Ya­hoo-Ver­i­zon deal clo­sure sig­nals end of era

The one­time Sil­i­con Val­ley suc­cess story dis­ap­pears, sub­sumed into the telecom gi­ant.

Los Angeles Times - - BUSINESS BEAT - By Ethan Baron Baron writes for the San Jose Mer­cury News/ McClatchy. The As­so­ci­ated Press was used in com­pil­ing this re­port.

So long, Ya­hoo. Of late it has been a laugh­ing­stock, but the com­pany is also re­mem­bered fondly for its pi­o­neer­ing con­tri­bu­tions to the tech­nol­ogy in­dus­try and Sil­i­con Val­ley.

Ya­hoo Inc.’s tu­mul­tuous $4.5-bil­lion sale to Ver­i­zon Com­mu­ni­ca­tions Inc. closed Tues­day, and now the com­pany has dis­ap­peared, sub­sumed into a telecom­mu­ni­ca­tions gi­ant.

“Ya­hoo’s im­print and im­pact on the val­ley will long out­live its own his­tory,” said Carl Guardino, chief ex­ec­u­tive of the Sil­i­con Val­ley Lead­er­ship Group. “For so many years, [its] cre­ative cul­ture and the in­di­vid­ual lead­ers left an in­deli­ble mark on the val­ley.”

Ya­hoo’s drawn-out demise seemed as much about the laws of na­ture as the laws of busi­ness, as it strug­gled in vain to keep its strength while a wily preda­tor gob­bled up its sus­te­nance. Once Google came onto the In­ter­net scene with a bet­ter al­go­rithm for search­ing, Ya­hoo’s kick­ing and flail­ing at a dig­i­tal ad­ver­tis­ing mar­ket that had left it be­hind pro­vided drama that time af­ter time cap­ti­vated Sil­i­con Val­ley. It made for an epic tale that show­cased the power of rapidly chang­ing tech­nol­ogy to both cre­ate and de­stroy.

“It was dif­fi­cult to watch such a quintessen­tially Sil­i­con Val­ley suc­cess story run its course,” Guardino said. “But it’s a deep re­minder that there is a cy­cle of life for peo­ple and com­pa­nies.”

Dur­ing its as­cen­dance, Sun­ny­vale-based Ya­hoo was a hir­ing ma­chine, with more than 14,000 em­ploy­ees in 2007.

“They were a ma­jor provider of job cre­ation in their hey­day,” said San Jose an­a­lyst Tim Ba­jarin of Cre­ative Strate­gies. “They were a pow­er­house.”

But the fi­nan­cial cri­sis of 2008 was stag­ger­ing for the com­pany, which was still on its heels when Chief Ex­ec­u­tive Marissa Mayer came on board in 2012, the fourth CEO in as many years.

Mayer, Ba­jarin said, “in­her­ited a mess” but then failed to de­liver on “dis­ci­pline, struc­ture and vi­sion.”

De­spite spend­ing bil­lions of dol­lars on ac­qui­si­tions, launch­ing dig­i­tal news mag­a­zines and hir­ing high­pro­file an­chor Katie Couric for Ya­hoo News, Mayer was un­able to halt Ya­hoo’s slide.

One rea­son for that fail­ure was the ex­ec­u­tive team she brought in, and how she led them, said Piv­otal Re­search an­a­lyst Brian Wieser.

“It starts with peo­ple and putting the right peo­ple in place,” Wieser said. “You can get away with the man­ager at the top who may not have the right ex­pe­ri­ence, but if you don’t pick the right peo­ple and give them the au­ton­omy that they need, you’re go­ing to have a dis­as­ter.

“I never doubted that Mayer would be an ex­pert in search. I al­ways doubted she would be on any­thing else.”

Mayer is not join­ing Ver­i­zon — last week, the com­pany ap­proved golden para­chute com­pen­sa­tion for her of $23 mil­lion. Ya­hoo’s email and other dig­i­tal ser­vices will be run by Tim Arm­strong, who has been in charge of AOL. Arm­strong is now chief ex­ec­u­tive of a new Ver­i­zon sub­sidiary called Oath, which will con­sist of Ya­hoo and AOL ser­vices.

Also ham­per­ing Ya­hoo’s growth was “hubris” among ex­ec­u­tives, Wieser said.

“There was not an ap­pro­pri­ate de­gree of para­noia around prospects of com­pe­ti­tion tak­ing your busi­ness away,” he said. “They lost po­si­tions of strength time and time and time again.”

While Ya­hoo was try­ing to find new ways to gen­er­ate rev­enue and jet­ti­son­ing work­ers in a bid to stay af loat, Google and Face­book were eat­ing its lunch, dom­i­nat­ing the dig­i­tal ad­ver­tis­ing mar­ket glob­ally.

In 2014, Ya­hoo fell out of the For­tune 500 for the first time. Mayer ad­mit­ted that year that the com­pany had only started in­vest­ing in mo­bile in 2013 and was “late” and “be­hind.”

All that trou­ble drove Ya­hoo onto the auc­tion block. The com­pany put it­self up for sale in Fe­bru­ary of last year. It ac­cepted Ver­i­zon’s $4.83-bil­lion bid about five months later.

Then came a se­ries of blows threat­en­ing the deal: rev­e­la­tions about a mas­sive hack of at least half a bil­lion Ya­hoo ac­counts’ data, fol­lowed by news that Ya­hoo had known about the breach for nearly two years but kept quiet, fol­lowed by dis­clo­sure of a data breach of more than a bil­lion user ac­counts.

In re­sponse to news of the first hack, Ver­i­zon raised the prospect of back­ing out of the deal. Ul­ti­mately, Ver­i­zon used the data breaches to ne­go­ti­ate a $350-mil­lion dis­count on the sale price.

Ver­i­zon won’t be get­ting Ya­hoo’s prized stakes in two Asian In­ter­net com­pa­nies, Alibaba Group and Ya­hoo Ja­pan. Those will be­long to a new com­pany called Altaba.

It has been more than two decades since Ya­hoo was in­cor­po­rated in 1995 as a di­rec­tory to the World Wide Web. The search pi­o­neer be­gan sell­ing ads, and it went pub­lic the next year. By March 2000, it had be­come a poster child for the dot-com bub­ble: from Jan­uary 1998’s $3-bil­lion mar­ket cap­i­tal­iza­tion, it zoomed to $209 bil­lion in 2000. Then the bub­ble popped, de­flat­ing Ya­hoo’s mar­ket cap to about $5 bil­lion by the fall of 2001.

Ya­hoo’s for­tunes be­gan to sweep up­ward in late 2002, and its mar­ket cap con­tin­ued to rise, reach­ing $61 bil­lion at the start of 2006. Ya­hoo nearly dou­bled the size of its work­force. Then came the fi­nan­cial cri­sis, and rev­enue be­gan fall­ing.

In the mean­time, Google usurped Ya­hoo as the most pop­u­lar on­line search en­gine. By 2007, Google had cracked the 50% mark in the share of all U.S. desk­top searches, ac­cord­ing to ComS­core, while Ya­hoo had 27%. From there, as Ya­hoo’s share slid, Google’s rose, hit­ting 67% in Novem­ber 2014 to Ya­hoo’s 10%. Ya­hoo now has fewer than 9,000 em­ploy­ees and its mar­ket cap was about $35 bil­lion be­fore Ver­i­zon bid on the com­pany.

Elise Amen­dola As­so­ci­ated Press

YA­HOO’S DIG­I­TAL ser­vices will be run by Tim Arm­strong, CEO of a Ver­i­zon sub­sidiary called Oath.

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