WEBVTT 00:00:00.000 --> 00:00:02.680 Welcome back to the Deep Dive. We've got a stack 00:00:02.680 --> 00:00:05.379 of research on the desk today that is, frankly, 00:00:05.519 --> 00:00:07.780 a little overwhelming. We're not just looking 00:00:07.780 --> 00:00:10.400 at a company. We're looking at the digital equivalent 00:00:10.400 --> 00:00:13.460 of, I don't know, the Roman Empire. That is a 00:00:13.460 --> 00:00:16.320 very, very apt comparison. We are looking at 00:00:16.320 --> 00:00:19.980 massive expansion, absolute dominance, and then 00:00:19.980 --> 00:00:23.339 a collapse that was just as spectacular and, 00:00:23.339 --> 00:00:25.739 you know. perhaps just as inevitable as the rise. 00:00:26.219 --> 00:00:29.559 We are talking, of course, about Yahoo. And for 00:00:29.559 --> 00:00:31.079 anyone listening who might be on the younger 00:00:31.079 --> 00:00:34.560 side, say under 30, you might know Yahoo as what 00:00:34.560 --> 00:00:37.380 that finance site or the email address my dad 00:00:37.380 --> 00:00:39.420 uses. It feels like a legacy brand, something 00:00:39.420 --> 00:00:40.759 that's just always been there in the background. 00:00:41.000 --> 00:00:43.520 But the documents we have here, they paint a 00:00:43.520 --> 00:00:46.079 picture of a company that was, for a specific 00:00:46.079 --> 00:00:48.380 generation, the absolute ruler of the internet. 00:00:48.500 --> 00:00:50.859 It wasn't just a website. It was the front door 00:00:50.859 --> 00:00:53.689 to the entire online world. It really was. In 00:00:53.689 --> 00:00:55.570 the mid -90s, if you were going online, you were 00:00:55.570 --> 00:00:57.810 starting at Yahoo. There was no Googling something. 00:00:57.990 --> 00:01:00.289 You Yahoo'd it. And the trajectory we're going 00:01:00.289 --> 00:01:03.509 to trace today from a hobby in a trailer at Stanford 00:01:03.509 --> 00:01:10.849 to a $125 billion behemoth and then to a cautionary 00:01:10.849 --> 00:01:13.409 tale of lost identity is honestly one of the 00:01:13.409 --> 00:01:15.909 most complex business stories of the last 30 00:01:15.909 --> 00:01:17.549 years. And we're going to cover all of it. The 00:01:17.549 --> 00:01:20.069 meteoric rise, the billions of dollars left on 00:01:20.069 --> 00:01:22.769 the table. And let me tell you, the What ifs 00:01:22.769 --> 00:01:25.870 in this story are going to physically hurt to 00:01:25.870 --> 00:01:28.010 hear? Oh, they are painful. And then there's 00:01:28.010 --> 00:01:29.950 the identity crisis that just tore the company 00:01:29.950 --> 00:01:32.069 apart from the inside. But we're also going to 00:01:32.069 --> 00:01:34.810 spend some serious time on the darker chapters, 00:01:34.969 --> 00:01:37.799 the human rights violations in China. and the 00:01:37.799 --> 00:01:40.719 security breaches that exposed 3 billion people. 00:01:40.840 --> 00:01:43.739 3 billion. The China files are particularly heavy. 00:01:43.980 --> 00:01:46.219 It's a side of the story that often gets buried 00:01:46.219 --> 00:01:48.120 under the business failure narrative, but it's 00:01:48.120 --> 00:01:50.200 crucial to understanding the ethical drift that 00:01:50.200 --> 00:01:53.000 happened as the company grew desperate to, you 00:01:53.000 --> 00:01:55.260 know, maintain its footing. So let's start at 00:01:55.260 --> 00:01:59.140 the very beginning. It's January 1994, the dawn 00:01:59.140 --> 00:02:02.280 of the consumer web. We have two electrical engineering 00:02:02.280 --> 00:02:05.299 grad students at Stanford University, Jerry Yang, 00:02:05.879 --> 00:02:08.360 And David Filo. And they're supposed to be writing 00:02:08.360 --> 00:02:10.740 their dissertations. Supposed to be. Right, supposedly. 00:02:11.280 --> 00:02:15.159 But like all great tech founders, they are procrastinating. 00:02:15.159 --> 00:02:17.319 They're spending all their time surfing this 00:02:17.319 --> 00:02:20.259 new thing called the World Wide Web. And you 00:02:20.259 --> 00:02:22.719 have to remember, the web back then was tiny. 00:02:22.919 --> 00:02:25.740 It was disorganized. It was like a library where 00:02:25.740 --> 00:02:27.919 all the books had been dumped in a pile on the 00:02:27.919 --> 00:02:29.939 floor. There was no rhyme or reason to it. It 00:02:29.939 --> 00:02:32.259 was the Wild West. You'd click a link and it 00:02:32.259 --> 00:02:34.080 would be dead. Or it would lead to something 00:02:34.080 --> 00:02:36.900 completely random. Exactly. So they decided to 00:02:36.900 --> 00:02:38.659 build a card catalog. They wanted to make sense 00:02:38.659 --> 00:02:41.180 of the mess. They started a list. Initially, 00:02:41.180 --> 00:02:43.159 it was called Jerry and David's Guide to the 00:02:43.159 --> 00:02:46.120 World Wide Web. Catchy. Rolls right off the tongue. 00:02:46.319 --> 00:02:48.639 Very nostalgic. But they quickly realized they 00:02:48.639 --> 00:02:51.240 needed a better name. They settled on Yahoo. 00:02:51.949 --> 00:02:54.270 Now, there's a bit of a debate in the sources 00:02:54.270 --> 00:02:56.229 about the origin here, and it actually tells 00:02:56.229 --> 00:02:58.129 you a lot about the dual nature of the company 00:02:58.129 --> 00:02:59.789 right from the start. I saw that. There's the 00:02:59.789 --> 00:03:01.430 engineering explanation, and then there's the 00:03:01.430 --> 00:03:03.590 literary explanation. The engineering one is 00:03:03.590 --> 00:03:07.050 a classic backronym, an acronym made up after 00:03:07.050 --> 00:03:10.629 the fact to sound clever. Yet another hierarchically 00:03:10.629 --> 00:03:13.430 organized oracle. Which is incredibly nerdy. 00:03:13.449 --> 00:03:16.270 Just peak Stanford engineering student. Oh, completely. 00:03:16.430 --> 00:03:19.710 But that phrase, hierarchically organized, that's 00:03:19.710 --> 00:03:21.629 the key. We have to come back. to that because 00:03:21.629 --> 00:03:24.509 it defines their entire technology, their whole 00:03:24.509 --> 00:03:26.969 worldview. It really does. But they didn't really 00:03:26.969 --> 00:03:29.430 like that explanation, did they? No. Yang and 00:03:29.430 --> 00:03:31.830 Philo insist the real inspiration came from Jonathan 00:03:31.830 --> 00:03:34.909 Swift's Gulliver's Travels. In the book, a yahoo 00:03:34.909 --> 00:03:38.210 is this rude, unsophisticated, uncouth creature. 