When senior Yahoo executives gathered at a San Jose hotel for a management retreat in the spring of 2006, there was no outward sign of a company in crisis.
The internet pioneer, not yet a teenager, had just finished the prior year with $1.9 billion in profits on $5.3 billion in revenue. The tough days of the dot-com bust were a distant memory, and Yahoo Inc, flush with lucrative advertising deals from the world’s biggest brands, was enjoying its run as one of the top dogs in the world’s hottest industry.
But for one retreat exercise, everyone was asked to say what word came to mind when a company name was mentioned. They went through the list: eBay: auctions. Google: search. Intel: microprocessors. Microsoft: Windows.
“It was all over the map,” recalled Brad Garlinghouse, then a Yahoo senior vice president and now COO of payment settlement start-up Ripple Labs. “Some people said mail. Some people said news. Some people said search.”
The lesson here is simple – if you don’t know what business you want to be in, your customers will never work it out. Organic food had exactly the same problem so suffered badly when the Recession hit. The result of Yahoo’s indecision resulted in an agreement this week to sell the company’s core assets to Verizon Communications who will probably blend it with its existing AOL division.
Yahoo’s lack of clear focus on what business it needed to be in, and the subsequent customer confusion led to a number of missed opportunities (because they couldn’t be sure if they were opportunities or distractions) described in the Reuters article as a failed bid to buy Facebook for $1 billion in 2006. A 2002 dalliance with Google similarly came to naught. A chance to acquire YouTube came and went. Skype was snapped up and Microsoft’s nearly $45 billion takeover bid for all of Yahoo in 2008 was blocked by Yahoo’s leadership.
There is nothing new here and we can travel right back to Levitt’s ‘Marketing Myopia’ in 1960 for insight. It might be an exercise that top management don’t like doing but lack of a crystal clear business definition means that Yahoo’s customers didn’t understand Yahoo’s business. In addition, Yahoo didn’t understand which customer needs it should be satisfying, where it should be investing for growth, the boundaries for effort (what it should stop doing or do more of), who it was competing with and, most dangerous of all, who was it’s core market – that it had to look after above all others.
Do you know what business you are in?