March 29, 2020
How Yahoo Failed to Buy Google (Twice)

How Yahoo Failed to Buy Google (Twice)

Yahoo: the tech giant that came very close
to conquering the Internet and yet nevertheless lost it entirely. The fall of Yahoo has many causes, but it’s
mostly about missed opportunities and in this video we’re gonna look at what is arguably
the biggest missed opportunity in the history of mankind: how Yahoo failed to purchase Google
not once, but twice. This video is brought to you by Skillshare. Watch my classes on how the stock market works
for free by registering with the link in the description. Towards the mid 1990s, the Internet was still
an untapped world full of possibilities. It was becoming clear that there was money
to be made, but the specifics of how to do that were still very much up for debate. Yahoo at the time was one of the biggest players
in the Internet gold rush: it wasn’t the first, but it had a very solid concept behind
it. Back when the Internet was tiny, the founders
of Yahoo had the brilliant idea of organizing all the uncharted websites into a neat human-curated
directory, which would be very convenient to the average user. The Yahoo search engine actually emerged as
a byproduct of this directory and it was never really the focus. In fact, at one point early in its development
the Yahoo design team experimented putting the search box not at the top of the homepage,
but at the bottom. During these early days Yahoo saw phenomenal
success: it was one of the first companies to embrace banner ads, which were effectively
the first big revenue stream coming directly from the Internet. The early banner ads were primitive, but still
very profitable. At first, companies would literally rent space
on the Yahoo homepage like a billboard for $10,000 a month and then as the technology
improved Yahoo would start charging its advertisers based on impressions, or how many times their
banner ads were seen by users. But banner ads had a very dangerous incentive:
they encouraged Yahoo to keep its users on its own website for as long as possible. In a way, banner ads came into conflict with
the very purpose of Yahoo; after all, it was created to help you find the best website
for any given topic, which implicitly means not keeping you on forever. But when the money started flooding in, banner
ads became the new philosophy and Yahoo began expanding its own functionality. It was no longer just a search engine, but
a fully-functional web portal, and to be fair the same sort of decision-making came to dominate
Yahoo’s competitors, as well; in fact, this period of the Internet’s history came to
be known as the portal wars. Yahoo thought it could become the Internet
for its users; it thought it could contain everything they could possibly need on
and this philosophy further relegated the search-engine aspect of Yahoo to the sidelines. Of course, even though the Yahoo management
did not consider search as important, there were some people out there who did. Two PhD candidates at Stanford, for example,
Larry Page and Sergey Brin, tried to create a better search engine than the one neglected
by Yahoo and they did succeed. In 1996 they developed an algorithm called
PageRank that could determine the relative importance of a given web-page based on how
many other pages linked back to it and how important they were. It was an extremely effective algorithm; in
fact, it was too effective: when Larry and Sergey tried selling PageRank to Yahoo in
1997 for just $1 million, they were met with very surprising criticism. The Yahoo executives argued that using PageRank
would actually hurt Yahoo because people would find whatever they were looking for too fast
and they’d see fewer banner ads in the process, reducing Yahoo’s revenue. Without a buyout offer, Larry and Sergey were
left with no choice: they had to drop out of Stanford to develop their own search engine,
Google. Over the next two years, while Google was
refining its product and rapidly gaining a loyal userbase due to its high quality, Yahoo
and the other portals were basically stuck in time. They did make millions of dollars from banner
ads, but most of what they earned was spent on generating content for their portals: a
section with games for kids, a place to book tickets for traveling, a job board and numerous
shopping sites. Yahoo was indeed becoming the Internet for
some people, but it was also neglecting its directory, which was still being curated by
actual people even despite the exponentially increasing number of websites on the Internet. Eventually that method became unsustainable
and Yahoo actually started licensing the Google search engine from 1998 onwards for $7 million
a year even though they had passed on the offer to outright purchase it just one years
earlier. But while Yahoo was rolling in the banner
ad money and didn’t care, Google had to innovate or die. Google’s user-first approach outright rejected
banner ads, but instead it naturally led them to paid search: charging advertisers for their
ads to appear at the top of search results in non-intrusive text format, almost as if
they were part of the results themselves. To be fair, it wasn’t Google that came up
with this concept: the first paid search program was started by a website called But Google improved on what GoTo had created
significantly: to start things off, Google allowed advertisers to buy ads directly from
Google, whereas with Yahoo and all the other portals you had to go through a sales agent
first. Google automated this entire process, opening
it up to small businesses in addition to big corporations. The program Google created came to be known
as AdWords and it was released in late 2000, just in time for the dot-com crash which killed
many of the portals Yahoo was competing with. Yahoo itself survived, but it knew it needed
to change and to that end management made a very radical decision: they brought in a
CEO with no experience in any tech company. That man, Terry Semel, had been the CEO of
Warner Brothers, which earned him a good reputation in Hollywood, but not in Silicon Valley. He joined Yahoo in 2001 and the idea was that
he would give a fresh perspective on things, which to his credit he actually did. He saw that banner ads were going the way
of the dinosaur and that paid search was the future, which led him to a very easy conclusion:
Yahoo had to get into paid search. There were two ways of doing that and Terry,
being a practical man, went with the easiest one first: he tried to buy Google. In 2002 he opened negotiations with Larry
and Sergey and after exchanging some numbers Terry presented them with an offer: $3 billion
for the entirety of Google. By this point, however, Larry and Sergey knew
that they were in the driver’s seat; after all it was Yahoo coming to them, not the other
way around, which is why they made a counter-offer: $5 billion. That number would change things a lot: you
have to remember that in 2002 Yahoo had barely recovered from the dot-com crash and in fact
its market cap was hovering exactly around $5 billion. In other words, what Larry and Sergey were
proposing was not an acquisition, but a merger between equal companies. To a veteran negotiator like Terry, this sounded
unacceptable so he had to go with his plan B: to beat Google at their own game. To that end, Terry had to acquire a few things:
to start, he needed a new search engine and at the time, after Google, the second best
search engine was Inktomi. Like Yahoo, Inktomi had crashed incredibly
hard in the aftermath of the dot-com crash, which is why Yahoo could buy it for dirt cheap:
for just $250 million in 2002, when a year earlier it was worth $25 billion. With a search engine in hand, Terry then needed
an ad platform to monetize it with, so in 2003 he purchased the original paid search
platform, which by then had been renamed to Overture. Now, Terry had all the pieces of the puzzle
and he just needed to combine them, but that proved much more difficult than expected. Much of the underlying technology was outdated:
Overture’s ads, for example, still had to be reviewed by a human, compared to the fast
automated system AdWords used from the very start. It took Yahoo two full years to integrate
the vastly different technological foundations of Overture and Inktomi, but by that point
they were already too late. When Yahoo bought Overture in 2003, they were
tied with Google for ad revenue, but just three years later Google’s revenue was twice
as big and this trend only continued. Of course, not buying Google was just one
of numerous mistakes Yahoo made that eventually led to their demise, but it is easily the
most expensive one. What Yahoo could’ve acquired for $5 billion
in 2003 is now worth over half a trillion, so suffice to say not buying Google stock
was a bad decision. What would not be a bad decision though is
learning about the stock market. As you might already know, I recently released
my second Skillshare course on investing, which explains in detail how stocks are valued
and how they work. Here’s the good thing though: you can watch
both my classes for free right now if you’re one of the first 500 people to sign up for
Skillshare using the link in the description. I’m sure you’re gonna enjoy the 60 minutes
of animated content and I’d appreciate it a lot if you share it around once you’re
done watching. In any case, I’d like to thank you for watching
this video and I really hope you enjoyed it. You can expect to see my next video two weeks
from now, and until then: stay smart.