00:03:38.469 --> 00:03:41.409 A brute. A brute. And apparently Philo was from 00:03:41.409 --> 00:03:44.250 Louisiana and the term was used as slang there 00:03:44.250 --> 00:03:48.069 for a sort of rural, rowdy southerner. They liked 00:03:48.069 --> 00:03:50.979 the rebellious, anti -corporate vibe of it. Which 00:03:50.979 --> 00:03:53.300 is so ironic considering they were at Stanford, 00:03:53.500 --> 00:03:56.080 the epicenter of what would become the most corporate 00:03:56.080 --> 00:03:58.719 environment on earth. But it fits the 90s web 00:03:58.719 --> 00:04:01.240 aesthetic. It was playful. It wasn't sterile 00:04:01.240 --> 00:04:04.199 yet. Not at all. And that hierarchically organized 00:04:04.199 --> 00:04:07.400 part you mentioned, that is the single most important 00:04:07.400 --> 00:04:10.439 thing to understand about early Yahoo. It wasn't 00:04:10.439 --> 00:04:13.120 a search engine. Not really. It was a directory. 00:04:13.199 --> 00:04:14.819 Let's break that down for the listener. Because 00:04:14.819 --> 00:04:16.899 the distinction between a directory and a search 00:04:16.899 --> 00:04:20.180 engine is arguably the seed of why Yahoo eventually 00:04:20.180 --> 00:04:22.839 lost the war. Think of it this way. A search 00:04:22.839 --> 00:04:25.560 engine, like what Google is today, uses a crawler, 00:04:25.620 --> 00:04:28.360 a bot to scan billions of pages automatically, 00:04:28.600 --> 00:04:31.980 and uses an algorithm to rank them based on keywords 00:04:31.980 --> 00:04:35.100 and links. It's automated. It scales infinitely. 00:04:35.459 --> 00:04:38.939 A directory is manual. Jerry and David were literally 00:04:38.939 --> 00:04:41.759 sitting in a trailer reading websites and deciding, 00:04:41.819 --> 00:04:43.879 okay, this goes under arts humanities literature. 00:04:44.259 --> 00:04:46.199 So it was a curated experience. It was human 00:04:46.199 --> 00:04:48.139 editorial judgment. Someone actually looked at 00:04:48.139 --> 00:04:49.819 the site and said, yes, this is a good site about 00:04:49.819 --> 00:04:53.189 basketball. Precisely. And in 1994 and 1995, 00:04:53.449 --> 00:04:55.870 that was actually superior. The web was full 00:04:55.870 --> 00:04:58.410 of junk and broken links. You didn't want an 00:04:58.410 --> 00:05:00.629 algorithm giving you 10 ,000 random results. 00:05:00.829 --> 00:05:02.790 You wanted a human to tell you, these are the 00:05:02.790 --> 00:05:05.050 five cool basketball sites that actually work. 00:05:05.250 --> 00:05:07.089 That human touch was their value proposition. 00:05:07.569 --> 00:05:10.589 And the market went crazy for it. They incorporated 00:05:10.589 --> 00:05:14.410 in March 1995. They went public in April 1996. 00:05:15.189 --> 00:05:17.550 And the stock chart looks like a vertical line. 00:05:18.009 --> 00:05:19.810 It's the definition of the dot -com boom. It's 00:05:19.810 --> 00:05:22.290 the poster child. The stock rose 600 % in two 00:05:22.290 --> 00:05:25.430 years. By January 2000, at the peak of the bubble, 00:05:25.629 --> 00:05:29.269 it hit an all -time high of $118 .75 a share. 00:05:29.430 --> 00:05:31.269 And the valuation? They were valued at roughly 00:05:31.269 --> 00:05:35.750 $125 billion. $125 billion. Put that in perspective 00:05:35.750 --> 00:05:38.629 for the time. That was larger than Ford, Chrysler, 00:05:38.670 --> 00:05:41.670 and GM combined. For a company that made lists. 00:05:41.970 --> 00:05:43.550 It's just unbelievable. Well, by then they had 00:05:43.550 --> 00:05:45.529 morphed, and this is the first major strategic 00:05:45.529 --> 00:05:47.670 pivot. They stopped just being a directory and 00:05:47.670 --> 00:05:49.750 decided to become a portal. The portal strategy. 00:05:50.149 --> 00:05:52.290 This was the buzzword of the late 90s. Everyone 00:05:52.290 --> 00:05:56.089 wanted to be a portal. AOL, excite Lycos. Everyone. 00:05:56.170 --> 00:05:58.629 The idea was simple. We don't want you to just 00:05:58.629 --> 00:06:01.000 search and leave. We want you to live here. They 00:06:01.000 --> 00:06:02.980 wanted to be the operating system of your life. 00:06:03.180 --> 00:06:06.139 They bought rocket mail to give you email. They 00:06:06.139 --> 00:06:09.019 built Yahoo Finance, Yahoo Sports, Yahoo News. 00:06:09.279 --> 00:06:12.779 The goal was to maximize time on site. Stickiness. 00:06:12.860 --> 00:06:15.180 That was the metric everyone was obsessed with. 00:06:15.259 --> 00:06:17.620 How long can we keep a user on our pages? Right. 00:06:17.740 --> 00:06:20.100 Because if you are looking at ads on Yahoo pages, 00:06:20.259 --> 00:06:22.579 they make money. If you search for something 00:06:22.579 --> 00:06:25.100 and leave to go to another website, they don't. 00:06:25.550 --> 00:06:28.009 This economic incentive, keeping people trapped 00:06:28.009 --> 00:06:30.790 in the Yahoo garden, is what eventually blinded 00:06:30.790 --> 00:06:32.790 them to the next revolution. They were building 00:06:32.790 --> 00:06:35.050 a walled city while the rest of the world was 00:06:35.050 --> 00:06:36.810 building highways. That's a perfect way to put 00:06:36.810 --> 00:06:39.949 it. Which brings us to section two, the what 00:06:39.949 --> 00:06:42.850 -ifs, the missed opportunities. I looked at the 00:06:42.850 --> 00:06:44.670 numbers in the outline and I actually winced. 00:06:44.810 --> 00:06:47.310 It's painful to read. Okay, let's start with 00:06:47.310 --> 00:06:50.009 the big one, the one that everyone knows, but 00:06:50.009 --> 00:06:51.750 the details are even worse than you remember. 00:06:52.089 --> 00:06:55.000 Let's talk about Google. It is brutal. It's a 00:06:55.000 --> 00:06:57.879 masterclass in how success can make you risk 00:06:57.879 --> 00:07:00.699 -averse and blind to disruption. So it's 1998. 00:07:01.199 --> 00:07:04.180 Two other Stanford students, Larry Page and Sergey 00:07:04.180 --> 00:07:06.959 Brin, have a project called BackRub, which they 00:07:06.959 --> 00:07:09.519 eventually rename Google. Right. And their technology 00:07:09.519 --> 00:07:11.800 is fundamentally different. It's not a directory. 00:07:11.959 --> 00:07:15.699 It's an algorithm that ranks pages based on citations, 00:07:15.699 --> 00:07:17.600 how many other pages link to it. It's like a 00:07:17.600 --> 00:07:19.699 peer review system for the web. And they know 00:07:19.699 --> 00:07:21.899 it's better. So they go to Yahoo to pitch it. 00:07:22.139 --> 00:07:24.459 They essentially said, hey, we have this algorithm. 