August 2010When I went to work for Yahoo after they bought our startup in 1998,it felt like the center of the world. It was supposed to be thenext big thing. It was supposed to be what Google turned out tobe.What went wrong? The problems that hosed Yahoo go back a long time,practically to the beginning of the company. They were alreadyvery visible when I got there in 1998. Yahoo had two problemsGoogle didn't: easy money, and ambivalence about being a technologycompany.MoneyThe first time I met Jerry Yang, we thought we were meeting fordifferent reasons. He thought we were meeting so he could checkus out in person before buying us. I thought we were meeting so wecould show him our new technology, Revenue Loop. It was a way ofsorting shopping search results. Merchants bid a percentage ofsales for traffic, but the results were sorted not by the bid butby the bid times the average amount a user would buy. It waslike the algorithm Google uses now to sort ads, but this was in thespring of 1998, before Google was founded.Revenue Loop was the optimal sort for shopping search, in the sensethat it sorted in order of how much money Yahoo would make fromeach link. But it wasn't just optimal in that sense. Rankingsearch results by user behavior also makes search better. Userstrain the search: you can start out finding matches based on meretextual similarity, and as users buy more stuff the search resultsget better and better.Jerry didn't seem to care. I was confused. I was showing himtechnology that extracted the maximum value from search traffic,and he didn't care? I couldn't tell whether I was explaining itbadly, or he was just very poker faced.I didn't realize the answer till later, after I went to work atYahoo. It was neither of my guesses. The reason Yahoo didn't careabout a technique that extracted the full value of traffic was thatadvertisers were already overpaying for it. If Yahoo merely extractedthe actual value, they'd have made less.Hard as it is to believe now, the big money then was in banner ads.Advertisers were willing to pay ridiculous amounts for banner ads.So Yahoo's sales force had evolved to exploit this source of revenue.Led by a large and terrifyingly formidable man called Anil Singh,Yahoo's sales guys would fly out to Procter & Gamble and come backwith million dollar orders for banner ad impressions.The prices seemed cheap compared to print, which was what advertisers,for lack of any other reference, compared them to. But they wereexpensive compared to what they were worth. So these big, dumbcompanies were a dangerous source of revenue to depend on. Butthere was another source even more dangerous: other Internet startups.By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme.Investors were excited about the Internet. One reason they wereexcited was Yahoo's revenue growth. So they invested in new Internetstartups. The startups then used the money to buy ads on Yahoo toget traffic. Which caused yet more revenue growth for Yahoo, andfurther convinced investors the Internet was worth investing in.When I realized this one day, sitting in my cubicle, I jumped uplike Archimedes in his bathtub, except instead of "Eureka!" I wasshouting "Sell!"Both the Internet startups and the Procter & Gambles were doingbrand advertising. They didn't care about targeting. They justwanted lots of people to see their ads. So traffic became the thingto get at Yahoo. It didn't matter what type.[1]It wasn't just Yahoo. All the search engines were doing it. Thiswas why they were trying to get people to start calling them "portals"instead of "search engines." Despite the actual meaning of the wordportal, what they meant by it was a site where users would findwhat they wanted on the site itself, instead of just passing throughon their way to other destinations, as they did at a search engine.I remember telling David Filo in late 1998 or early 1999 that Yahooshould buy Google, because I and most of the other programmers inthe company were using it instead of Yahoo for search. He told methat it wasn't worth worrying about. Search was only 6% of ourtraffic, and we were growing at 10% a month. It wasn't worth doingbetter.I didn't say "But search traffic is worth more than other traffic!"I said "Oh, ok." Because I didn't realize either how much searchtraffic was worth. I'm not sure even Larry and Sergey did then.If they had, Google presumably wouldn't have expended any efforton enterprise search.If circumstances had been different, the people running Yahoo mighthave realized sooner how important search was. But they had themost opaque obstacle in the world between them and the truth: money.As long as customers were writing big checks for banner ads, it washard to take search seriously. Google didn't have that to distractthem.HackersBut Yahoo also had another problem that made it hard to changedirections. They'd been thrown off balance from the start by theirambivalence about being a technology company.One of the weirdest things about Yahoo when I went to work therewas the way they insisted on calling themselves a "media company."If you walked around their offices, it seemed like a softwarecompany. The cubicles were full of programmers writing code, productmanagers thinking about feature lists and ship dates, support people(yes, there were actually support people) telling users to restarttheir browsers, and so on, just like a software company. So whydid they call themselves a media company?One reason was the way they made money: by selling ads. In 1995it was hard to imagine a technology company making money that way.Technology companies made money by selling their software to users.Media companies sold ads. So they must be a media company.Another big factor was the fear of Microsoft. If