ON YAHOO!'s TRIALS AND TRIBULATIONS

A TALE IN PICTURES

(Update below)

For the Internet history buffs amongst you, this lengthy Wired article by Fred Vogelstein titled "How Yahoo! Blew It" (via Techmeme), offers a concise summary of the complicated history between Google and Yahoo!  It's a topic I've opined on in the past and present.

There's a passage in particular resonated with me, as it defined the specific point which allows Google to become the most financially interesting business to come out of the technology industry after Microsoft over the last quarter century. 

It describes how Google built on the inspiration that Bill Gross of Idealabs had on how paid-search could become the next big thing, with his startup GoTo.com, (later known as Overture, and bought by Yahoo! for $1.4 billion).  Here is the passage:

"Google saw the power of this approach and decided to grow its own. Engineers at Google took the concept of pay-per-click search results and in 2002 turned it into a smooth-running, money-printing machine called AdWords.

The company developed an automated process for advertisers to bid on keywords. It also made the auctions more sophisticated so customers couldn't game the system. Crucially, Google determined ad prominence on a Web page not just by the price advertisers were willing to pay per click -- as Overture had done -- but also based on how many clickthroughs that ad generated.

As a result, Google's system responded quickly to ineffective ads: They disappeared. Google also had a massive database that tracked which ads worked and which didn't, information it could pass on to its customers to help them create better ad campaigns. By the time Google published its financial statements for the first time in 2004, everyone knew that the company had harnessed one of the great innovations of the Internet age."

Reading that brought to mind the following famous Sidney Harris "Miracle" cartoon (click for larger image):

In particular, the Wired article provides an in-depth look at how Yahoo! attempted to counter Google at that critical moment with it's acquisitions of Overture, and Inktomi, another leading search technology provider of the time.  An illustrative excerpt:

"Yahoo executives tried to have it both ways. They attempted to placate Microsoft by maintaining Overture as a stand-alone brand. At the same time, they planned an overhaul of Overture's technology, a project code-named Panama. It was a disaster.

With no clear delineations, Yahoo and Overture executives fought over turf. Yahoo hired and fired a half-dozen engineering chiefs at Overture during the first year. Overture salespeople competed for business with Yahoo salespeople.

And Meisel, Overture's CEO, was ineffective -- either inept or hamstrung by bureaucracy, depending on whom you ask. Decisions big and small, from trying out new features to agreeing on budgets, had to be cleared by committee after committee in Sunnyvale. "It was a clusterfuck," one of the participants says."

That of course brings to mind another Sidney Harris cartoon (click for larger image):

Yahoo! currently is in the middle of a major transition with it's re-vamped ad-search technology (previously known as Panama), that it hopes will allow it to make headway against the competition.

It's going to be a tough execution-heavy task to accomplish. 

Which brings us to the last Sidney Harris cartoon in this post, which may illustrate what the leadership at Yahoo! now confronts.

Disclosure:  I am a long-time shareholder in Yahoo!, Google and Microsoft.

Update:  To Yahoo!'s credit, here is their official response to the Wired story.