00:07:24.560 --> 00:07:26.639 It's better technology. Do you want to buy it? 00:07:26.720 --> 00:07:29.740 A price tag. One million dollars. One million 00:07:29.740 --> 00:07:34.560 dollars for Google. And Yahoo said no. Why? I 00:07:34.560 --> 00:07:37.459 mean, even in 1998, a million dollars for a tech 00:07:37.459 --> 00:07:40.860 acquisition was not huge money for a company 00:07:40.860 --> 00:07:43.560 like Yahoo. It was a rounding error. It wasn't 00:07:43.560 --> 00:07:45.240 about the money. It was about the philosophy 00:07:45.240 --> 00:07:47.879 we just discussed. The Yahoo executives looked 00:07:47.879 --> 00:07:50.120 at Google and said, wait, this engine works too 00:07:50.120 --> 00:07:52.620 well. It gives people the answer they want instantly, 00:07:52.759 --> 00:07:54.800 and then it sends them away to that website. 00:07:55.060 --> 00:07:57.439 It violated the portal strategy, the stickiness 00:07:57.439 --> 00:08:00.800 metric. Exactly. Why would we pay a million dollars 00:08:00.800 --> 00:08:03.639 for a tool that reduces our user retention time? 00:08:04.199 --> 00:08:07.959 They saw efficient search as a bug, not a feature. 00:08:08.079 --> 00:08:09.920 They wanted you to browse the directory, maybe 00:08:09.920 --> 00:08:12.240 check your stocks, maybe read a headline. They 00:08:12.240 --> 00:08:16.279 didn't want you to leave. That is a staggering 00:08:16.279 --> 00:08:19.959 misreading of human behavior. People wanted answers, 00:08:20.100 --> 00:08:23.089 not a trap. They wanted the highway. not the 00:08:23.089 --> 00:08:25.250 walled city. It's one of the great strategic 00:08:25.250 --> 00:08:27.589 errors in corporate history. But it gets worse. 00:08:27.709 --> 00:08:30.069 It doesn't end there. Oh, no. It gets much, much 00:08:30.069 --> 00:08:32.990 worse. Okay, so fast forward to 2002. The dot 00:08:32.990 --> 00:08:35.409 -com bubble has burst. A lot of their competitors 00:08:35.409 --> 00:08:38.090 are dead, but Yahoo survived. Google is growing 00:08:38.090 --> 00:08:41.470 fast. Yahoo's new CEO, Terry Simmel, he thinks, 00:08:41.509 --> 00:08:43.049 okay, maybe we should buy them now. Right. He 00:08:43.049 --> 00:08:44.850 realizes they might have made a mistake, so he 00:08:44.850 --> 00:08:47.669 enters negotiations with Page and Brin. But the 00:08:47.669 --> 00:08:49.450 price had gone up significantly. What were they 00:08:49.450 --> 00:08:52.049 asking for? The Google wanted $5 billion. Okay, 00:08:52.090 --> 00:08:54.149 still a steal considering Google's worth nearly 00:08:54.149 --> 00:08:57.509 $2 trillion today. But $5 billion is a lot more 00:08:57.509 --> 00:09:00.429 than $1 million. It is. But Yahoo was still a 00:09:00.429 --> 00:09:03.470 giant. They could have done it. But Semmel, he 00:09:03.470 --> 00:09:07.970 balked. Yahoo offered $3 billion. They haggled. 00:09:08.789 --> 00:09:10.809 Over the company that would define the next two 00:09:10.809 --> 00:09:13.169 decades of the Internet, they tried to save... 00:09:13.419 --> 00:09:16.139 a couple billion dollars. They haggled. Semmel 00:09:16.139 --> 00:09:19.259 thought $5 billion was too rich. He held firm 00:09:19.259 --> 00:09:22.860 at $3 billion. And Google's founders, who frankly 00:09:22.860 --> 00:09:24.740 weren't crazy about selling anyway because they 00:09:24.740 --> 00:09:26.870 knew what they had, they just walked away. They 00:09:26.870 --> 00:09:29.750 let Google go over a $2 billion difference. It's 00:09:29.750 --> 00:09:31.649 hard to wrap your head around that level of short 00:09:31.649 --> 00:09:34.190 -sightedness. It's the classic error of valuing 00:09:34.190 --> 00:09:36.330 a company based on its current revenue rather 00:09:36.330 --> 00:09:39.269 than its strategic threat. They didn't see that 00:09:39.269 --> 00:09:41.190 Google wasn't just another website. It was a 00:09:41.190 --> 00:09:43.269 utility that would underlie the entire digital 00:09:43.269 --> 00:09:45.850 economy. They were looking at the balance sheet, 00:09:45.970 --> 00:09:48.370 not the future. But the missed opportunities 00:09:48.370 --> 00:09:50.549 weren't just about buying. They were about selling, 00:09:50.690 --> 00:09:53.750 too. Oh, yes. The other side of the coin. Fast 00:09:53.750 --> 00:09:57.379 forward again. It's 2008. Yahoo is struggling. 00:09:57.600 --> 00:10:00.460 Google is absolutely dominant. And a different 00:10:00.460 --> 00:10:04.080 giant comes knocking. Microsoft. Microsoft was 00:10:04.080 --> 00:10:06.740 terrified of Google's dominance in search and 00:10:06.740 --> 00:10:09.000 advertising. They saw it as an existential threat 00:10:09.000 --> 00:10:11.100 to their whole business. They needed a weapon 00:10:11.100 --> 00:10:14.759 to fight back. So in February 2008, Steve Ballmer, 00:10:14.860 --> 00:10:18.179 the CEO of Microsoft, makes a hostile bid. And 00:10:18.179 --> 00:10:22.019 the number? $44 .6 billion for Yahoo. Nearly 00:10:22.019 --> 00:10:26.120 $45 billion. in cash and stock a massive premium 00:10:26.120 --> 00:10:28.940 over their stock price at the time it was a lifeline 00:10:28.940 --> 00:10:32.120 a golden parachute a chance to be part of something 00:10:32.120 --> 00:10:35.250 huge and competitive again and yahoo said Jerry 00:10:35.250 --> 00:10:37.870 Yang, who was CEO at the time, said it substantially 00:10:37.870 --> 00:10:41.350 undervalues us. They rejected it. They said $45 00:10:41.350 --> 00:10:43.450 billion wasn't enough. They held out for more. 00:10:43.710 --> 00:10:45.929 Microsoft actually bumped the offer to around 00:10:45.929 --> 00:10:49.250 $47 billion, but Yahoo wanted $50 billion plus. 00:10:49.570 --> 00:10:51.690 They leaked memos. They tried to rally shareholders. 00:10:52.129 --> 00:10:54.789 It was a soap opera. They got greedy or delusional. 00:10:54.870 --> 00:10:56.549 They were delusional. They still believe they 00:10:56.549 --> 00:10:58.690 were the ruler of the internet from 1999. They 00:10:58.690 --> 00:11:01.009 didn't realize the market had moved on. Microsoft 00:11:01.009 --> 00:11:03.470 got frustrated and walked away. And looking at 00:11:03.470 --> 00:11:05.899 the notes here. The stock crashed immediately 00:11:05.899 --> 00:11:08.340 after. It fell off a cliff. The shareholders 00:11:08.340 --> 00:11:10.799 were furious. And as we'll see later, when they 00:11:10.799 --> 00:11:13.080 finally did sell the core business, it was for 00:11:13.080 --> 00:11:15.779 about 10 percent of that Microsoft offer. A tenth. 00:11:16.179 --> 00:11:18.919 This is a perfect lead into the identity crisis. 