Marissa Mayer and the Fight to Save Yahoo! | Nicholas Carlson

Summary of: Marissa Mayer and the Fight to Save Yahoo!
By: Nicholas Carlson

Introduction

Dive into the fascinating journey of Yahoo, a tech giant that emerged from humble beginnings, as we explore the book ‘Marissa Mayer and the Fight to Save Yahoo!’ by Nicholas Carlson. Discover how Yahoo’s founders, initially aspiring to create a simple web page index, unexpectedly tapped into the lucrative world of internet advertising, turning their creation into an empire. Learn about the company’s meteoric rise, from 50,000 visits per day to an estimated market value of $23 billion in 1999, and how this was built upon a foundation of data-driven product innovation.

The Birth and Growth of Yahoo

In the early days of the internet, two Stanford graduates, David Filo and Jerry Yang, created a website called David and Jerry’s Guide to the Internet. Initially serving as an index of web pages, unexpected traffic growth led to its renaming as Yahoo!, which quickly gained popularity. The founders needed real servers and investors to scale the business. Sequoia Capital stepped in and provided “adult supervision” to help with scaling while the founders focused on innovation. In March 1995, Yahoo declined an offer of $2 million from America Online to instead sell 25% of the company to Sequoia Capital for $1 million. With Sequoia’s help, Yahoo created a serious business plan, and continued to grow steadily, reaching one million clicks per day in 1995. The rest is history!

Yahoo’s Rise to Online Advertising Dominance

Yahoo’s leaders turned to advertising to generate revenue and quickly made deals with companies like Reuters, Visa, and General Motors. By 1997, their revenue surpassed $70 million, and their traffic grew from 6 million clicks per day to 167 million in 1998. The exponential growth of the internet and its users, coupled with Yahoo’s online traffic and ad selling, made the company a billion-dollar enterprise. Yahoo’s initial feature, Yahoo’s directory only generated 20% of their traffic, while the remaining 80% came from entirely new products developed by Yahoo.

Yahoo’s Innovative Approach

Yahoo COO Jeff Mallett utilized traffic data to match products to customer needs and fostered creativity by grouping employees into product teams known as “pods” or “virtual sevens.”

Jeff Mallett, Yahoo’s COO, realized that relying solely on building products and hoping users would like them was not sustainable. Yahoo began using traffic data to match products to customers’ needs. Mallett recognized that customer preferences could be analyzed through clicks and searches to develop products that meet their needs. Yahoo’s strategy focused on developing products quickly through project-based structures by keeping an eye on server logs. Mallett created a unique approach towards product development by hiring as many employees as possible and grouping them into small product teams, known as “pods” or “virtual sevens.” Mallett encouraged these groups to collaborate with anyone inside the organization regardless of their department or distance. This approach led Yahoo to create over 400 new products by the year 2000, including games, chat rooms, real estate, and more. However, Yahoo’s hunger for growth would eventually become problematic. Mallett’s innovative approach resulted in Yahoo’s success for a significant period of time, providing an example of how utilizing data and creative organizational structures can lead to success.

Yahoo’s Fall from Grace

In the late 2000s, Yahoo experienced a 90% decrease in value due to the dot-com crash. To boost its own success, Yahoo made deals with start-ups, which caused their market value to soar once they were publicly announced. However, this success was not due to the products’ quality but rather Yahoo’s backing. As a result, people stopped clicking on Yahoo’s ads and top-ranked items, causing a decrease in advertisement revenue. Yahoo’s reaction to this was unsuccessful, leading to its ultimate downfall.

Yahoo’s Transformation

Under Terry Semel’s leadership, Yahoo’s ad business was reorganized into a traditional ad sales business. Semel’s strategy was to tap into the growing number of web users visiting Yahoo each day, and build an ad business that didn’t rely on questionable dot-com companies. He hired Greg Coleman, a seasoned sales manager, who then hired salespeople with established connections to buyers in the companies they were trying to sell ads to. Coleman also trained his sales representatives to sell ads over the phone, a practice that was not common at Yahoo before.

Coleman’s changes resulted in Yahoo’s shift from a fishing boat that didn’t need to fish, to an active fisherman that caught many more “fish” in the form of traditional companies buying ads. Although Yahoo still had annual losses of $98 million in the first year following Semel’s appointment, they turned a profit of $1.2 billion by 2005, and their market capitalization rose to $50 billion.

Overall, Semel’s conservative approach of building a traditional ad sales business was successful in increasing Yahoo’s profitability. However, this was just the beginning of Yahoo’s challenges, as bigger obstacles would arise in the future.

Yahoo’s Billion-Dollar Mistake

In 1997, Yahoo rejected a $1 million offer from Larry Page for his thesis project, which became Google. Yahoo didn’t plan to have its own search engine and instead bought search functionality services from other companies. Google’s search engine soon became more popular thanks to its more sophisticated and relevant search results. Yahoo tried to buy Google several times but failed, having missed the opportunity to secure its role in the internet for decades to come.

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