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Fantastic Article about Yahoo

August 21, 2010

Paul Graham writes an excellent article [paulgraham.com] about what happened at Yahoo from an insider’s perspective. Graham started working at Yahoo in 1998, back when Google was a little Stanford Startup and Yahoo was the big Stanford Startup. His premise is that Yahoo caught one (extremely lucrative) market in transition, and then failed to evolve once the transition was over.

Hard as it is to believe now, the big money then was in banner ads. Advertisers were willing to pay ridiculous amounts for banner ads. So Yahoo’s sales force had evolved to exploit this source of revenue. Led by a large and terrifyingly formidable man called Anil Singh, Yahoo’s sales guys would fly out to Procter & Gamble and come back with million dollar orders for banner ad impressions.

When your startup is closing million-dollar deals on a regular basis, it’s easy to lose focus and forget to ask the tough questions: are we giving our customers the value they expect? Is our business model sustainable? What if things don’t turn out exactly the way we want them to?

In fact, things didn’t turn out exactly the way Yang and Filo wanted them to. Their idea was to be a ‘portal’, “what they meant by it was a site where users would find what they wanted on the site itself, instead of just passing through on their way to other destinations, as they did at a search engine.” What happened instead was that content became spread out across billions of sites, and much of the content in the ‘long tail’ was really excellent (a lot of it wasn’t, but that’s a different story). People needed a way to track down Keyboard Cat so that they could show their friends. Ultimately it was the search engines (mostly Google) that became the standard portals to the internet. They had the added advantage that they could better target their audiences with ads about the search content.

Graham includes another discussion about Yahoo’s attitude toward being a technology company (hint: they saw what Microsoft did to Netscape and wanted to avoid it if possible), and how that led to a company being run by designers and not by programmers, but that’s a different topic for a different time.

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