It's easy to forget how great Yahoo Inc. (Nasdaq: YHOO) once was. Back when the nascent Internet was untracked territory, it was the only guide worth following.
In 1996, I first used its new Yahoo Maps service to find and plot San Francisco businesses on a map in my Web browser, and my mind was blown. "Hey, Horst," I said to my then-co-worker, "this is amazing! The Internet just did something useful!" In 1998, when I used Yahoo Mail as an email front-end while trekking across Africa, even my techie friends were amazed by my ability to send and read emails from my own mailbox via the Web, from anywhere. Yahoo was truly the Google (Nasdaq: GOOG) of that time.
Flash forward 15 years, and it's a colossus on the road to collapse. That might sound unduly alarmist -- after all, it's still profitable. But remember that three years ago, Microsoft Corp. (Nasdaq: MSFT) offered $45 billion to acquire Yahoo; today, it's worth less than half of that, most of which consists of stakes in high-flying Asian Internet companies not connected to its own business. In the same way that GM decayed into "a healthcare company that also makes a few cars" before it inevitably declared bankruptcy, Yahoo is becoming a holding company with a minor sideline in online services.
And those services are fast diminishing. Yahoo’s abandoned its own search technology and outsourced that gravy train to Microsoft, laid off hundreds of employees, and "sunsetted" a whole panoply of others, including popular bookmarking site Del.icio.us -- in an erratic way described by some as "complete disarray." Former employees of once-hot startups bought by Yahoo depict their time spent there as "15% building new features, 85% dealing with Yahoo."
What happened? The easy answer is bureaucracy, especially with that 85/15 quote; but the truth is subtler and more complex. Yahoo's fundamental problem was summed up by seed funding firm Y Combinator's Paul Graham in August, before the signs of decay were obvious to everyone. The whole essay is worth reading, but the key quote is this: "Yahoo treated programming as a commodity."
Managers and executives who don't understand programming want to believe that it's just plumbing, and that programmers are fungible. This is simply not the case. A good programmer isn't a mere two- or three-times as productive as a bad one; the multiple is more like 20 or 50, if not higher. Hiring "a programmer" is like signing "a football player"; there are millions who play, but only a minority are good enough for a professional team, and only a tiny few can play in the biggest league.
Yahoo doesn't know what it is, but it thinks it knows what it isn't: a technology company. Yahoo is still a behemoth, in fields like mail, news, and sports -- in other words, areas in which technical innovation is relatively rare and slow. This is no coincidence. Dinosaurs were behemoths, too. But it's only a matter of time before those strengths are whittled away as well, by nimble new competitors.
This seems so self-evident that I can't believe it needs saying, but if you're an Internet company, you're a technology company. Engineers and programmers aren't replaceable parts; they are the essential core of your business.
It's not too late for Yahoo, but it badly needs a homegrown hit. Its once-mighty brand has become such a stigma that today's startups would rather be acquired by anyone else. An in-house triumph would go a long way toward repairing that image, and letting it attract the top-notch engineers who are its only hope. If that doesn't happen, then like all dinosaurs, Yahoo is doomed to eventual extinction.
— Jon Evans is an author, journalist, and software engineer. He resides in Toronto and at rezendi.com.