00:11:19.299 --> 00:11:21.820 You touched on it with the portal concept, but 00:11:21.820 --> 00:11:24.360 the sources highlight this content internal war. 00:11:24.779 --> 00:11:27.899 Is Yahoo a technology company or is it a media 00:11:27.899 --> 00:11:30.000 company? This is the schizophrenia that killed 00:11:30.000 --> 00:11:32.940 them. In Silicon Valley, engineering is king. 00:11:33.470 --> 00:11:35.710 Google was an engineering company. They solved 00:11:35.710 --> 00:11:38.830 hard computer science problems. Yahoo, especially 00:11:38.830 --> 00:11:40.730 under Terry Semel, who came from Hollywood, he 00:11:40.730 --> 00:11:42.990 was a Warner Bros. executive, started acting 00:11:42.990 --> 00:11:45.409 like a media conglomerate. They thought content 00:11:45.409 --> 00:11:48.070 is king. Let's buy content. Right. So they went 00:11:48.070 --> 00:11:50.529 on these massive spending sprees to buy content 00:11:50.529 --> 00:11:53.129 and platforms. In 1999, at the height of the 00:11:53.129 --> 00:11:55.789 bubble, they bought Broadcast .com. This was 00:11:55.789 --> 00:12:00.590 Mark Cuban's company. For $5 .7 billion. $5 .7 00:12:00.590 --> 00:12:05.269 billion. Explain what Broadcast .com was for 00:12:05.269 --> 00:12:06.889 context, because the price tag seemed insane 00:12:06.889 --> 00:12:09.470 even by bubble standards. The idea was putting 00:12:09.470 --> 00:12:11.809 radio and sports broadcasts on the Internet, 00:12:11.990 --> 00:12:14.830 which sounds great today. We all stream Spotify 00:12:14.830 --> 00:12:18.470 and watch live sports. But in 1999, most people 00:12:18.470 --> 00:12:21.929 were on 56K dial -up modems. You couldn't stream 00:12:21.929 --> 00:12:24.889 anything. You'd click play and then wait 10 minutes 00:12:24.889 --> 00:12:28.159 for 30 seconds of scratchy audio. It was... Buffering 00:12:28.159 --> 00:12:31.139 hell. Exactly. They paid nearly $6 billion for 00:12:31.139 --> 00:12:33.240 a technology that the infrastructure of the internet 00:12:33.240 --> 00:12:35.639 couldn't support yet. It's widely considered 00:12:35.639 --> 00:12:37.399 one of the worst acquisitions in the history 00:12:37.399 --> 00:12:39.940 of business. The service was eventually just 00:12:39.940 --> 00:12:43.039 shut down and absorbed. And then there's GeoCities. 00:12:43.159 --> 00:12:45.460 This one hits me right in the nostalgia. I had 00:12:45.460 --> 00:12:47.399 a GeoCities page. I think it was dedicated to 00:12:47.399 --> 00:12:50.039 Star Wars. It had the starry background and the 00:12:50.039 --> 00:12:52.779 spinning under construction gif. Everyone had 00:12:52.779 --> 00:12:54.419 one. It was part of the early web experience. 00:12:54.679 --> 00:12:57.799 Yahoo bought GeoCities in 1999 for $3. $3 .6 00:12:57.799 --> 00:13:01.480 billion. At the time, it was the third most visited 00:13:01.480 --> 00:13:04.240 site on the web. So pause here. They owned the 00:13:04.240 --> 00:13:05.899 place where millions of people were building 00:13:05.899 --> 00:13:08.340 profiles, uploading their own content, and forming 00:13:08.340 --> 00:13:10.899 communities around shared interests. Yes. They 00:13:10.899 --> 00:13:13.379 owned the precursor to social media. They had 00:13:13.379 --> 00:13:15.840 Facebook before Facebook. They had MySpace before 00:13:15.840 --> 00:13:18.059 MySpace. They had the users. They had the network 00:13:18.059 --> 00:13:20.659 effects. But because they viewed themselves as 00:13:20.659 --> 00:13:23.080 a media portal, they didn't know what to do with 00:13:23.080 --> 00:13:25.919 user -generated content. How so? They tried to 00:13:25.919 --> 00:13:28.700 wrap it in ads and restrict what users could 00:13:28.700 --> 00:13:30.899 do. They treated it like digital real estate 00:13:30.899 --> 00:13:33.600 that they own rather than a living social network 00:13:33.600 --> 00:13:35.919 that the users owned. They failed to invest in 00:13:35.919 --> 00:13:37.820 the tools, the community features. They just 00:13:37.820 --> 00:13:40.360 saw it as a place to serve more banner ads. And 00:13:40.360 --> 00:13:43.480 they let it rot. They did. It became a spam haven 00:13:43.480 --> 00:13:46.580 filled with pop ups. It looked dated. And then 00:13:46.580 --> 00:13:49.220 in 2009, they shut it down and deleted everything. 00:13:49.399 --> 00:13:51.799 That's a digital tragedy. Just erasing millions 00:13:51.799 --> 00:13:54.600 of pages of Internet history. People's first 00:13:54.600 --> 00:13:57.440 websites. It is. And it proves they didn't understand 00:13:57.440 --> 00:14:01.059 the shift from Web 1 .0. We talk at YouTube Web 00:14:01.059 --> 00:14:03.480 2 .0. You talk to each other. They made the same 00:14:03.480 --> 00:14:05.440 mistake with Flickr, the photo site. They bought 00:14:05.440 --> 00:14:07.659 it, neglected the community, and let Instagram 00:14:07.659 --> 00:14:10.440 eat their lunch. And even later, much later, 00:14:10.559 --> 00:14:13.320 in 2013, they tried to buy their way back into 00:14:13.320 --> 00:14:15.820 cool with Tumblr. This was under Marissa Mayer, 00:14:15.879 --> 00:14:18.139 who we will definitely discuss shortly. They 00:14:18.139 --> 00:14:21.960 dropped $1 .1 billion on Tumblr. The goal was 00:14:21.960 --> 00:14:24.519 to get the young, hip demographic that had abandoned 00:14:24.519 --> 00:14:27.299 Yahoo years ago. Did it work? Not even close. 00:14:27.379 --> 00:14:30.639 It was a total culture clash. They tried to integrate 00:14:30.639 --> 00:14:33.460 it into the Yahoo ad machine, and the user base 00:14:33.460 --> 00:14:36.629 revolted. Tumblr's culture was very specific, 00:14:36.970 --> 00:14:40.549 very RC, and very anti -corporate. Yahoo was 00:14:40.549 --> 00:14:43.149 the ultimate suit. And Mayer famously promised 00:14:43.149 --> 00:14:45.309 not to screw it up. And then they proceeded to 00:14:45.309 --> 00:14:47.169 screw it up. They couldn't figure out how to 00:14:47.169 --> 00:14:49.789 monetize it without alienating the users. They 00:14:49.789 --> 00:14:53.190 had to write down $712 million of the value just 00:14:53.190 --> 00:14:55.549 three years later. It was another failure. So 00:14:55.549 --> 00:14:58.740 we have a pattern here. Buy something hot. Misunderstand 00:14:58.740 --> 00:15:00.980 why it's hot. Force it into the portal model 00:15:00.980 --> 00:15:04.059 and watch it die. Meanwhile, what was happening 00:15:04.059 --> 00:15:06.139 with their search technology? You know, the thing 00:15:06.139 --> 00:15:07.960 they were supposed to be doing. It capitulated. 