Archive

Onetime Internet Darling Yahoo Now on a Deathwatch

Death Watch

Despite a new CEO, a vast audience, and revenues beyond $6 billion, the Internet giant faces eclipse, says Zachary Karabell.

articles/2012/01/05/one-time-internet-darling-yahoo-now-on-a-deathwatch/yahoo-toast-karabell_iuto9k
Paul Sakuma / AP Photo

The communications technologies of the past two decades are widely and rightly celebrated. The Internet, email, the proliferation of free or inexpensive software programs and apps that allow countless millions to access and organize their lives, and now the Androids and iPhones that are turning handheld devices into portable computers—all have captured attention, imagination, and sales.

But there is a twist, which is that the innovators and the creators of this ongoing revolution are often eclipsed, and fall with a speed that is as breathtaking as their rise. We laud Apple today, but no one understood better than the departed Steve Jobs just how ephemeral success can be in the digital age.

‘Twas less than 16 years ago when then-maverick Yahoo went public in a highly publicized IPO that exhilarated the business world in April 1996. Its competitors at the time were the now-forgotten Lycos and Excite, not to mention the gorilla of its day, AOL. At the time, Yahoo had a cool name, a quirky founder named Jerry Yang, and annual sales of less than $2 million. It was a darling of the early Internet age.

ADVERTISEMENT

Now Yahoo is a company on the verge of eclipse. Having fired its most recent CEO, its board yesterday appointed a new one, Scott Thompson, formerly head of the wildly successful eBay property PayPal. The company has a vast audience of users—around 700 million people, making it the fourth-most-visited site in the world. It has annual revenues exceeding $6 billion, an exponential improvement from the 1990s. It has valuable Asian properties and a potent relationship with one of the behemoths of the Chinese Internet, Alibaba. And yet the company is widely perceived as on deathwatch, and while the new hire was greeted with some enthusiasm in techland, the most common response was: good guy, impossible situation.

articles/2012/01/05/one-time-internet-darling-yahoo-now-on-a-deathwatch/yahoo-toast-karabell_jjzbnz

The decline of Yahoo has been well chronicled over the past years, as it lost prominence to upstart Google in the realm of search ads and never quite consummated the on-again-off-again flirtation with Microsoft. It then suffered from the rapid shifts in how advertising dollars are spent on the Web, with more companies pushing back on paying simply for impressions or eyeballs and unwilling to pay the rates that had been anticipated for pop-ups, banners, and other assorted techniques. Yahoo has remained a powerful brand in spite of its challenges, servicing millions of email accounts and providing some of the better content produced on the Web, but its ability to generate revenue has come into serious question.

It is somehow fitting that just as Yahoo was launching a Hail Mary pass with its new CEO, a much more storied company seems marked for extinction. Kodak, which defined personal photography for generations in the 20th century, appears headed for certain bankruptcy. For months, speculation has abounded that Kodak was soon to burn though its remaining cash, and its business has been hemorrhaging for the past few years as the world moves decisively away from film-based cameras and into the world of digital imagery. Kodak has tried to adapt, but it is a 20th-century company, built around physical attributes that defined a generation, the slides and film cartridges that once were ubiquitous. It has been unable to define a niche and a business in the world of phones that act as cameras, with nary a piece of film interceding.

The bankruptcy and end of Kodak would have struck many as improbable or even inconceivable 40 years ago. The eclipse and potential collapse of Yahoo seemed equally unlikely in the late 1990s, when it vanquished Excite and Lycos. But the pace of innovation and the turn of the business wheel have become merciless. It is what allows for the explosion of handheld communication devices such as the iPhone, the iPad, and the various Android phones to achieve such prominence in the space of less than five years. It is also what allows once-vaunted and powerful franchises such as Nokia, BlackBerry, Yahoo, and Kodak to fade and even collapse so quickly.

So is Yahoo at an end? Like another giant of the same era, AOL, Yahoo is a content brand that still commands attention, and it is still potent. The question remains: how can that attention be turned into a reliable, long-term revenue stream? Carol Bartz, the respected former CEO, came up short. Jerry Yang, the dedicated founder, believes but has no answer. The board doesn’t either.

It may be that there is no answer, that no matter how well run the company, how good the content, how potent the brand, the world has simply moved on. It may be that the company has value and can make money, but not quite enough to justify its current structure, and that the board and major stakeholders will not be able to shift gears to a more modest vision in order to maintain something, anything. Thompson may soon astound and surprise. Inside every struggling tech company is a dream that you too can be Apple circa 1996, left for dead only to rebound and become a giant. But to do so requires a specific vision for what is needed and an ability to execute it. It is difficult enough to have the former; the latter is rare indeed.

The end of Kodak is a source of sadness, like the passing of an old, trusted family friend. The slide of Yahoo is more nuanced, like a high-school chum who had some early hits and is now in his late 30s, still charismatic and rich but with that slightly wild, panicked look in his eyes. And Yahoo above all reminds us just how unromantic and unforgiving the golly-gee world of new technology is. Look at Groupon, which came out of nowhere to be a billion-dollar company in less than four years and may be gone even sooner.

Yahoo helped set the Internet age in motion, and for that it deserves a place in the pantheon. Whether it can retain a viable though lesser position will depend less on the acumen of its new and untested CEO than on luck that the market gives the company a break, and that there is a lull in 2012. With the IPO of Facebook pending, however, and hungry startups abounding, that is a thin reed supporting a weighty enterprise. It is too soon to say Yahoo RIP, but it’s getting close.

Got a tip? Send it to The Daily Beast here.