Weekly Update

Four Lessons From Yahoo’s Slow Demise

To those who live in the lightning fast world of the NewNet, last week’s revelation that Facebook had leapfrogged Yahoo to become America’s second-favorite web site seemed liked old news. Do that many people really use Yahoo? Didn’t it become irrelevant years ago?

It’s true that it has been a long time since Yahoo felt like a real threat or a true innovator. It has been outpaced on one flank by the technology of Google, and on the other by a whole generation of social web companies that have captured human potential more successfully. If nothing else, Yahoo has been locked in a dance of death with Microsoft for longer than many startups have been alive.

Yet, in spite of all that, it’s still hard to simply dismiss it.

Yahoo still has a massive user base and has exhibited an astounding resilience in the face of seemingly constant failure. In fact, there is a vast amount that NewNet companies can learn from the rise and fall of Yahoo.

First, it pays to be resilient. Even though the company has been under duress for years, it still turns profits that most Internet entrepreneurs would give a limb to achieve.

Second, you can still be a big deal even if you’re not fashionable: who would scoff at being able to reach 132 million U.S. users?

Third, even when people are writing your obituary, you have time to haul yourself off life support. Remember: It’s 2010 — it has taken 15 years for someone to push the odd purple company from Sunnyvale, Calif., down into the bronze medal position.

But the fourth thing to learn from Yahoo’s foibles is the most important: It is vital to understand the resources you have at your disposal. Underneath it all, this has been Yahoo’s crucial failing over a number of years. The company has a huge amount of social data tucked away inside its vaults; there is no real reason that it could not have been what Facebook has become.

Certainly five years ago, when it bought a wave of social services like Flickr, Delicious and Upcoming, it seemed like the company was on the verge of making that connection. Those moves helped fuel the Web 2.0 boom and sent off encouraging signals that Yahoo had realized its secret ingredient was people.

But those grapes were allowed to wither on the vine. Flickr remains much the same service as it was back then, while others have been left to waste away. The company killed off its well-regarded incubator project, Brickhouse, in a great purge at the end of 2008, and now Carol Bartz seems happy to manage decline rather than break new ground.

The tragedy for Yahoo is that it has never really valued innovation, nor realized the social potential stored up in hugely popular services like Yahoo Mail or Yahoo Answers. The ship was too big, and its pilots were too stubborn and bureaucratic to realize that they needed to steer it onto a new course.

Every NewNet company owes Yahoo a huge debt. It forged a new frontier in the 1990s, proving that there was money to be made in an entirely virtual world. As the archetypal dotcom, it set the standards we still live with — and the cliches we still joke about: Spun out of Stanford, born into a boom and worth millions almost overnight, it also sported an alternative approach to business and culture that defied expectations.

The next time somebody snickers at Yahoo for slipping up or being out of touch, remember that there’s plenty about its story that is worth emulating. Just make sure to pick the right parts.

Question of the week

Will Facebook overtake Google as America’s most popular website?