00:15:07.980 --> 00:15:11.100 This is the surrender. From 2000 to 2004, they 00:15:11.100 --> 00:15:13.500 actually outsourced their search to Google. Wait, 00:15:13.539 --> 00:15:15.059 I think a lot of people don't know this. So if 00:15:15.059 --> 00:15:17.240 I went to Yahoo .com and searched for something 00:15:17.240 --> 00:15:19.580 during that period, I was seeing Google results. 00:15:19.960 --> 00:15:23.559 Yes. It said powered by Google in small print 00:15:23.559 --> 00:15:26.100 at the bottom of the page. Yahoo was effectively 00:15:26.100 --> 00:15:28.620 paying its biggest rival and training its own 00:15:28.620 --> 00:15:30.679 users that Google provided the best answers. 00:15:30.860 --> 00:15:33.600 That is strategic suicide. You're literally advertising 00:15:33.600 --> 00:15:35.779 for the company that's killing you. It's unbelievable. 00:15:35.840 --> 00:15:37.460 By the time they tried to build their own engine 00:15:37.460 --> 00:15:40.100 again, buying companies like Inktomai and Overture, 00:15:40.299 --> 00:15:43.600 the brand war was over. Google was a verb. Yahoo 00:15:43.600 --> 00:15:47.120 was a dinosaur. In 2009, they gave up entirely 00:15:47.120 --> 00:15:49.659 and signed a 10 -year deal with Microsoft to 00:15:49.659 --> 00:15:52.419 use Bing's engine. So Yahoo became a zombie search 00:15:52.419 --> 00:15:55.419 engine, a Yahoo skin. On a Bing body. Correct. 00:15:55.639 --> 00:15:57.759 They became an ad sales team. The technology 00:15:57.759 --> 00:16:00.000 company had ceased to do the technology. Their 00:16:00.000 --> 00:16:01.779 engineers were just maintaining old systems. 00:16:01.899 --> 00:16:04.700 All the talent left. This brings us to the savior 00:16:04.700 --> 00:16:07.840 era, section four. The board realizes they're 00:16:07.840 --> 00:16:10.039 in deep, deep trouble. They need a visionary. 00:16:10.200 --> 00:16:13.409 In 2012, they hire Marissa Mayer. And this was 00:16:13.409 --> 00:16:15.570 huge news. I mean, front page of every paper. 00:16:15.950 --> 00:16:18.509 Mayer was employee number 20 at Google. She was 00:16:18.509 --> 00:16:20.889 a geek celebrity. She was young. She was a brilliant 00:16:20.889 --> 00:16:23.129 engineer. She was obsessed with user experience. 00:16:23.730 --> 00:16:26.889 The hope was she would turn Yahoo back into a 00:16:26.889 --> 00:16:28.909 tech company. She would bring the Google magic. 00:16:29.210 --> 00:16:31.169 But the cultural transplant didn't take. It was 00:16:31.169 --> 00:16:33.870 a violent organ rejection. She tried to impose 00:16:33.870 --> 00:16:36.649 Google's intense, high performance, data driven 00:16:36.649 --> 00:16:40.110 culture on Yahoo's sleepy, bureaucratic nine 00:16:40.110 --> 00:16:42.879 to five workforce. And the first. Big controversy 00:16:42.879 --> 00:16:46.259 was the remote work ban in 2013. Right. At the 00:16:46.259 --> 00:16:48.139 time, tech was moving toward more flexibility. 00:16:48.720 --> 00:16:51.200 Mayer went the other way. She revoked work from 00:16:51.200 --> 00:16:53.899 home privileges for everyone. The memo leaked 00:16:53.899 --> 00:16:56.100 and the Internet just exploded. What was her 00:16:56.100 --> 00:16:58.799 justification? She argued that innovation happens 00:16:58.799 --> 00:17:02.840 in the hallways, in the cafeteria. You need serendipitous 00:17:02.840 --> 00:17:05.359 collaboration. Some of the best decisions and 00:17:05.359 --> 00:17:07.680 insights come from hallway and cafeteria discussions, 00:17:07.920 --> 00:17:10.500 is what the memo said. And frankly, she wasn't 00:17:10.500 --> 00:17:12.539 entirely wrong. The reporting suggests Yahoo 00:17:12.539 --> 00:17:16.059 had a lot of ghost employees who were technically 00:17:16.059 --> 00:17:18.680 working from home but not doing much actual work. 00:17:18.819 --> 00:17:20.799 She was trying to shake things up. She was trying 00:17:20.799 --> 00:17:23.900 to shock the system back to life. But the execution 00:17:23.900 --> 00:17:27.759 seemed punitive and out of touch. It was. But 00:17:27.759 --> 00:17:30.500 the bigger, more controversial issue was the 00:17:30.500 --> 00:17:33.640 QPR system, quarterly performance review. The 00:17:33.640 --> 00:17:36.319 stack ranking. Or the bell curve. Yeah, this 00:17:36.319 --> 00:17:38.900 sounds brutal. It's a system where managers were 00:17:38.900 --> 00:17:41.160 forced to distribute their team members across 00:17:41.160 --> 00:17:43.779 a curve. A certain percentage had to be at the 00:17:43.779 --> 00:17:46.200 top, a certain percentage in the middle, and 00:17:46.200 --> 00:17:48.099 a certain percentage had to be at the bottom, 00:17:48.240 --> 00:17:51.519 labeled misses. Even if you have a team of five 00:17:51.519 --> 00:17:54.259 superstars, one of them has to be labeled a miss. 00:17:54.720 --> 00:17:56.559 Someone has to be the loser. And if you were 00:17:56.559 --> 00:17:58.539 at the bottom for a couple of quarters, you were 00:17:58.539 --> 00:18:01.339 often fired. It was a way to manage out the bottom 00:18:01.339 --> 00:18:04.099 5, 10 % of the company every year. That completely 00:18:04.099 --> 00:18:06.920 destroys morale. It means I'm not competing against 00:18:06.920 --> 00:18:08.680 Google. I'm competing against the guy sitting 00:18:08.680 --> 00:18:11.099 next to me. Exactly. It kills collaboration. 00:18:12.039 --> 00:18:14.200 Why would I help you if your success pushes me 00:18:14.200 --> 00:18:17.240 down the curve? It led to massive internal politics, 00:18:17.539 --> 00:18:19.920 managers trading employees like baseball cards 00:18:19.920 --> 00:18:22.859 to fit their curves. And eventually it led to 00:18:22.859 --> 00:18:25.200 lawsuits. The discrimination lawsuits. This was 00:18:25.200 --> 00:18:27.880 unexpected. Usually in tech, we hear about discrimination 00:18:27.880 --> 00:18:31.650 against women. But in 2016, a prominent editor 00:18:31.650 --> 00:18:35.329 named Scott Ard sued, claiming Mayer was systematically 00:18:35.329 --> 00:18:38.509 purging male employees. What was the basis of 00:18:38.509 --> 00:18:41.309 that claim? He argued the QPR system was subjective 00:18:41.309 --> 00:18:44.410 and manipulated. He has stellar reviews for years. 00:18:45.049 --> 00:18:48.450 Then, suddenly, under the new regime, he's rated 00:18:48.450 --> 00:18:51.230 as a miss and fired, and his role is given to 00:18:51.230 --> 00:18:53.930 a recent female hire he had managed. Another 00:18:53.930 --> 00:18:56.529 employee, Gregory Anderson, filed a similar suit, 00:18:56.670 --> 00:18:58.670 claiming he was fired because of his gender. 