Yahoo: A Series of Unfortunate Events

Michael Economopoulos, Fordham University:

Oh, how the mighty have fallen! This past week Yahoo was hit with the biggest corporate breach in history with 500 million accounts hacked. This summer, Verizon confirmed a $4.88 billion deal for the core business of Yahoo, leaving the company with just their infamous stake in Chinese e-commerce titan Alibaba and small share of Yahoo Japan.

It’s safe to say that Yahoo finds itself in the worst and most critical situation since its launch as one of the pioneers of the Internet in 1990s. However, how did Yahoo get to this point? How could one of the largest and most reputable names on the web fall to such a humiliating and humbling position?

It all began in 2005, at the height of Yahoo’s popularity, competing with Google and Aol for the top spot in the internet search hierarchy. That’s when Yahoo (under the decision-making of former CEO Terry Semel) made one of the best decisions in its history, and arguably the reason Yahoo continues to exist as a company today. After success in 1996 with branching out to what became Yahoo Japan, Yahoo set its sights on the holy grail of all web markets: China. That year, Yahoo agreed to a $1 billion deal for a 40% stake in a promising e-commerce company on the rise. The name of this up-and-comer of the industry? Alibaba. As Alibaba grew leaps and bounds in the following years, Yahoo’s stock surged alongside it.  However, with Yahoo’s core business falling noticeably and significantly in that timeframe, it was not long before people started to realize that their monster of an asset in Alibaba was eclipsing the true value of Yahoo as a company.

Enter Marissa Mayer. In 2012, after numerous leadership changes in the years prior to the announcement, in a time when Yahoo needed stability most, Yahoo revealed the new face of the company: the former Vice President of Google Product Search, Marissa Mayer. At the time, she was considered one of the most promising figures in the industry, a true superstar of tech. Mayer received an outrageously lucrative contract for her decision to walk aboard the already sinking ship – $117 million over five years. Still, there was optimism and hope, that someone of her experience, promise, and innovation would be able to steer Yahoo into the right direction.

A series of bad investments and poor management decisions soon put to bed any high hopes for Mayer and Yahoo. This chain of irresponsible choices, starting with a 20% loss on a $1.1 billion investment in Tumblr (and several other investments similar to this particularly high profile one) and continuing with a ranking system of employees which unsettled and disgruntled many at the company, finally culminated in a ludicrous ploy to spin off the shares of Alibaba at the end of 2015.

The latter was seen by many as the zenith of incompetence of Mayer. Numerous figures of the finance industry found it inexplicable to be hosting a fire-sale of her most important asset, during a time that Yahoo’s only value came from their stake in Alibaba and Yahoo Japan! Without exaggeration, Yahoo’s core business was worth virtually nothing. In an embarrassing attempt to save face, Mayer eventually took a 180 degree turn on the Alibaba spinoff, which had turned into a saga stretching out for months, and sold the core business of Yahoo to Verizon.

The hack of Yahoo this week, was mere insult to injury, rubbing dirt in the wounds left by a series of terrible decisions, and salt in an open gash of what might have been. Unfortunately, with Marissa Mayer at the helm, it is quite simply not a matter of when Yahoo recovers, it is a matter of if.

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