As Marissa Mayer announced the $4.8bn acquisition of Yahoo’s operating business by Verizon, the US telecoms company, she gave a eulogy to the company she has headed for four years. Yahoo “humanised and popularised the web, email [and] search”, she said.
It was a backhanded compliment, given that less “universally well-liked companies” have overtaken the enterprise with the exclamation mark in two decades, including Alphabet, Facebook and Amazon. Ms Mayer identified the problem: Yahoo started as a link directory compiled by its founders and remained all too human.
Yahoo’s valuation grew to $128bn in spring 2000 because of investors’ faith that human curation could beat search engines - people browsing on slow dial-up lines needed a human interface. But technology triumphed over humanity. The internet was more powerful than they imagined and all that was left for Yahoo was likeability.
One example of how far things have come since Yahoo was founded in 1995 is Elon Musk’s “Master Plan, Part Deux” for Tesla, published last week. The electric car company’s founder envisages vehicles that will not only drive themselves but will also form part of an automated fleet in their down time. “Enable your car to make money for you when you aren’t using it,” he concludes.
Mr Musk’s vision, two decades after Yahoo’s directory seemed a better bet than Google, is still improbable but it is no longer inconceivable. The internet has turned out to be not merely a bunch of computers strung together across a network but much, much more. It has been constantly upgraded by mobile broadband, global positioning technology, smartphones, cloud computing and artificial intelligence.
The group of innovations bundled together and labelled as “the internet” proved to be a general purpose technology similar to the steam engine and electrification. It has had a deep, disruptive effect on many industries and is likely to keep doing so for some time to come.
Yahoo’s problem was that it was on the wrong side of the human-technology divide from inception and never found a way back. The closest it came was in the mid-2000s, when Terry Semel, one of its parade of chief executives, acquired Inktomi, AltaVista and Overture in a failed attempt to compete with Google’s algorithms.
Ms Mayer’s appointment was another attempt to cross the chasm, since she came from Google. In practice, the best she could do was to trim some of Yahoo’s inefficiencies and adapt its ragbag of products, from Yahoo Mail to mobile to entertainment and news.
The voracious maw of technology is apparent in this deal. Verizon has now acquired Yahoo and AOL, two of the internet’s original big names. They are joining a utility that increasingly sells broadband data connections. Yahoo was the internet equivalent of a phone book and is becoming part of a phone company refitted for the internet.
The story of technology dominating humanity and taking most of the reward is common across the internet. Facebook’s content is largely provided by users yet the value accrues to the company and its network - it has a market capitalisation of about $348bn, which equates to the price of 72 Yahoos. Amazon cuts prices by squeezing suppliers, including publishers, and is worth the same as Facebook.
But technology has an Achilles heel. Although each new wave creates and captures huge profits in the early stages, when it is new and wondrous (consider the 19th century railway booms), it eventually becomes routine. Telephones were once incredible machines but today voice calls on fixed lines are at best a commodity in a world where mobile video streaming is free.
Nicholas Carr, the technology writer, says the shift from personal computers to cloud computing is akin to the late 19th century switch from electricity being generated locally to being delivered across power grids. The data centres built by Verizon, Facebook, Amazon and others are far more powerful than what preceded them. They also turn on-demand computing and access to data into a utility.
There is a hint of this in the Verizon-Yahoo deal. Although a combined Yahoo and AOL, which includes 25 brands such as the Huffington Post and TechCrunch, is likely to contribute only about 5 per cent of the merged entity’s revenues, it could provide growth. Verizon’s core telecoms business is large and generates a lot of cash but its revenues have fallen this year.
Other internet and communications companies have also bolstered their revenues with media content fashioned by humans. Comcast, the US cable company that competes with Verizon, took full ownership of the film, TV and music group NBCUniversal in 2013. Netflix has been pouring billions into commissioning original drama and documentaries.
Since Yahoo’s creation, human activity has steadily been replaced by networked computers that perform tasks more cheaply and efficiently. In some cases, such as self-driving cars, this process will continue. But new technology is also merciless on itself: eventually, it turns into a utility. Unfortunately, Yahoo could not wait that long.