00:18:59.069 --> 00:19:01.670 And the lawsuit alleged this was a pattern. Yes, 00:19:01.690 --> 00:19:03.930 that the rating system was being used as a cover 00:19:03.930 --> 00:19:06.470 for illegal mass layoffs and that Mayer's personal 00:19:06.470 --> 00:19:09.289 preferences were influencing who got fired. Whether 00:19:09.289 --> 00:19:11.289 the bias was real or not, it paints a picture 00:19:11.289 --> 00:19:13.730 of a toxic cutthroat environment. It sounds like 00:19:13.730 --> 00:19:16.049 chaos. But while the employees were fighting 00:19:16.049 --> 00:19:18.750 each other, a much darker storm was brewing regarding 00:19:18.750 --> 00:19:21.609 user safety and ethics. This brings us to the 00:19:21.609 --> 00:19:23.829 most disturbing part of the Yahoo story. It really 00:19:23.829 --> 00:19:26.680 is. Section five, the dark side. I think a lot 00:19:26.680 --> 00:19:28.039 of people know about the business failures, but 00:19:28.039 --> 00:19:30.319 the human rights stuff, this is heavy. Let's 00:19:30.319 --> 00:19:32.220 talk about China. This is where the identity 00:19:32.220 --> 00:19:35.839 crisis became genuinely dangerous. Yahoo wanted 00:19:35.839 --> 00:19:37.900 to do business in China. It was a huge growing 00:19:37.900 --> 00:19:40.559 market. But to do that, you have to play by the 00:19:40.559 --> 00:19:42.960 Chinese Communist Party's rules. And the extent 00:19:42.960 --> 00:19:45.599 to which they played along is startling. Enter 00:19:45.599 --> 00:19:48.400 the Xitao case. Shi Tao was a Chinese journalist. 00:19:48.720 --> 00:19:51.480 In 2004, the Chinese government sent out a secret 00:19:51.480 --> 00:19:54.119 order to media outlets telling them not to cover 00:19:54.119 --> 00:19:56.740 the 15th anniversary of the Tiananmen Square 00:19:56.740 --> 00:20:00.039 massacre. Standard censorship. Right. Shi Tao 00:20:00.039 --> 00:20:02.599 used his personal Yahoo email account to send 00:20:02.599 --> 00:20:05.039 a summary of that government order to a pro -democracy 00:20:05.039 --> 00:20:07.960 website based in New York. He was blowing the 00:20:07.960 --> 00:20:09.900 whistle on censorship. Thinking he was anonymous. 00:20:10.240 --> 00:20:12.720 He thought. The Chinese police went to Yahoo 00:20:12.720 --> 00:20:15.519 Holdings in Hong Kong and demanded the user details 00:20:15.519 --> 00:20:39.980 for the account. And Yahoo. And he wasn't the 00:20:39.980 --> 00:20:42.720 only one. There was Wang Shoning, a dissident 00:20:42.720 --> 00:20:45.660 writing pro -democracy essays. Yahoo handed over 00:20:45.660 --> 00:20:49.039 his data to another 10 year sentence. How did 00:20:49.039 --> 00:20:52.259 Yahoo defend this? What could they possibly say? 00:20:52.420 --> 00:20:54.680 At first, they played dumb. They issued statements 00:20:54.680 --> 00:20:57.740 saying. We just complied with a lawful request 00:20:57.740 --> 00:20:59.400 from a government. We didn't know the nature 00:20:59.400 --> 00:21:01.319 of the case. Is that true? It didn't hold up 00:21:01.319 --> 00:21:03.779 under scrutiny. Later, during congressional hearings 00:21:03.779 --> 00:21:05.960 in the US, it came out that the police paperwork, 00:21:06.220 --> 00:21:09.819 the warrant itself, actually cited inquiry into 00:21:09.819 --> 00:21:12.579 suspected illegalities of inciting subversion. 00:21:12.859 --> 00:21:15.359 The state secrets element was right there. So 00:21:15.359 --> 00:21:17.710 they knew. Or they should have known. Human rights 00:21:17.710 --> 00:21:20.369 groups were furious. Jerry Yang was hauled in 00:21:20.369 --> 00:21:23.049 front of Congress and berated. One congressman, 00:21:23.069 --> 00:21:25.309 Tom Lantos, told him, while technologically and 00:21:25.309 --> 00:21:28.309 financially you are giants, morally you are pygmies. 00:21:28.549 --> 00:21:31.769 The committee concluded Yahoo was either inexcusably 00:21:31.769 --> 00:21:35.410 negligent or deceptive in their testimony. They 00:21:35.410 --> 00:21:37.509 eventually settled a civil suit with the families 00:21:37.509 --> 00:21:39.910 of the dissidents. But it was a profound moral 00:21:39.910 --> 00:21:42.380 failure. It showed that they were willing to 00:21:42.380 --> 00:21:44.740 trade their users' freedom for market access. 00:21:45.079 --> 00:21:46.799 It destroyed the reputation of the tech community. 00:21:47.259 --> 00:21:50.519 But in terms of damage to the average user, the 00:21:50.519 --> 00:21:53.420 security breaches were even wider in scale. Oh, 00:21:53.440 --> 00:21:56.359 absolutely. The hacks. We are talking about the 00:21:56.359 --> 00:21:59.180 biggest data breaches in the history of the Internet. 00:21:59.380 --> 00:22:02.740 By a long shot. There were two main events disclosed 00:22:02.740 --> 00:22:05.940 in 2016, right when Yahoo was in the middle of 00:22:05.940 --> 00:22:08.119 trying to sell itself to Verizon. Just the worst 00:22:08.119 --> 00:22:10.859 possible timing. The worst. First, in September 00:22:10.859 --> 00:22:14.460 2016, they admitted a 2014 breach affecting 500 00:22:14.460 --> 00:22:17.539 million accounts, which was, at the time, the 00:22:17.539 --> 00:22:19.799 biggest hack ever. And then? Then, a few months 00:22:19.799 --> 00:22:22.220 later, they dropped the real bomb. They'd found 00:22:22.220 --> 00:22:24.119 evidence of a different breach, one that happened 00:22:24.119 --> 00:22:27.319 way back in 2013. Initially, they said it affected 00:22:27.319 --> 00:22:30.930 1 billion accounts. But later, in 2017, after 00:22:30.930 --> 00:22:32.930 the sale, they corrected the record. It affected 00:22:32.930 --> 00:22:36.210 3 billion accounts. 3 billion. That is effectively 00:22:36.210 --> 00:22:39.789 every single Yahoo, Flickr, and Tumblr account 00:22:39.789 --> 00:22:42.049 that existed. Yes. If you had a Yahoo account, 00:22:42.269 --> 00:22:44.950 you were hacked. Names, emails, phone numbers, 00:22:45.130 --> 00:22:47.410 birthdates, hash passwords, and in some cases, 00:22:47.450 --> 00:22:49.690 even unencrypted security questions and answers. 00:22:49.910 --> 00:22:53.069 Who did it? Some kid in a basement? No. This 00:22:53.069 --> 00:22:55.970 was not random. The 2014 breach was attributed 00:22:55.970 --> 00:22:58.690 to state sponsored actors. The U .S. Department 00:22:58.690 --> 00:23:01.190 of Justice indicted two officers from the Russian 00:23:01.190 --> 00:23:05.150 FSB, their spy agency, and two criminal hackers 00:23:05.150 --> 00:23:07.710 they hired to carry out the attack. So this was 00:23:07.710 --> 00:23:09.589 espionage. They were targeting specific accounts. 