Lessons for Entrepreneurs from Yahoo’s Decline

The NYT has a piece about Marissa Mayer of Yahoo in which they discuss the company’s troubles. They also nicely sum up the 3 business models of the Internet:

Generally speaking, there are only a few ways to make money on the Internet. There are e-commerce companies and marketplaces — think Amazon, eBay and Uber — that profit from transactions occurring on their platforms. Hardware companies, like Apple or Fitbit, profit from gadgets. For everyone else, though, it more or less comes down to advertising.

So…ecommerce, hardware and advertising. Which one would you choose? Before you decide, from the same article:

In many ways, Yahoo’s decline from a $128 billion company to one worth virtually nothing is entirely natural. Yahoo grew into a colossus by solving a problem that no longer exists. And while Yahoo’s products have undeniably improved, and its culture has become more innovative, it’s unlikely that Mayer can reverse an inevitability unless she creates the next iPod. All breakthrough companies, after all, will eventually plateau and then decline.

With ecommerce aka the business of selling things, you have an opportunity to create a lasting business. This is unlike say advertising, when the business modus operandi is essentially money following eyeballs, way more vulnerable to competitors in a way selling physical things can’t be. The big advertising platforms of today like Google, Facebook and others will eventually follow the same path as Yahoo one would suspect – cost per click and overall internet advertising rates fall every year and the mediums used to advertise change too. (mobile being the next big one)

But before you dive into ecommerce and selling physical things online, remember though to think about this point:

In the technology industry, things move fast.

Ecommerce, and the technology component of selling things online, means that the pace of change is relentless. Selling online used to be selling to people via browser – we now know a third of ecommerce is via mobile. So as a merchant how do you approach this?

The answer is largely the direction ecommerce is heading; multi-channel. Diversifying revenue between online and offline is as good a hedge as there is in retail today. That’s why brick and mortar stores are shuttering whilst simultaneously switching their focus to online. And vice-versa, we’re seeing more and more online only outfits take their first steps into physical retail.

Finally on Yahoo, the ironic thing in all of this? They purchased Paul Graham’s ecommerce software provider Viaweb way back – one of the first ecommerce platforms on the web. (and now run it as largely forgotten Yahoo Small Business)

Given the vast majority of their market cap derives from ecommerce giant Alibaba, maybe the best advice for Mayer and Yahoo would be to switch focus back to ecommerce from advertising? Yes those margins are not nearly as good and ecommerce requires more effort to ‘scale’, but if it means survival, then does it matter if you’re no longer hip?

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