The identity crisis that led to Yahoo’s demise

SAN FRANCISCO (Reuters) – When senior Yahoo executives gathered at a San Jose hotel for a management retreat in the spring of 2006, there was no outward sign of a company in crisis.

The internet pioneer, not yet a teenager, had just finished the prior year with $1.9 billion in profits on $5.3 billion in revenue. The tough days of the dot-com bust were a distant memory, and Yahoo Inc., flush with lucrative advertising deals from the world’s biggest brands, was enjoying its run as one of the top dogs in the world’s hottest industry.

But for one retreat exercise, everyone was asked to say what word came to mind when a company name was mentioned. They went through the list: eBay: auctions. Google: search. Intel: microprocessors. Microsoft: Windows.

Then they were asked to write down their answer for Yahoo.

“It was all over the map,” recalled Brad Garlinghouse, then a Yahoo senior vice president and now COO of payment settlement start-up Ripple Labs. “Some people said mail. Some people said news. Some people said search.”

While some executives said this was a useful management exercise that took place multiple times over the years, it proved an ominous portent of the business troubles to come.

Indeed, the demise of Yahoo, which culminated in an agreement this week to sell the company’s core assets to Verizon Communications Inc., has been more than a decade in the making. Many of the more than two dozen former Yahoo managers interviewed by Reuters over the past two weeks – who now occupy executives suites elsewhere in Silicon Valley – agree that the company’s downfall can be traced to choices made by both the executive leadership and the board of directors during the company’s heyday in the mid-2000s.

Some of the missed opportunities are obvious: a failed bid to buy Facebook Inc. for $1 billion in 2006. A 2002 dalliance with Google similarly came to naught. A chance to acquire YouTube came and went. Skype was snapped up by eBay Inc. And Microsoft Corp.’s nearly $45 billion takeover bid for all of Yahoo in 2008 was blocked by Yahoo’s leadership.

Just as damaging as the missed deals, though, was a company culture that ultimately became too bureaucratic and too focused on traditional brand advertising to prosper in a fast-moving tech business, according to some of the former Yahoo managers Reuters spoke with.

“It became very difficult to get both investment and alignment” around new product initiatives, said Greg Cohn, a former senior product director at Yahoo and now CEO of the mobile phone app company Burner. “If you built a new product and the home page didn’t want to feature it, you were hosed.”

Worst of all, once Alphabet Inc.’ s Google had displaced it as peoples’ first stop for finding something on the internet, Yahoo was never able to decide on exactly what it wanted to be.

Yahoo today has more than one billion users and has focused on mobile under chief executive Marissa Mayer, who told Reuters in an interview Monday that she still saw a “path to growth” for Yahoo, which the Verizon merger accelerated.

Yahoo will continue to operate as a holding company for its large stakes in Alibaba and Yahoo Japan, which are worth far more than the core business.