100 thoughts on “How Yahoo Failed to Buy Google (Twice)

  1. I don't think by yahoo buy google they can become a winner,
    if they somehow success on buying Google, probably they just make google a same kind of junk like yahoo
    or the worse, they brought both yahoo and google to the brink of bankruptcy,
    yahoo just not as sharp as Google,

  2. You know, if Yahoo bought many Google. they will apply what Yahoo's feature the banner ads to Google right? From the start, Yahoo already fails even they got Googl, and someone will create what is Google right now with a different name.

  3. I miss the directories. Both google and yahoo. Sometimes you just don't know what to search for and want to explore.

  4. Well I cant really blame yahoo. They probably couldn't imagine google being worth that much today. It's amazing how you can beat someone

  5. we are lucky yahoo didn't buy google.

    yahoo valued money over innovation and progression of the human race to create something that truly benefits mankind.

    google "Don't be evil" is a motto used within Google's corporate code of conduct.
    we don't know about that now but.

    what did yahoo do what did all these old companies do? Their philosophy was to squeeze and abuse the consumers.
    the board of directors and owners of yahoo destroyed yahoo not just because they missed the chance in buying google.
    vulture capitalism vs innovative capitalism

  6. Can't even find you on Skillshare after using your link to sign up…

    You shouldn't have your Skillshare profile set to private when you're a creator of a course. Just a little tip for you, had to browse using keywords to find ya.

  7. This argument of not buying something is just stupid. If Yahoo would have bought Google, Google would not have been what it is today.

  8. Google is just more convenient to use since it's on most phones. If Yahoo was the main search engine on android phone more people would use it.

  9. Hey, when I clicked your link for skillshare and started my free trial, it said that your profile is private, what can I do to get access to it?