00:23:09.789 --> 00:23:12.529 They were journalists, dissidents, government 00:23:12.529 --> 00:23:14.450 officials from the U .S. and other countries. 00:23:14.490 --> 00:23:17.670 But to do that. They cast a net that caught everyone, 00:23:17.789 --> 00:23:20.150 and the method was fascinatingly technical and 00:23:20.150 --> 00:23:22.190 terrifying. They didn't just steal passwords. 00:23:22.349 --> 00:23:24.869 They stole the proprietary code Yahoo used to 00:23:24.869 --> 00:23:27.630 create cookies. Explain that. We all know cookies 00:23:27.630 --> 00:23:30.349 are the things we click accept on, but what do 00:23:30.349 --> 00:23:33.210 they actually do in this context? A cookie is 00:23:33.210 --> 00:23:36.089 like a temporary ID badge. When you type your 00:23:36.089 --> 00:23:38.930 password, Yahoo's server gives your browser a 00:23:38.930 --> 00:23:41.690 cookie that says, this is the host, he's logged 00:23:41.690 --> 00:23:44.680 in, and he's allowed to be here. That way, you 00:23:44.680 --> 00:23:46.319 don't have to type your password every single 00:23:46.319 --> 00:23:48.980 time you click on a new email. It remembers you 00:23:48.980 --> 00:23:51.160 for that session. Okay, that makes sense. The 00:23:51.160 --> 00:23:53.740 hackers stole the cookie minting machine. They 00:23:53.740 --> 00:23:56.140 could forge their own ID badges for any account 00:23:56.140 --> 00:23:57.960 they wanted. They didn't need your password. 00:23:58.259 --> 00:24:00.539 They just showed up to Yahoo's servers with a 00:24:00.539 --> 00:24:03.279 forged badge, and Yahoo said, welcome back, come 00:24:03.279 --> 00:24:06.700 right in. That is terrifying. It's like stealing 00:24:06.700 --> 00:24:08.779 the master key to the hotel. You can get into 00:24:08.779 --> 00:24:11.140 any room you want, and the front desk thinks 00:24:11.140 --> 00:24:13.430 you belong there. It effectively stripped all 00:24:13.430 --> 00:24:15.430 security from the system for the accounts they 00:24:15.430 --> 00:24:18.369 targeted. And because they hid it, or more likely 00:24:18.369 --> 00:24:20.450 because Yahoo's security was so bad they didn't 00:24:20.450 --> 00:24:22.910 even know about it, for years the damage was 00:24:22.910 --> 00:24:24.950 compounded. This must have impacted the sale 00:24:24.950 --> 00:24:28.210 price to Verizon. Massively. Verizon was in the 00:24:28.210 --> 00:24:30.670 process of buying them for about $4 .8 billion. 00:24:31.410 --> 00:24:34.089 When this news broke, Verizon almost walked. 00:24:34.410 --> 00:24:37.210 They eventually renegotiated and shaved $350 00:24:37.210 --> 00:24:41.000 million off the purchase price. A $350 million 00:24:41.000 --> 00:24:44.160 penalty for bad security. And honestly, they 00:24:44.160 --> 00:24:46.000 were lucky the deal went through at all. The 00:24:46.000 --> 00:24:48.640 reputational damage was immense. It seems like 00:24:48.640 --> 00:24:50.359 every time we turn a page in this research, there's 00:24:50.359 --> 00:24:53.059 another controversy. The outline mentions shark 00:24:53.059 --> 00:24:57.599 fin soup. What is this? Locks. I know. It sounds 00:24:57.599 --> 00:25:00.710 so random. But it ties back to their investment 00:25:00.710 --> 00:25:04.369 in Alibaba. Yahoo owned a huge chunk of Alibaba, 00:25:04.509 --> 00:25:07.170 the Chinese e -commerce giant. It was actually 00:25:07.170 --> 00:25:09.910 the smartest financial move Jerry Yang ever made. 00:25:10.049 --> 00:25:12.710 That stake kept the stock price up for years 00:25:12.710 --> 00:25:15.670 when the core business was failing. But Alibaba 00:25:15.670 --> 00:25:18.130 was selling shark fins on its platform. Right, 00:25:18.250 --> 00:25:20.930 which is an environmental disaster. Shark finning 00:25:20.930 --> 00:25:23.089 is brutal and has decimated shark populations. 00:25:24.009 --> 00:25:26.390 When environmental groups called this out, Yahoo 00:25:26.390 --> 00:25:29.170 executives initially shrugged. They called it 00:25:29.170 --> 00:25:31.269 a cultural practice and said they couldn't interfere 00:25:31.269 --> 00:25:33.670 with Alibaba's business. Which, again, just sounds 00:25:33.670 --> 00:25:36.269 incredibly tone -deaf and cynical. It goes back 00:25:36.269 --> 00:25:38.529 to that lack of a moral compass. Eventually, 00:25:38.670 --> 00:25:41.069 under huge pressure, Alibaba did ban the sales, 00:25:41.230 --> 00:25:43.190 but Yahoo looked like they just didn't care about 00:25:43.190 --> 00:25:45.150 anything but the bottom line of their investment. 00:25:45.410 --> 00:25:48.789 And there's also paid inclusion. What was this 00:25:48.789 --> 00:25:52.109 about? This was earlier, 2004. Yahoo started 00:25:52.109 --> 00:25:54.549 letting companies pay to be included in the search 00:25:54.549 --> 00:25:57.369 index, not just ads on the side, but in the actual 00:25:57.369 --> 00:25:59.910 organic search results. That breaks the cardinal 00:25:59.910 --> 00:26:01.450 rule of search. It's supposed to be church and 00:26:01.450 --> 00:26:03.509 state. The results are supposed to be the best 00:26:03.509 --> 00:26:05.529 results, the most relevant, not the ones who 00:26:05.529 --> 00:26:08.170 paid you. Exactly. It completely undermined user 00:26:08.170 --> 00:26:10.630 trust. If I can't trust that the link you're 00:26:10.630 --> 00:26:12.869 showing me is actually relevant, why am I using 00:26:12.869 --> 00:26:15.509 your engine? They were so desperate for revenue, 00:26:15.650 --> 00:26:18.230 so obsessed with hitting quarterly numbers, that 00:26:18.230 --> 00:26:21.170 they sold their integrity. They eventually discontinued 00:26:21.170 --> 00:26:24.349 it, but the damage was done. And lastly on this 00:26:24.349 --> 00:26:27.410 grim list, we have spyware. There are allegations 00:26:27.410 --> 00:26:29.869 that Yahoo partnered with adware companies to 00:26:29.869 --> 00:26:32.009 serve pop -ups and install software on users' 00:26:32.170 --> 00:26:34.630 computers. Former employees claim they would 00:26:34.630 --> 00:26:36.589 literally dial up the pop -up frequency at the 00:26:36.589 --> 00:26:38.950 end of the quarter just to hit revenue targets. 