Why Yahoo, once the darling of the internet, couldn't keep up

Back in 2000, Yahoo was one of the pre-eminent companies of the digital economy. But times have changed, as Verizon announced Monday it will buy Yahoo's core operations for a fraction of their former value. What went wrong at the former internet behemoth?

Company 'did so many things right' for years, but ultimately was unable to match Google and Facebook

Yahoo CEO Marissa Mayer has failed to turn around the once-mighty internet company's fortunes since she took the reins four years ago. (Julie Jacobson/Associated Press)

It was 1994, the dawn of the World Wide Web — when people talked about surfing online with a browser called Netscape, and before sites like eBay, Hotmail or Craigslist even existed.

By one count, there were fewer than 3,000 websites around the world. Two engineering grad students at Stanford University in California, Jerry Yang and David Filo, decided to create a directory of their favourite ones.

Originally, it was called Jerry's Guide to the World Wide Web, and anyone who successfully applied to have their website added to the listings would get a personalized reply. 

Fast-forward a few years and, an internet search directory and web portal, had gone public and become one of the pre-eminent companies in the digital economy. It was worth twice the value of Disney, and even after it was pounded by the dot-com crash of 2000-01, Yahoo had enough muscle to try to buy Google in 2002.

"Yahoo did so many things right for so many years," said Seana Meek, an Alberta native who worked for the company from 1999 until 2008. 

Founders Jerry Yang, left, and David Filo ran Yahoo off a sub-domain at Stanford ( for a year before finally setting up in 1995. (Mitchell Aidelbaum/Wikimedia)

"It was the internet for a significant portion of the population. Companies like Lycos, Excite and Infoseek came and went, while Yahoo endured."

Greg Sterling, a contributing editor to Search Engine Land, an internet hub for news about the search engine industry, said Yahoo was "the big brand on the internet" at one point. 

"They operated shopping and real estate and autos and all these sort of historically newspaper-type classifieds ... They were one of the most advanced internet companies on a variety of fronts." 

How times have changed. On Monday, U.S. telecom giant Verizon announced it is acquiring Yahoo's core units — Yahoo Mail, the Yahoo web portals, Yahoo Messenger and its internet advertising tools —  for $4.83 billion US, effectively heralding the end of what was arguably once the world's most important internet company.

Yahoo will retain its non-core patents, lucrative stakes in Chinese e-commerce company Alibaba and Yahoo Japan, and a few other minor assets, but will change its name and essentially transform into a holding firm with no day-to-day operations. 

All in all, the company is worth about $36 billion US today — down nearly 75 per cent from its prime in 2000, and significantly less than the $50 billion Microsoft offered up to buy it in 2008. 

'Surfer' days

Yahoo's early days seem quaint compared with the quick-fire assaults of video, animation, flashy ads, apps, streaming and data that constitute today's internet.

In January 1997, its home page consisted of a search box, a few shortcuts to things like maps and stock quotes, and a list over two columns of 14 major categories of websites, including Arts and Humanities, Government, Health, and Society and Culture.  

The Yahoo home page in January 1997 mainly featured the company's manually curated directory of internet websites. (

That was the era when the company's main offering was a curated, hierarchical directory of the world's major websites — an effort that seems quixotic with more than a billion sites in existence now, but that was only shut down in 2014.

Meek remembers trying to open a U.S. bank account after she moved to Silicon Valley to join Yahoo. Her job then was to surf the web and expand, update and organize the directory's Canadian content. 

"I wrote down my profession as 'surfer' on the form. The person I handed the form to said, 'Surfer? No, no, we need your job title.' So, I showed her my business card with 'surfer' plainly visible. She wrote 'software engineer' on the form."

Yahoo offered Facebook founder Mark Zuckerberg $1 billion US for his then-fledgling company in 2006, which he flatly rejected. (Manu Fernandez/Associated Press)

Shortly after, Yahoo realized that manually browsing and indexing the rapidly expanding internet was proving too burdensome, so it signed up a then-upstart Google, also founded out of Stanford, to power its search portal.  

"That sort of made Google in a certain way. That helped mainstream and introduce Google to a lot of people," Sterling said. 

Yahoo offered to outright buy Google in 2002 but was rebuffed. In 2006, it made a $1-billion offer for a still-fledgling Facebook. 

Today, observers say both those rivals are largely responsible for Yahoo's demise.

"The rise of Google and search, and Facebook and social, it's just taken a lot of advertising revenue out of the market," said Laura Martin, New York-based senior analyst for investment bank and asset management firm Needham and Co.

'Didn't pivot fast enough'

Google receives about two-thirds of all internet search requests, which are considered a lucrative way to advertise because there's a direct link between what people search for, the advertising pushed on them in the results and their decision to buy. 

"You search camera and you buy a camera," Martin said, and a company that takes out the ad on Google knows right away if its digital marketing paid off. 

Meanwhile Facebook has incomparably rich data on its users — what movies they watch, which books they read, where they travel, when they're active online — that it can leverage to draw premium advertising dollars.

"Yahoo didn't pivot fast enough toward search, which Google does so well, or toward social, which Facebook does," Martin explained.

Yahoo's services aren't likely to disappear once they're in Verizon's hands — analysts expect the telecom conglomerate to pair them with data on its 100 million mobile-phone subscribers to boost the ability to sell targeted ads — but the company's days as an internet giant are over.