How Yahoo got left behind

On Monday, Verizon agreed to fork over $4.8 billion for Yahoo's email services, websites, advertising tools, and real estate. The deal, which is expected to close in the first quarter of next year, not only ends a dreary five-month search for buyers, it concludes Yahoo's long, slow slide from internet colossus to spare parts provider.

Yahoo's genesis goes back to the primordial days of the internet when, in 1994, two Stanford graduate students built a single directory page that listed all of their favorite websites. It was an approach that became known as a "web portal" — a one-stop gateway to all the stuff on the internet that interests users — and for a while that model allowed Yahoo to grow into what was once one of the biggest internet businesses ever. At the peak of the dotcom bubble in 2000, the total value of all of Yahoo's outstanding shares was a whopping $125 billion.

Then, like the rest of the bubble, Yahoo popped.

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Yahoo's market value was able to recover to around $50 billion in 2005, which is when it bought 40 percent of the Chinese internet commerce site Alibaba. But then its market value began to decline again, and when it slumped to $20 billion in 2012 the company brought on Marissa Mayer as its new CEO. She tried various gambits to revive the company, including purchasing Tumblr for $1.1 billion in 2013, producing original video content, starting digital magazines across a wealth of topics, and even hiring Katie Couric.

And in fact, during Mayer's tenure, Yahoo's market value rose to around $38 billion today. But the rebound was arguably ephemeral: Over $31 billion of that value is just the Alibaba shares, despite the fact that Yahoo sold off some of its holdings and only claims 15 percent of the Chinese company today. The Tumblr buy also went bad, and Yahoo was forced to massively write down the website's value on more than one occasion. The Alibaba holdings aren't part of the Verizon deal, nor are Yahoo's stake in Yahoo Japan or its patent portfolio. Verizon is getting Yahoo's essential services and underlying technology for $4.8 billion, and what's being left behind is essentially a portfolio of investments in other companies and financial claims.

It's not that Yahoo ever failed, exactly. The price of a company's shares isn't the only measure of its value, and Yahoo was and remains profitable. The website still attracts about one billion users a month globally, and Yahoo mail still boasts 225 million monthly users, and by some metrics it's still one of the biggest digital media companies. Yahoo remains a relatively large driver of search traffic — but Microsoft sites are bigger, and Google surpasses both by gargantuan amounts.

More than anything, Yahoo just got left behind.

Its revenue was more or less equal to Google's in 2006. Then it went into slow and modest decline as Google exploded. Yahoo now brings in fewer sales per employee than Twitter, Alphabet (which owns Google), or Facebook, and it's become more and more expensive for Yahoo to pull in users from other partners. Google and Facebook now account for over half the digital ad market, and adding Yahoo will bring Verizon to just 5.2 percent or thereabouts.

Yahoo also arguably missed the boat at a few key moments. Google snatched up YouTube after Yahoo failed to, and also beat them to the punch when it came to buying the right to sell ads through AOL and MySpace. And as those websites deflated, Google was well positioned to just keep expanding.

In Yahoo's defense, anticipating the future is hard. "Facebook is a nice small business," as one analyst told The New York Times in 2006. "I would prefer they [Yahoo] spend less than $1 billion for it."

Nor can any of this be laid at Mayer's feet. Her approach to reviving Yahoo, while scattershot, was an extension of efforts Yahoo had been making for a while: attempting to compete against Google as a search engine, against MySpace as a social network, against ESPN as a sports news site, against AOL as a messenger, and more. Unlike Google, which just worked to become the world's premiere search engine, or Facebook, which just worked to become the world's premiere social network, Yahoo's lack of focus was already infamous before Mayer arrived. She was dealt an arguably unwinnable hand, making her the latest in a recurring pattern of female CEOs who are handed the reins of already destined-to-fail companies just in time for things to blow up.

More than anything, Yahoo just got big in a different era, and for a different internet. Back then, the internet was the new frontier — wild and weird and a little bit scary at times — and Yahoo's web portal model was what people needed to navigate it. But then we actually explored the internet, got used to it, and found that the new approaches being pioneered by places like Google and Facebook were more useful. And technology probably played a role too: Usage of mobile devices is vastly increasing, and smartphones and tablets make web portals even more obsolete.

Yahoo just failed to keep up, as some businesses inevitably do. In a previous lifetime, that might not have ended Yahoo. But today, when shareholder demand for profits rules all, activist investors were able to get the better of the company. So now Verizon has come along to take Yahoo apart and absorb whatever useful bits it has left.

Eventually, every frontier closes. And when it does, its explorers find themselves out of a job.