yahoo fell out of the Fortune 500 for the first time. Mayer admitted that year that the company had only started investing in mobile in 2013 and was “late” and “behind.”
All that trouble drove Yahoo onto the auction block. The company put itself up for sale in February of last year. It accepted Verizon’s $4.83-billion bid about five months later.
Then came a series of blows threatening the deal: revelations about a massive hack of at least half a billion Yahoo accounts’ data, followed by news that Yahoo had known about the breach for nearly two years but kept quiet, followed by disclosure of a data breach of more than a billion user accounts.
In response to news of the first hack, Verizon publicly raised the prospect of backing out of the deal. Ultimately, Verizon used the data breaches to negotiate a $350-million discount on the sale price.
Verizon won’t be getting Yahoo’s prized stakes in two Asian Internet companies, Alibaba Group and Yahoo Japan. Those will belong to a newly formed company called Altaba.
It has been more than two decades since Yahoo was incorporated in 1995 as a directory to the World Wide Web. The search pioneer began selling ads, and it went public the next year. By March 2000, it had become a poster child for the dot-com bubble: from January 1998’s $3-billion market capitalization, it zoomed to $209 billion in 2000. Then the bubble popped, deflating Yahoo’s market cap to about $5 billion by the fall of 2001.
Yahoo’s fortunes began to sweep upward in late 2002, and its market cap continued to rise, reaching $61 billion at the start of 2006. Yahoo nearly doubled the size of its workforce. Then came the financial crisis, and revenue began falling.
In the meantime, Google usurped Yahoo as the most popular online search engine. By 2007, Google had cracked the 50% mark in the share of all U.S. desktop searches, according to ComScore, while Yahoo had 27%. From there, as Yahoo’s share slid, Google’s rose, hitting 67% in November 2014 to Yahoo’s 10%. Yahoo now has fewer than 9,000 employees and its market cap was about $35 billion before Verizon bid on the company.
Despite criticism of the company’s mistakes, its end may have simply been wrought by the success of Google, which had built a better search engine, Wieser said. “Maybe it was always going to be the case that once people had their better mousetrap, then it was done.”
Baron writes for the San Jose Mercury News/McClatchy. The Associated Press was used in compiling this report.