Yahoo founder Jerry Yang will surely be remembered as one of the great pioneers of the Internet industry, but in the end, he couldn’t overcome the consequences of the most important decision of his career: spurning Microsoft’s $45 billion offer in 2008. At the time, it was clear that Yang wanted to maintain his company’s independence for as long as possible, but he couldn’t surmount the reality of the rapidly-changing Internet economy.
By 2008, Yahoo had already lost the web search race to Google, which had come to rule the market with over 60% of all web searches. Facebook was on its way to dominating the social networking market, and Twitter had just launched. Yahoo had no answer to the challenges posed by these upstarts. For Yang, the sensible thing to do would have been to accept Microsoft’s bid for the company, which valued Yahoo at a 33% premium. But Yang steadfastly clung to his company’s independence, enraging many of his shareholders, who couldn’t believe that he would pass on such a rich offer.
Microsoft offered Yang $30 per share in 2008. Yahoo’s share price hasn’t topped $20 since then. Ultimately, Yang would agree to a search partnership with Microsoft, essentially capitulating to Google in the search war.
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With Yang’s departure, the stage is set for the next phase of the company’s evolution, which could very well be a sale or breakup. Yahoo’s Asian assets, including a large stake in Chinese e-commerce giant Alibaba, are worth an estimated $20 billion, and Alibaba CEO Jack Ma has made clear that he’d like to take that stake off Yahoo’s hands. Rumors of a potential merger with AOL or a private equity buyout have swirled for years.
Yang’s exit could speed up a deal, as Macquarie Securities analyst Ben Schachter wrote in a note to clients shortly after the founder’s departure. Such a deal would not be a surprise — Yahoo chairman Roy Bostock has already signaled that the company is exploring strategic options. “We’re not sure that Yang stepping down was necessarily required in order for a deal to get done,” Schachter wrote, “but Yang’s departure from Yahoo could remove a potentially complicating factor.”
Yahoo’s journey through the late-2000’s was rocky, as the web pioneer struggled to find an identity. Former Hollywood CEO Terry Semel arrived in 2001 to remake the company as as entertainment portal, but despite lofty ambitions, he failed to create a unified consumer property and was eventually fired. Former Autodesk CEO Carol Bartz replaced him, but despite her reputation as a no-nonsense manager, she couldn’t reverse the company’s decline. She was shown the door last summer, replaced by former former PayPal CEO Scott Thompson.
Ultimately, Yang’s desire to maintain his company’s independence was perfectly understandable. In many ways he was the consummate founder and a true visionary. But unlike his contemporaries at Google, founders Larry Page and Sergey Brin, Yang failed to shepherd his company through the difficult transition from phenomenally successful startup to mature, sustainable e-commerce giant. With established rivals and young upstarts innovating at light-speed all around it, Yahoo simply doesn’t have the metabolism to compete. For the sake of the company’s shareholders, Yahoo’s board should pursue a path to unlock as much value as possible before the company depreciates further.