Where has the Crisis of Yahoo Come From?

Ten years ago, Yahoo was one of the most powerful companies in the internet industry. However, Yahoo’s power has steadily weakened in recent years. Thus, Yahoo’s weakened state has attracted take-over efforts by Microsoft. Given the fast pace and intensity of the internet industry, it should be no surprise that the slightest strategic blunder can mean the downfall of a former powerhouse. When analyzing the various causes of the Yahoo’s weakened state, experts have offered many different opinions. However, the primary causes are the strategic decisions not to develop “Searching” technology and to invest heavily in Broadcast.com

The first cause of Yahoo’s decline among the giants of the internet industry was the decision not to be innovative in realm of “Searching” technology. In the late 1990’s Yahoo hadn’t properly developed “Searching” technology, so the company’s advisors urged the company to do so. However, founder and CEO Jerry Yang didn’t think it was important. In fact, during a press interview in Korea he asserted that it was not necessary for Yahoo to develop such technology. Thus, when an upstart search engine company called Google pitched its services to Yahoo, the company respectfully declined. Given that other “Searching” companies such as Lycos and Altavista were on the decline, it is no surprise that Yahoo executives chose not to invest in a similar company. However, the decision would prove to be a highly regrettable one. Yahoo’s executives were not able to recognize the goldmine that was Google. Although Yahoo remained atop the market in display advertisements, they steadily fell behind in other key aspects of the internet industry. Thus, the value of the company has steadily declined.

The second major cause of Yahoo’s decline was the decision to invest heavily in Broadcast.com. In 1999, Yahoo invested some $5,700,000,000 in the video service Broadcast.com. By comparison, Google was able to purchase Youtube, a similar video service, for a mere $1,650,000,000. Youtube has since become a worldwide internet sensation while Broadcast.com has not had nearly the same success. Thus, this has proved to be a severe financial blunder on the part of Yahoo executives. Yahoo expected that Broadcast.com would become the biggest media phenomenon since the television, but Broadcast.com’s mark on the world of Media has been a minimal one.

Although Yahoo should be making bold and innovative moves in order regain its place at the top of the internet industry, the company has taken a rather conservative approach. Granted, the company did use its remaining financial clout to buy-out rival Inktomi, invest in joint broadcast ventures with the Hollywood entertainment industry, and develop Panama, Yahoo’s latest search technology. However, these ventures are broadcast-related. The market on broadcast investment is quickly bottoming out. In order for Yahoo to seriously contend with its competitors, it must be much more innovative and bold with its investment capital. A No.2 company does not have the luxury of being cautious and conservative.

In conclusion, a series of financial and strategic blunders on the part of Yahoo has made it susceptible to Microsoft’s recent takeover bid. Despite declining influence in the internet industry’s power structure, the company has not been innovative enough to make a worthwhile attempt to overtake Google. By investing in out-of-date technologies and buying out obsolete former-competitors Yahoo has put itself into a seemingly endless downward spiral.