“Jerry and David’s Guide to the World Wide Web” was founded in 1994. Four years later, it was the most popular homepage on the internet, had ~55% market share of web searches, and had changed its name to “Yahoo” . However, Yahoo would go on to have a slow, painful death—from its peak valuation of $125 billion before the dotcom crash in 2000, Yahoo went on to rebuff a $45 billion buyout offer from Microsoft in 2008, and ultimately was sold to Verizon in 2016 for $4.8 billion–less than 4% of its value in 2000.
Where did Yahoo go wrong? A lot of places, it turns out—but more broadly, the rise and fall of Yahoo perfectly illustrates four key shifts in advertising digitization over the past decade.
- Traditional to Digital Advertising
Yahoo survived the dot-com crash and emerged as one of the largest and most profitable internet companies of the era. The reason is because Yahoo was a pioneer of web advertising, which consisted of banner ads on its news sites and sponsored listings on its search pages. Ad sales at the time were driven by ad agencies, which manually created ads on behalf of brands and managed the distribution of those ads to reach their target audience. Yahoo formed deep relationships with agencies through its high-traffic, high-quality web properties—the self-described “Times Square of the Internet.” These relationships allowed Yahoo to capture $1 billion in ad revenue out of the $8 billion total digital advertising market in 2000 (~13% share) . As total advertising dollars continued to shift from traditional to digital media, Yahoo capitalized on these agency relationships, growing to $7 billion of revenue by 2008.
Unfortunately for Yahoo, subsequent transformations in digital advertising proved more difficult to navigate.
- Desktop to Mobile Traffic
Yahoo’s core strength was in its display properties—homepage, search, mail, news, sports, and finance. These products were designed with a focus on desktop computers, and Yahoo failed to adapt as mobile traffic grew from almost nothing 2008 to over 50% of total traffic in 2015 . Yahoo was one of the last internet giants to embrace mobile—only within the past couple of years has the Company invested meaningfully in app development, and revenue languished as a result.
- Local to Social Media
At the same time, the nature of user behavior on the internet was shifting. While Web 1.0 was characterized by user consumption of content, Web 2.0 brought a shift towards user production of content via the rise of social media. Yahoo made a half-hearted attempt at a social product, launching Yahoo 360° in 2005, but it never gained traction and was shuttered in 2009 . Over that time period, US ad spend on social media had already grown to $1.5 billion and was one of the fastest growing segments of digital advertising .
- Managed to Programmatic Advertising and Real-Time Bidding (RTB)
Perhaps the most crushing blow to Yahoo’s market position was the transition in the digital advertising industry from managed to programmatic advertising. Managed ad campaigns consisted of advertisers deciding, for example, that they wanted their ads shown on Yahoo’s homepage every day for a month, perhaps during an important sale or because they wanted to associate with the Yahoo brand. Programmatic advertising and RTB shifted the purchasing process such that advertisers could know a user’s demographics and behavior in advance of showing the ad, and could thus target users based on who they were, not just where they were browsing. This democratized digital advertising—no longer did websites need brand cachet in order to be valuable to advertisers, they simply needed the right sets of eyeballs, and could sell those eyeballs through Google. This drastically reduced the bargaining power of Yahoo compared to smaller internet properties and diminished its technology leadership since Yahoo lacked strong programmatic technology compared to competitors like Google, facebook, and AppNexus.
What Should Yahoo Have Done?
- Embrace Mobile & Programmatic: Shifting focus to mobile & programmatic advertising would have been a painful, but necessary move for Yahoo in the late 2000s. While lower ad prices would have depressed short-term revenue, it was not difficult to foresee that the future of digital ad sales would be mobile and programmatic.
- Focus on Data: Yahoo mail was an immensely valuable trove of data that the company never fully utilized. Rich, proprietary data sources are the key differentiation in programmatic advertising, and Yahoo should have leveraged big data and AI earlier to remain relevant during the programmatic shift.
- Develop an Identity: Yahoo was never clearly a technology company nor was it a media company—it was a half-baked combination of both. In the world of digital media, there have not been any truly successful companies that both created content and provided the technology stack.
 “A History of Digital Marketing.” Latitude Group. February 22, 2016. Accessed November 2016. http://www.latitudegroup.com/blog/a-history-of-digital-marketing/
 PriceWaterhouse Coopers IAB Internet Advertising Revenue Report, 2000.
 “Mobile Devices Now Driving 56 Percent of Traffic to Top Sites.” Marketing Land. February 23, 2016. Accessed November 2016. http://marketingland.com/mobile-top-sites-165725
 “Social Network Ad Revenues to Reach $10 Billion Worldwide in 2013.” eMarketer. October 5, 2011. Accessed November 2016. https://www.emarketer.com/Article/Social-Network-Ad-Revenues-Reach-10-Billion-Worldwide-2013/1008625