The Decline of Yahoo in Its Own Words
This article was originally posted on Harvard Business Review
On Google’s earnings call for the first quarter of 2006 – more than a year before the iPhone was released and more than two years before the release of the first Android-operated smartphone – CEO Eric Schmidt went out of his way to talk about mobile.
“I wanted to highlight some of the progress we have made in mobile, which is another big strategic area for us,” he told listeners, noting that Google Maps was becoming popular for Blackberry users and later adding that it was critical that the company make sure all its content worked on phones.
That same quarter, on Yahoo’s earnings call, phones were barely mentioned – once in regards to a promotion tied to the World Cup in Europe, and again if you count the company’s new feature that let users place phone calls from a PC.
Plenty of theories have been put forth to explain Yahoo’s failures, as the company seeks a buyer following a failed turnaround attempt. One of the most prominent is that Yahoo was late to mobile. “Yahoo’s mobile business barely existed” when Marissa Mayer took over as CEO in 2012, wrote Vauhini Vara at The New Yorker. Mayer was tasked with bringing Yahoo into the “smartphone era” a full five years after it had started. By then Apple and Google were already dominant in mobile operating systems, and Facebook was surging ahead in apps. Perhaps by 2012 it was already too late.
Curious about this theory, I decided to look at some of the company’s public statements to see how it talked about mobile over its history. Did Yahoo’s leadership really miss the importance of smartphones? Or did they get it and just fail to execute?
I looked at quarterly earnings call transcripts for Yahoo and two of its competitors from late 2005 to the first quarter of 2016 and counted mentions of “mobile,” “phone,” or “smartphone.”
One thing is for sure: Mayer’s arrival at Yahoo parallels the company talking a lot more about mobile. Mentions of mobile were more than three times higher in 2012, the year she started, than in 2011, and the uptick happened when she was hired. That could be coincidence, but it fits with reporting on her priorities upon coming aboard.
“Marissa came in and said OK, mobile is the future, there’s a platform shift, we have to get behind this,” Adam Cahan, Senior Vice president of product and engineering at Yahoo, told me in an interview. “Looking now I think it’s fair to say Yahoo was late to the game. In 2011 we were playing a bit of catch-up compared to the market. That said, it was a very dramatic shift in company focus.”
Pre-Mayer, the data shows far less discussion of mobile, but how does that compare to the company’s competitors? The data indicates that from the release of the iPhone in 2007 to Mayer’s appointment as CEO in 2012, Yahoo talked less about mobile than Google, at least on its earnings calls. That makes sense. Google released Android in 2008 and over the next several years cemented its position as one of the most successful players in the smartphone business.
It would be a mistake to treat the frequency with which mobile is mentioned on earnings calls as definitive proof of anything, but the data supports the narrative that Yahoo was late to mobile. Furthermore, Yahoo’s mobile strategy is far from the only cause of its recent struggles.
Some analysts argue that Yahoo’s products were inherently less adaptable to a mobile world. According to Benedict Evans, tech analyst and a partner at Andreessen Horowitz, companies like Google and Facebook got lucky in that their core businesses were more easily adapted for smartphones than Yahoo’s homepage-driven content portal. “It’s not like Google or Facebook succeeded” at creating radically new products for smartphones, he said. “Rather, Yahoo’s existing products didn’t work on mobile.”
Another indication that mobile strategy can’t fully explain Yahoo’s woes is Microsoft’s trajectory. The earnings call data suggests that Microsoft was even less focused on mobile in the formative years of the smartphone era, and yet its market cap has grown significantly.
For its part, Microsoft seems to be coming to terms with its failings in mobile. The company has written off its $7.2 billion acquisition of Nokia’s phone business and is repositioning itself to succeed in an era of bots. Google (now Alphabet) still talks plenty about the importance of mobile, but it’s also looking forward. On the company’s most recent earnings call, Google CEO Sundar Pichai said that “In the long run, I think we will evolve in computing from a mobile-first to an AI-first world.”
In talks with potential acquirers, Mayer and her team will no doubt claim that they have made real progress in adapting Yahoo to the smartphone era. Meanwhile the competition is already moving on.