The Lesson of Yahoo's Fall: Focus on What You Do Best
July 27 2016 - 4:56PM
Dow Jones News
By Christopher Mims
With Yahoo Inc.'s deal to sell its core assets for a mere $4.8
billion, it is easy to forget that it once was more than an
internet-industry curiosity.
There was a time when Yahoo made perfect sense. At Yahoo's
founding in 1994, no one blinked at the idea of re-creating on the
web the "internet portals" that had preceded Yahoo -- AOL, Prodigy
and CompuServe.
As a single website that offered users everything they might
want, portals were apex predators in the heady early days of the
web. Being one meant Yahoo could threaten even giants like
Microsoft, which tried to buy Yahoo for $44.6 billion in 2008.
The funny thing about the portal concept is that it never really
died. And this is the lesson of Yahoo: every internet giant
eventually succumbs to the same hubris when it is at its most
commanding. They fall prey to the notion that they can be the
all-encompassing starting point for every interaction with the
internet.
Take Google, which in 1998 adopted as its mission to "organize
the world's information" and hasn't updated it since. After
usurping Yahoo's throne on the desktop, its product lines
proliferated, from email and a mobile operating system to
productivity software and dozens of smaller projects.
For a time, it seemed like Google could be everything to
everyone, a Yahoo plus a Microsoft plus an Apple. Then in 2010
Facebook eclipsed Google in the amount of time people spent using
it. A year or so later, Google Chief Executive Larry Page delivered
his "more wood behind fewer arrows" memo, declaring that Google
would kill off many of its smaller projects and focus on what was
working.
That 2011 memo seemed to embody the turning point when Google
absorbed Yahoo's essential lesson. It was as if Mr. Page were
publicly acknowledging that disruption by a more nimble competitor
isn't inevitable as long as a company continues to do things that
are essential, and better than anyone else.
Mr. Page's reorganization was a good first step, but Google had
yet to absorb Yahoo's lesson completely. Just over six months after
Mr. Page's memo, Google launched Google+, its ultimately
unsuccessful attempt to compete directly with Facebook.
Today's apex predator -- by share of time spent, if not revenue
-- is Facebook. In its relentless and successful push to increase
user engagement, or the number of users and the amount of time they
spend there, it has become something like the internet's new home
page. Users are spending 50 minutes a day on Facebook's products
already, and the company wants even more of their time. Even
Facebook's acquisitions of WhatsApp -- messaging as the new home
page -- and Oculus VR, which sees virtual reality as the new mode
of interaction with the internet -- speak to its ambitions to
become the modern-day equivalent of an internet portal.
This isn't to say that Google or Facebook is the next Yahoo.
Google, only four years younger than Yahoo, has a market value of
more than half a trillion dollars and revenue last year of $73.6
billion. Facebook, founded in 2004, also has continued to grow
sales and profit rapidly. Combined, the pair have managed to lock
up the majority of advertising revenue on the internet.
Neither will be able to command users' attention forever. From
Instagram, which Facebook acquired, to Snapchat, which it couldn't,
Facebook, like Google, has faced one disruptive competitor for
users' attention after another. There will be more.
For both Facebook and Google, the response to every threat has
historically been to launch or acquire a service that can compete.
Sometimes this strategy works, but at what opportunity cost?
Google's failed social and media products attest to this cost.
It is impossible to know what Google would have done if it
hadn't done these things. To take but one example, it might have
used the resources devoted to trying to get everyone to log into
YouTube with a Google Plus account to instead better position
Google to compete with Facebook and Snapchat in video.
As for Facebook, remember when the company's Graph Search was
set to dethrone Google Search? More recently, whatever challenges
the company is failing to meet in its quest to compete with, for
example, Snapchat will only be clear in hindsight.
It is too early to call Facebook's Live video service a success
or failure. The company hasn't disclosed numbers that would help us
quantify its adoption. In April, CEO Mark Zuckerberg said only that
"we're at the beginning of a golden age of online video."
But the fact that the company has to pay people to use the
service doesn't bode well. Internet giants don't lose their
competitive advantage overnight. When a company is in the middle of
being disrupted, the process can seem to move at glacial speed. But
it is worth pondering the idea that one way companies make
themselves vulnerable to disruption is by responding incorrectly to
the possibility of disruption. By trying to be everything to
everyone, by trying to respond to every competitor, big companies
waste time copying rather than doing the things only they can
do.
Write to Christopher Mims at christopher.mims@wsj.com
(END) Dow Jones Newswires
July 27, 2016 16:41 ET (20:41 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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