  10. I can’t remember the last time I used Yahoo as a search engineer…2002? No back then I had already switched to AltaVista. Today, Yahoo is reduced to nothing more a social news page for celebrity gossip and rumors…it’s basically white leople’s WorldStarHipGop.

  11. I was introduce to the internet in the 1990s by using Yahoo search engine on a public computer inside a library. Because of that today I use both Yahoo and Google. Yahoo still have hundred of million users worldwide. Google learned from Yahoo banner adds mistake and created a better search engine. There is no way Google owners would have sold or merged with Yahoo in the second negotiation after winning the search engine war. The unacceptable $5 billion ( 5 symbol of death) by Google was a clever way to say no to Yahoo.

  12. why would yahoo buy out google? yahoo was never successful enough to buy out google, yahoo compromised too much data too often, it's why their stock was always worthless, remember the love you mail viruses? that was yahoo based mail

  13. Its a good thing that this purchase didnt happen, yahoo was more focused on making money while google is all about innovation which made them money

  14. If Yahoo bought Google, then Google wouldn't become the company it is today with all the services.
    We would be in worse place today

  15. Conclusion: yahoo was fallen because they stopped thinking the way users perceive it. That over-ads just ridiculous.
    Greedy at its best.

  16. But What other option did Yahoo had other than declining the purchase of Google on the first deal?
    Their reason was fair enough to decline that purchase,I guess.
    Was there really any other way?

  17. in 2009 I went for an interview asked for an opportunity but they behaved very rudely I was very disappointed that day but today they are in bottom currently.

  18. Yahoo lost its proposition value which was making search easy for average users, they focused too much on making revenues that they lost what their mission was.

  19. Thank god yahoo did'nt bought google if they did we might not have youtube, and many more things we love from google

  20. A very well-explained video. I guess I still don't get Yahoo vs. Google because I use my url field to search, and find both Google's and Yahoo's ad's to be intrusive! :/

  21. Thank GOD. Yahoo! is the biggest JOKE on the plane. Their homepage says it all, with its' childish (what passes for) "news" and censors free speech even more so than Joogle! I used to fix computers and I would always put Yahoo! as peoples' homepages. I slowly noticed that their news was like reading People magazine or even worse women's mags with topics like "OMG! Justin Bieber got a haircut!" They are much like Bing, putting absolute children's stuff on their front page. Their Finance section is pretty good, however; you would think that the site thinks that all of its' adult traffic have the I.Q. of a brick – or have taken way too many vaccines to make themselves act like children. 66 vaccines for an Elementary school child. Yep, that would certainly affect a person's cognitive function. To even want a vaccine, you have got to be one STOOOOPID ass mofo. Search a shit site like Yahoo! and you'll get nothing but "how wonnnnderfull vaccines are!!!" (Joogle will go this way, too, yet more slowly.) See, people who have a hard-on for vaccines, beLIEve their jew-written/published and edited books, saying that billions of people died from polio, THE PLAGUE and all sorts of other historical nonsense!!! How come our books only go back approx. 100 years or so?!?! They are hiding our REAL his story!!! They call it "history," because it IS "his story"; probably some jew who came up with the lies to SCARE the SHIT out of people – back when the hypodermic needle came out!!!

  22. The guy that got his money out from owning Apple with Jobs lives in Pahrump, Nevada now….Ronald Wayne left Apple with $800 for his 10% of the company with Jobs and Woz…..he said if he'd stayed he wouldve been the richest man in the cemetary.

  23. I actually took your skillshare class and thought your voice sounded familiar in your youtube videos. Anyways, loved your lessons and it got me into stock trading as a side gig!

  24. I sure wish YAHOO would come back and run Facebook and Google away ! Its wide open FOR competition. Jyst don't sell OUT…slow and sure . Make a place for conservatives….because Facebook utube and Google would have to half the users.
    Facebook is lying about how many people will view your adds anyway….there are so many made up fake accounts. Its a rip off.

  25. Yahoo, AOL, MySpace, and Napster. All had the world in the palm of their hands, but ended up wiping them clean.

  26. You eft out the questionable hiring processes for the sake of politics that finally brought the company down

  27. once the great company and suddenly fall down, Check out the stories about why BalckBerry failed @t

  28. Yahoo is still a very big player behind the scenes in technology, especially in content creation. So, it hasn't been through a demise, just transformed into a different type of player in the market.

  29. Fortunately that doesnt happen, obviously the yahoo simply doesnt have it take to go beyond the next level, people at the top like lady ceo was just outright imcompetant, we can all see that

  30. Dropped Out Of Stanford, But With The Help Of Uncle Sam, and Most Likely C.I.A Made It Huge. Look At Goggles Original Web Address Was A Govt One. Look It Up! SURPRISE!!! DATA COLLECTION!!! Goggle, Email, Twitter, Facebook, etc.

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