IT WAS not so long ago—four years back—that a former Google executive, Marissa Mayer (pictured), arrived to run Yahoo, and its employees hung posters emblazoned with her face and the word “Hope” around the internet firm’s office, in a nod to those designed for Barack Obama’s 2008 run for president.

Expectations were sky-high for the young and energetic Ms Mayer. But now time is up for the ailing firm. After its spiral of decline quickened under Ms Mayer, the board said in February that it would sell off its core internet business. On July 25th Verizon, a telecoms giant that is also America’s biggest mobile operator, agreed to pay $4.8 billion for Yahoo. The deal excludes several key assets, including its stakes in Yahoo Japan and in Alibaba, China’s dominant e-commerce firm. What went so horribly wrong for the former internet giant, and is Verizon wise to buy it?

Yahoo’s story encapsulates the internet’s own rise. It was in 1994 that David Filo and Jerry Yang, two students at Stanford University, created a page to assemble their favourite links. It became Yahoo, a directory of categorised links, which evolved into a “portal” that millions would use to access the nascent worldwide web. But Yahoo’s executives have always struggled to decide what it really was. Yahoo has also been part entertainment company, selecting the articles and websites people most wanted to consume, and part technology firm, offering services like online search and e-mail.

Trying to decide on its strategic direction proved the hardest task of all. In the four years preceding Ms Mayer’s arrival, Yahoo churned through three chief executives. Ms Mayer was hired at a handsome price to provide clarity of vision and to restore Yahoo’s brand in the eyes of technology-hungry consumers. An engineer, she was Google’s 20th employee and a proven manager of the firm’s main products including search and Gmail.

That experience helped—her predecessors lacked it—as did Yahoo’s big stake in Alibaba, whose success pushed up the American firm’s share price. But her turnaround plans fell through, for three main reasons. First, she failed to avoid her industry’s tendency to overspend on big, splashy deals, and the firms she bought failed to deliver the expected growth: Yahoo spent $1.1 billion in 2013 to acquire Tumblr, a social network, for example, but has since written down most of its value. Second, Ms Mayer heightened Yahoo’s strategic split personality by pushing it in the direction of entertainment (by, for example, hiring Katie Couric, a veteran television host) but never fully committed to that future.

Third, she strangely showed little interest in online advertising, Yahoo’s core business, and was unable to make up for the fact that Yahoo does not know as much about its users as do Facebook and Google. From 2004 to 2006, Yahoo controlled a fifth of global online advertising, compared with 3% now. Yahoo’s decline is not exclusively Ms Mayer’s fault, but she underestimated how difficult it would be to fix.

Verizon reckons it can do far more with what’s left of the internet firm’s core business. It may be right. Last year it bought AOL, another once-great internet company, for $4.4 billion, and it will be able to cut costs by merging its operations with those of Yahoo. Verizon’s plan is to combine all that it already knows about its own broadband and wireless subscribers with what it can glean about them from the new online properties, and then charge advertisers to target them more precisely.

The deal also forms part of a broader trend towards consolidation in the internet business. A few large players now control the bulk of all digital-advertising spending. Soon, attention will turn to the likely fate of Twitter, another internet property that once had great promise but has fallen on hard times. Another famous boss, Jack Dorsey, one of Twitter’s original founders, is trying to revive it. He came back just last year, but the clock is ticking: hope can last only so long.


– By : The Economist Date : 25-July-2016

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