anyone at Yahooconsidered the idea that they should be a technology company, thenext thought would have been that Microsoft would crush them.It's hard for anyone much younger than me to understand the fearMicrosoft still inspired in 1995. Imagine a company with severaltimes the power Google has now, but way meaner. It was perfectlyreasonable to be afraid of them. Yahoo watched them crush the firsthot Internet company, Netscape. It was reasonable to worry thatif they tried to be the next Netscape, they'd suffer the same fate.How were they to know that Netscape would turn out to be Microsoft'slast victim?It would have been a clever move to pretend to be a media companyto throw Microsoft off their scent. But unfortunately Yahoo actuallytried to be one, sort of. Project managers at Yahoo were called"producers," for example, and the different parts of the companywere called "properties." But what Yahoo really needed to be was atechnology company, and by trying to be something else, they endedup being something that was neither here nor there. That's whyYahoo as a company has never had a sharply defined identity.The worst consequence of trying to be a media company was that theydidn't take programming seriously enough. Microsoft (back in theday), Google, and Facebook have all had hacker-centric cultures.But Yahoo treated programming as a commodity. At Yahoo, user-facing softwarewas controlled by product managers and designers. The job ofprogrammers was just to take the work of the product managers anddesigners the final step, by translating it into code.One obvious result of this practice was that when Yahoo built things,they often weren't very good. But that wasn't the worst problem.The worst problem was that they hired bad programmers.Microsoft (back in the day), Google, and Facebook have all beenobsessed with hiring the best programmers. Yahoo wasn't. Theypreferred good programmers to bad ones, but they didn't have thekind of single-minded, almost obnoxiously elitist focus on hiringthe smartest people that the big winners have had. And when youconsider how much competition there was for programmers when theywere hiring, during the Bubble, it's not surprising that the qualityof their programmers was uneven.In technology, once you have bad programmers, you're doomed. Ican't think of an instance where a company has sunk into technicalmediocrity and recovered. Good programmers want to work with othergood programmers. So once the quality of programmers at your companystarts to drop, you enter a death spiral from which there is norecovery.[2]At Yahoo this death spiral started early. If there was ever a time whenYahoo was a Google-style talent magnet, it was over by the time Igot there in 1998.The company felt prematurely old. Most technology companieseventually get taken over by suits and middle managers. At Yahooit felt as if they'd deliberately accelerated this process. Theydidn't want to be a bunch of hackers. They wanted to be suits. Amedia company should be run by suits.The first time I visited Google, they had about 500 people, thesame number Yahoo had when I went to work there. But boy did thingsseem different. It was still very much a hacker-centric culture.I remember talking to some programmers in the cafeteria about theproblem of gaming search results (now known as SEO), and they asked"what should we do?" Programmers at Yahoo wouldn't have asked that.Theirs was not to reason why; theirs was to build what productmanagers spec'd. I remember coming away from Google thinking "Wow,it's still a startup."There's not much we can learn from Yahoo's first fatal flaw. It'sprobably too much to hope any company could avoid being damaged bydepending on a bogus source of revenue. But startups can learn animportant lesson from the second one. In the software business,you can't afford not to have a hacker-centric culture.Probably the most impressive commitment I've heard to having ahacker-centric culture came from Mark Zuckerberg, when he spoke atStartup School in 2007. He said that in the early days Facebookmade a point of hiring programmers even for jobs that would notordinarily consist of programming, like HR and marketing.So which companies need to have a hacker-centric culture? Whichcompanies are "in the software business" in this respect? As Yahoodiscovered, the area covered by this rule is bigger than most peoplerealize. The answer is: any company that needs to have good software.Why would great programmers want to work for a company that didn'thave a hacker-centric culture, as long as there were others thatdid? I can imagine two reasons: if they were paid a huge amount,or if the domain was interesting and none of the companies in itwere hacker-centric. Otherwise you can't attract good programmersto work in a suit-centric culture. And without good programmersyou won't get good software, no matter how many people you put ona task, or how many procedures you establish to ensure "quality."Hacker culture often seems kind of irresponsible. That's why peopleproposing to destroy it use phrases like "adult supervision." Thatwas the phrase they used at Yahoo. But there are worse things thanseeming irresponsible. Losing, for example.Notes[1]The closest we got to targeting when I was there was when wecreated pets.yahoo.com in order to provoke a bidding war between 3pet supply startups for the spot as top sponsor.[2]In theory you could beat the death spiral by buying goodprogrammers instead of hiring them. You can get programmerswho would never have come to you as employees by buying their startups. But so far the only companies smart enoughto do this are companies smart enough not to need to.Thanks to Trevor Blackwell, Jessica Livingston, andGeoff Ralston forreading drafts of this.
