Paul Graham of Ycombinator wrote an excellent blog on "What happened to Yahoo?". (YHOO) It reminded me of what happened to AltaVista, the first and most popular search engine. Yahoo thought they were a media company, not a software company. Simple, yet deep implications. AltaVista was hatched inside DEC, a hardware company. They had no idea what to do with a search engine. Ironically, AltaVista was later acquired by Overture and ultimately by Yahoo.
Thirteen years later the competitive environment is very different, but the lessons of that time are still valid today. Paul Graham takes us back to that place in time.
"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. It wasn't just Yahoo. All the search engines were doing it. This was why they were trying to get people to start calling them "portals" instead of "search engines." Despite the actual meaning of the word portal, what they meant by it was a site where users would find what they wanted on the site itself, instead of just passing through on their way to other destinations, as they did at a search engine."
"I remember telling David Filo in late 1998 or early 1999 that Yahoo should buy Google, because I and most of the other programmers in the company were using it instead of Yahoo for search. He told me that it wasn't worth worrying about. Search was only 6% of our traffic, and we were growing at 10% a month. It wasn't worth doing better."
The Dot Com Boom was a surreal time. AOL was king of the hill. Every week it seemed AOL was announcing a $40M sponsorship deal with a company like Ford to sponsor the Auto section. Or, Yahoo was announcing a $50M deal with Proctor & Gamble to sponsor the Health section of Yahoo. Content was king. "Sticky" services and content that kept viewers on site was believed to be the key to success. Yahoo had the curse of early success, exploding growth, and no software culture.
Paul Graham argues that Yahoo was doomed because it lacked a "hacker culture". He says "In technology, once you have bad programmers, you’re doomed. I can’t think of an instance where a company has sunk into technical mediocrity and recovered. Good programmers want to work with other good programmers. So once the quality of programmers at your company starts to drop, you enter a death spiral from which there is no recovery."
Apple is the exception - Apple is the only company I can think of that went from technical visionary, to marketing cluelessness, and back to visionary leader. It can be traced to Steve Jobs as a founder, getting kicked out in the John Sculley and Gil Amelio era, and coming back again. Only someone like Steve Jobs could pull off that transformation. For any other company...you better stick to your engineering roots.
Media Company vs Software Company - AltaVista started out as a software project in DEC's research labs. The technology was amazing at the time. But, no one at DEC knew what to do with it. DEC sold hardware and software to big companies. The Internet was just a novelty at the time and there was no business model for anything on the Internet, much less a search engine.
AOL and Yahoo changed all that. They were media savvy and knew how to monetize audiences through advertising and sponsorship. What we called software project managers, they called producers. What we called web sites, they called channels or properties. We looked at page views, they thought about "time on site". It was more than just a language difference. It was a totally different approach to what the company was about.
AltaVista was a pure search engine, no content, no portal, no "sticky" services like email, maps, horoscopes, news, etc. Just a search engine. Compaq acquired DEC, and with it AltaVista. The Compaq guys brought in consultants from McKinsey to figure out what to do with this search engine thing.
AOL, Yahoo, MSN, Excite, Lycos, and other media companies were building consumer internet portals. Content was king. The obvious thing to do was to copy these companies and recreate AltaVista as a portal, build an audience, and sell banner ads and sponsorships.
Build a Brand - The management hired a branding company to rebrand AltaVista. Ad agencies were hired to create TV advertisements for the Super Bowl, and a $100M ad campaign in print, radio and TV. AltaVista hired 500 people, all of them content producers, media sales people, and marketing people.
Engineering faded into the background. No budget for additional engineers or hardware to expand the service. We weren't able to crawl the web and build a new index for 3 or 4 months at a time. This meant that new web sites were not included in the index and not visible in search results. The search engine became stale, not growing, no new features. All engineering effort went into building out the content portal, creating new web pages and paths, etc.
From innovator to imitator to forgotten - Trying to be the sixth or seventh web portal was a bad idea. AOL, Yahoo, and MSN already dominated that space and knew the business much better. AltaVista spent hundreds of millions of dollars trying to transform into a media company. It was doomed from the start.
Google is born - Google was a tiny little search engine in 2000. They had no content, no advertising, no sticky services...just a search box. Ironically, Google was just like AltaVista was years earlier. They had better technology and better search results, but so what? The audience numbers were with the big portals. Google didn't have any banner ads, and no source of revenue.
The Crash - The Dot Com Boom became "The Crash" in 2000 and the "Nuclear Winter" of 2001 and 2002. The rest of the economy was doing OK, but in tech, especially Internet related, it was total destruction. Even "successful" portals like Excite and Lycos went down. AltaVista went down with them. AOL, Yahoo, and MSN felt the pinch too, but they had enough cash to weather the storm.
Google survived the "Nuclear Winter" by staying small and focused on search. They later introduced simple text ads next to search results, avoiding the banner ad curse. They also adopted the ad auction model to sell ads directly to the long tale of the market. You know the rest of the story.
Conventional wisdom is usually wrong - Startups create new products for new markets. It is never obvious or easy. If it were, hundreds of companies would have already done it. Trying to chase the latest idea or craze rarely works. Trying to follow conventional wisdom in a startup puts you on a path like AltaVista, Excite, Lycos, or Yahoo.
Stay small and stay focused until you achieve product - market fit. Build, test, iterate. Repeat. Avoid the "suits" management types for as long as possible. Hire the best engineers. Don't compromise. Bad hires will kill you. Mediocre hires will kill you slowly...and more painfully. Read Paul Graham, Brad Feld, Dave McClure, Mark Suster, Techmeme, and others for great insights every day. Good luck!!
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