Yahoo!, Focused Strategy, and Magical Thinking:
What We Can Learn from Yahoo's Failure
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In the 2000 movie Frequency, a secondary character named Gordo becomes happy and wealthy thanks to Yahoo shares he bought before.
He did it because his friend John, the main character, established contact with the past with an old radio. John from 2000 advised six-year-old Gordo from the past to remember the "magic word:" "Yahoo."
Guess who paid for the product placement.
The film was greenlighted for production in January 1999. At the time, Yahoo stock was at its peak. But then things went wrong.
At the end of 2000, when the movie was released, Gordo, if he were a real person, would have been tearing his hair out in despair because Yahoo shares dropped to $4.06.
Yahoo managed to survive the Internet bubble burst of 2000 but failed to bounce back and become an Internet giant. It has been acquired and sold. It still exists under its name, but this is not the same Yahoo it was in 1999.
What got you here won’t get you there.
The Myth of Strategic Focus
The widely held belief is that Yahoo failed because it got ‘unfocused’ in its attempt to become an 'everything website.’
“Yahoo had spread itself very thin across a whole lot of areas, but then would cut things before they worked,” Yahoo Finance President and GM Tapan Bhat told Fast Company. Bhat returned to Yahoo in 2022 after having spent 2005 to 2010 at the company.
On the one hand, it sounds logical. From 1997 to 2004, Yahoo bought 24 Internet companies, or 3.5 companies per year on average.
As a former CEO, I know that digesting an acquired company isn't much easier than swallowing an 11-pound dumbbell.
On the other hand, Google (Alphabet) has acquired about 256 companies in its lifetime, including YouTube, Waze, Fitbit, and Android.
Not all those deals were successful. As of today, Google has killed 296 products, both developed in-house or bought from the outside. But Google (Alphabet) is undoubtedly a successful diversified enterprize.
Self-proclaimed strategy gurus on LinkedIn like to rant about ‘strategic focus.’ They brandish the Kodak and General Electric business cases.
But what are Samsung, Google, Meta, Procter & Gamble, Microsoft, Johnson & Johnson, or Apple focused on?
If you can’t shoot straight, the number of targets doesn’t matter.
You may have a focused or a diversification strategy. But your execution is what will determine your business results.
Check out my book Red and Yellow Strategies: Flip Your Strategic Thinking and Overcome Short-termism here.
Strategic focus won’t save you
In a recent article about Airbnb in The Wall Street Journal, the author notes that the firm is about to launch some new services soon.
Quote: “New services such as a host marketplace, new travel-related services for guests and sponsored listings have the potential to eventually diversify Airbnb from basically being a one-product company.”
So, when some experts urge focusing on one strategic idea, others criticize businesses for being focused.
RIM (Blackberry), Palm, and Netscape were highly focused businesses, and where are they today?
The 2007 article How Yahoo Blew It in Wired looks behind the scenes at what happened to the company between 2002 and 2006. I will save you a few minutes for reading it by saying that Yahoo had a good strategy but failed to execute it.
In late 2002, Yahoo acquired Inktomi, which many believed had the second-best search technology on the planet. Then, in mid-2003, it purchased Overture, the service that sold search keywords by auction and placed them on search results pages.
Both deals seemed to allow the company to successfully compete with Google. But Yahoo failed to integrate the new products into its systems quickly and efficiently.
When Yahoo fully rolled out its search-driven advertising services, it was too late. Google had already eaten that market.
The ‘better late than never’ principle turned out to be inapplicable to that situation.
According to Thales S. Teixeira’s book Unlocking The Customer Value Chain, Yahoo acquired 53 startups for up to $2.8B during Melissa Mayers's reign but fully integrated only 2 of them. Poor management kills any strategy.
Conclusion
No strategy is good or bad in itself. Having a focused strategy doesn’t guarantee success. Thinking otherwise is nothing more than magical thinking.
The definition of magical thinking is: “Magical thinking is the belief that unrelated events are causally connected despite the absence of any plausible causal link between them.”
Managing a diversified enterprize is, by and large, more complex than a focused one. However, a focused strategy has drawbacks and risks because it can be easily disrupted.
Strategy is an everyday work, not a one-off decision. If you need my help with your strategy, do not hesitate to DM me.
I invite you to share your thoughts on focused strategies in the comments of this post. You can also start a chat with me and other subscribers.
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This time, I would like to know your opinion on the following question. After having read yet another book on business model disruption and transformation, I noticed that all the authors list the same (and quite short) list of companies that disrupted their industries: Airbnb, Booking.com, Amazon, Google, Uber, Alibaba, Facebook and other social media platforms. Is this an exhaustive list, or are the authors just using the most well-known examples?? Do you know of any other businesses that have successfully upended their industries? Please comment on this article to share your examples.
Read also: From Safe to Strategic: Breaking Free from Team Thinking Traps
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I agree 🎒. Execution IS key.
Another company that used strategy to lead in their area: Four Seasons. Well documented in many places, and they've led in luxury hotels for years.
I see millions spent on execution every day.
It's not either/or – you need both great strategy and great execution.
And it's true acquisitions are one of the hardest things to pull off – I've been through some bad ones, as most of them are.