00:26:39.250 --> 00:26:41.460 It's the same pattern over and over. treating 00:26:41.460 --> 00:26:43.759 users like a resource to be mined rather than 00:26:43.759 --> 00:26:46.460 customers to be served. It all leads to the end. 00:26:46.660 --> 00:26:50.299 Section 7, The Fall. The sale to Verizon finally 00:26:50.299 --> 00:26:53.480 closes in 2017. The price for the core internet 00:26:53.480 --> 00:26:55.859 business, the mail, the sports, the finance, 00:26:56.019 --> 00:27:00.299 the ad tech, was roughly $4 .48 billion. Let's 00:27:00.299 --> 00:27:03.259 just pause on that number. $4 .48 billion. Microsoft 00:27:03.259 --> 00:27:07.059 offered $44 .6 billion in 2008. They destroyed 00:27:07.059 --> 00:27:09.619 90 % of their value in less than a decade. It 00:27:09.619 --> 00:27:11.619 is one of the greatest destructions of shareholder 00:27:11.619 --> 00:27:14.059 value in modern history. An absolute collapse. 00:27:14.400 --> 00:27:16.980 And Verizon, bless their hearts, tried to save 00:27:16.980 --> 00:27:19.660 it. They merged it with AOL. Which was like tying 00:27:19.660 --> 00:27:21.599 two rocks together to see if they would float. 00:27:21.680 --> 00:27:24.519 And they called the new entity Oath. Terrible 00:27:24.519 --> 00:27:26.740 name. Just a truly awful name. Nobody knew what 00:27:26.740 --> 00:27:28.900 it meant. It had no brand recognition. And it 00:27:28.900 --> 00:27:31.289 didn't work. The synergies they hoped for never 00:27:31.289 --> 00:27:33.750 materialized. Verizon eventually gave up, too. 00:27:33.910 --> 00:27:37.089 In 2021, they sold 90 % of the media group to 00:27:37.089 --> 00:27:39.690 Apollo Global Management, a private equity firm, 00:27:39.809 --> 00:27:42.650 for $5 billion. They essentially got their money 00:27:42.650 --> 00:27:44.410 back and washed their hands of it. Private equity 00:27:44.410 --> 00:27:46.809 usually means one thing. Cots cutting and stripping 00:27:46.809 --> 00:27:49.849 assets. And restructuring. We saw major layoffs 00:27:49.849 --> 00:27:53.549 in 2023. They cut 20 % of the staff to streamline 00:27:53.549 --> 00:27:56.349 the ad tech division. It's the classic private 00:27:56.349 --> 00:28:00.529 equity playbook. They are still here. That's 00:28:00.529 --> 00:28:02.670 the twist. We are talking about them like they're 00:28:02.670 --> 00:28:06.049 dead. But I check Yahoo Finance multiple times 00:28:06.049 --> 00:28:08.390 a day. And millions of people do. Yahoo Sports 00:28:08.390 --> 00:28:11.390 is huge for fantasy leagues. Yahoo Mail still 00:28:11.390 --> 00:28:13.910 has hundreds of millions of active users. They 00:28:13.910 --> 00:28:15.569 aren't the ruler of the Internet anymore, not 00:28:15.569 --> 00:28:19.009 even close. But they are a profitable kind of 00:28:19.009 --> 00:28:21.789 zombie media company. And now they're pivoting. 00:28:21.809 --> 00:28:23.849 Of course. Like everyone else, they're pivoting 00:28:23.849 --> 00:28:26.410 to AI. They recently acquired an AI news app 00:28:26.410 --> 00:28:28.609 called Artifact, which was created by the founders 00:28:28.609 --> 00:28:30.559 of Instagram. They're trying to find relevance 00:28:30.559 --> 00:28:33.359 again. So as we wrap this up, what is the lesson 00:28:33.359 --> 00:28:36.400 here? Is it about bad leadership, bad technology? 00:28:36.660 --> 00:28:38.279 What's the core takeaway? I think it's about 00:28:38.279 --> 00:28:40.759 focus and identity. Yahoo never decided what 00:28:40.759 --> 00:28:42.779 it was. Google knew it was search. Facebook knew 00:28:42.779 --> 00:28:45.119 it was social. Apple knew it was hardware and 00:28:45.119 --> 00:28:47.640 software integration. Yahoo tried to be everything, 00:28:47.839 --> 00:28:50.700 a library, a newspaper, a TV station, a tech 00:28:50.700 --> 00:28:53.380 lab, and ended up being nothing specific. They 00:28:53.380 --> 00:28:56.240 were the jack of all trades, master of none on 00:28:56.240 --> 00:28:59.019 a global scale. And they suffered from what you 00:28:59.019 --> 00:29:01.619 could call the first mover disadvantage. They 00:29:01.619 --> 00:29:03.700 built the first version of the web. But when 00:29:03.700 --> 00:29:07.579 the web changed to algorithmic search, to social, 00:29:07.720 --> 00:29:10.480 to mobile, they were too weighed down by their 00:29:10.480 --> 00:29:13.279 old model to pivot. They were defending a castle 00:29:13.279 --> 00:29:15.220 that no one wanted to conquer anymore because 00:29:15.220 --> 00:29:17.839 everyone had moved to the city next door. It 00:29:17.839 --> 00:29:20.660 raises a provocative question for me. In tech, 00:29:20.779 --> 00:29:23.119 we worship the pioneers. the ones who get there 00:29:23.119 --> 00:29:26.000 first. But maybe being first isn't the advantage 00:29:26.000 --> 00:29:28.259 we think it is. Maybe it's better to be second. 00:29:28.400 --> 00:29:30.779 Watch the first guy break his legs and make all 00:29:30.779 --> 00:29:32.700 the mistakes and then build the better bridge. 00:29:32.960 --> 00:29:35.819 I think history supports that. Google was the 00:29:35.819 --> 00:29:38.440 second mover in search after AltaVista and Yahoo. 00:29:39.099 --> 00:29:41.400 Facebook was the second mover in social after 00:29:41.400 --> 00:29:44.140 MySpace and GeoCities. The Apple iPhone wasn't 00:29:44.140 --> 00:29:46.259 the first smartphone by a long shot. History 00:29:46.259 --> 00:29:48.660 suggests the fast follower often wins the war. 00:29:48.900 --> 00:29:50.920 A sobering thought for all the innovators out 00:29:50.920 --> 00:29:53.769 there. Well, that brings us to the end of the 00:29:53.769 --> 00:29:56.470 Yahoo deep dive. What a wild ride from the top 00:29:56.470 --> 00:29:58.890 of the world to a cautionary tale. It really 00:29:58.890 --> 00:30:01.210 is. And I have a challenge for you, the listener. 00:30:01.470 --> 00:30:04.230 If you are old enough to have one, try to log 00:30:04.230 --> 00:30:07.269 into your old Yahoo mail account today. Treat 00:30:07.269 --> 00:30:09.730 it like an archaeological dig. Read your emails 00:30:09.730 --> 00:30:13.029 from 2006. See what you are up to. It's a time 00:30:13.029 --> 00:30:15.710 capsule of your former self. It can be cringeworthy 00:30:15.710 --> 00:30:17.630 but fascinating. For the love of God, change 00:30:17.630 --> 00:30:20.269 your password. And turn on two -factor authentication. 00:30:20.839 --> 00:30:22.839 Because as we learned today, your cookie might 00:30:22.839 --> 00:30:25.500 already be forged. That is some solid advice. 00:30:25.799 --> 00:30:27.420 Thanks for listening. We'll see you on the next 00:30:27.420 --> 00:30:28.660 deep dive. Goodbye, everyone.