What Causes the Downfall of Yahoo?

Yahoo becomes another powerful enterprise after Kodak and Nokia only left with previously glorious achievements. What confuses people is that this previous giant owns sufficient technology only left with previously glorious achievements. What confuses people is that this previous giant owns sufficient technology， capital and excellent human resources， especially with its abundant patent technologies， but why does it still have to face an entire collapse？ What directly takes the lead of the developments of emerging markets？

Yahoo， the once most popular website， now falls into the its lowest as the mobile internet develops. What makes people feel incredible is that there are still many fundamental patents applied at an extremely high frequency， and its patent value is still between 3-4 billion US dollars. But the fact of its core as- sets being bid shows that Yahoo has no other way to go but to fall.

19thApril， 2016 was the deadline of the first round bid of Yahoo. As early as in the beginning of the year， Yahoo had predicted its collapse and admitted the company was in terrible operation and declared “exploring more strategic choices” as always where sales of its core patents are now included. Following this， there are many international media reporting Yahoo`s demise on 18th April.

Although Yahoo`s stock shares are still traded in Exchanges and its website operation shows no chaos， its latest quarterly financial report tells that its Q1 total revenues only stood at 1.087 billion dollars with last Q1 at 1.226 billion dollars， its net loss reached 99 million with its last Q1 net profit of 21 million dollars. While Google`s parent company had total revenues of 20.257 billion dollars in Q1 with a Y-o-Y increase of 17%.

Yahoo， the once absolute leader in the internet industry， laid the foundation of search business and mobile internet businesses， and after 21 years， its search businesses are completely replaced by Google and the halo of its mobile internet businesses are robbed away by Facebook.

Yahoo`s positioning has been always in dispute between contents and technology. To understand this， it is good to understand its development history. In 1994， Yahoo was established in USA and it only took three years to become overwhelmingly popular among Netizens， and its later launched Yahoo e-mails， Yahoo searches and Yahoo games became the internet legends. On 12th April， 1996， it went public in Wall Street. However， Google was es- tablished in 1997 focusing on internet search businesses and became a major threat in the future. Yhaoo， instead， was still confronted with the choice between content and search technology， and its sway resulted in the equal distribution of its limited resources.

The most typical case was Yahoo`s two M&A deals then： one is Yahoo purchased Geocities at 3.6 billion dollars which provided free webpage， and purchased at 5.7 billion dollars. If the latter purchase embodied its distribution into “contents”， then the former should go to the “search” part as it could propel the growth of search businesses. But Yahoo`s developments of website all contributed to Google`s future in the end.

It`s noteworthy that Yahoo was the beneficiary of the internet investment bubble during 1995 and 2001， its share price at the early stage obtained record increases and facilitated investments in great amount. But to some extent， the bubble formed its habits of being not very rigorous. For example， Yahoo always emphasized the role of website search but stopped further innovation after it gained market shares at the first place. That`s why it failed to maintain its leadership for a long time. In the meanwhile， Yahoo once attempted to build a utility portal of search and contents by adding services of Weather Forecast， News， Financial & Economical Reports， sports， etc. In its heyday， it even provided services of Website Trusteeship， Chatting Room， E-mails， etc.

Yahoo was exploiting the Browse Tree search system but lacked intellectualized search engine support， which finally led to Yahoo`s welcome of Google and Bing. Actually， Yahoo`s equal distribution of investments only stopped when Marissa Mayer became CEO in the second half year of 2012， who was previously senior manager in Google.

Mayer immediately did the positioning for the company and set “providing users with searches of information， connections， recreations” as the foundation. However， this didn`t help a lot escape the sway between technology and media； on the contrary， it pushed Yahoo into definite ruins after temporary prosperity.

One of Mayer`s important strategic measures was trying to convert search website into news and recreation website. She did a lot creating original articles including hiring several famous TV journalists， and also updated services of weather， map and internet albums. But it didn`t attract enough new users. Without frustration， she moved quarterly financial report meetings on the website and turned boring conference calls into interesting news. On 20th May of 2013， Yahoo surprisingly launched Flickr and then purchased Tumblr at the high price of 1.1 billion dollars.

Flickr was originally a platform of photo sharing， but didn`t make any changes to cater to mobile users. When Mayer realized the problem， it was too late to make any change as Facebook established in 2004 launched mobile services in 2006 and gained active users of 1 billion in 2012. It means， from users` psychological perception， Flixkr lagged far behind Facebook. If Flickr couldn`t emerge as an innovative product， it had to fade away in the shadow of Facebook. Tumblr had the same fate； although this blog platform witnessed increases of users in the hands of Yahoo， it still failed to shake the market shares of Facebook. If great investment in Flickr and Tumblr still couldn`t change Yahoo`s fate， then Yahoo utterly lost its search battle. Public information shows that almost all of its search businesses have been supported by Microsoft since the beginning of 2012. Worse than that， Yahoo began to sell its key technologies in the search field after 2010.

Yahoo made misjudgments of its core assets and non-strategic assets. The largest mistake Yahoo has ever made was it failed to create more competitive products after it obtained success in the search business and the e-mail sector.The essential reason behind this could be plainly ascribed to wrong corporate positioning. It bound together the “information” sector and the “recreation”sector， which offered opportunities to Google and Facebook in corresponding fields.

Two typical cases were that 1） it didn`t consider AOL as its competitor， leading to the possibility of being acquired by Verizon， and 2） it had no clear strategic direction， leading to no particular sensitivities. Core technology should be what Google and Yahoo strategically target at， but Mayer neglected this and classified its assets into core assets as search engine and non-strategic assets as patent， etc. She always held that nonstrategic assets could be sold in order to mitigate capital pressure when the company fell into predicaments.

This led to Yahoo`s sales of 3157 patents from 2010-2016 and some of them were sold to its competitors or potential competitors. For instance， Yahoo sold 20 patents to Snapchat （11）and LinkedIn （9）with total sales price of 11.1 million US dollars. Yahoo also sold 55 patents to Google in 2014 covering contents of search， positioning， music， social medium， etc.， and respectively sold 26 and 10 patents to Energetic Power Investment and Jollify Management. PhD of Intellectual Property Rights from Beijing University commented that patents share the same function of artilleries and weapons in fierce market competition. So， when Yahoo sold its patents， its so-called core assets were naturally forced to be sold.

It`s safe to say that Yahoo couldn`t escape the current destiny. After the closure of first round sales deadline on 19th April， Yahoo received bids from Verizon Communications， TPG and YP Holdings. What awaits Yahoo is a predictable future.