How Did Yahoo Lose its Way?

The rapid and alarming decline of the Yahoo Empire is sad and troubling.

It’s troubling to see Yahoo go from being a vibrant and dynamic company into an entity that lacks a vision of what its wants to be and who it wants to serve. From acquisitions that it failed to make (e.g. Facebook) to acquisitions that it made but did little or nothing with (e.g. Flickr, del.icio.us), Yahoo has been flailing strategically while blowing chance after chance to get people excited its direction and future.

Maybe the beginning of the end was the appointment of Terry Semel as CEO, who may go down as Yahoo’s John Sculley. Semel was intent on leveraging Yahoo’s traffic to maximize revenue. From a business perspective, it was probably the right decision but this laser-like focus on cash took away from the fact Yahoo made its mark by delivering solid services that people used and enjoyed.

And Yahoo used to have a joie de vivre, ranging from its funny name to the purple furniture that dominated its corporate headquarters. You haven’t been able to equate fun and Yahoo for a long time.

Meanwhile, Google kept rumbling strategically with a savvy combination of organically-produced services (e.g. Google Reader) and strategic acquisitions (e.g. Blogger.com, YouTube) that attracted users even though many of them had no business model or entered markets with established players (e.g. GMail).

So, what now for Yahoo!?

There will certainly need to be a purging of the ranks above and beyond the rats now leaving the sinking ship. Jerry Yang will have to step down as CEO, and Yahoo’s directors and/or directors will have to attract a new management team with the strategic freedom to do whatever is needed.

This could involve selling Yahoo, merging with someone else (e.g. AOL), closing down or selling parts of the business that no longer make sense or fit strategically. Maybe Flickr, for example, should be sold or taken public to extract value. Maybe del.icio.us should be sold as well.

The reality is Yahoo blew it, and gone from being the world’s leading online player to a struggling wanna-be in no time at all.

It’s a shame, really.

More: Steve Hodson has some thoughts on how to bring Yahoo back from the grave, including the immediate purchase of Friendfeed. As well, The Economist has an interesting story looking at the fates of eBay, Yahoo and Amazon. It suggests that the “tortoise” (Amazon) has now passed the hares (eBay, Yahoo!)

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