Money Mondays

The power of focus: a case study on Google vs. Yahoo

David Filo and Jerry Yang's directory of websites (Yahoo) weathered the dotcom bust, only to create bigger problems for itself. During a breakneck period of growth between 2003 and 2005, Yahoo expanded into areas such as online dating and job listings, while gobbling up Internet companies, including one called Overture that was the first to figure out a way for advertisers to pay for placement adjacent to online searches. But while Yahoo management was distracted by dealmaking and executive infighting, a crosstown rival, Google, emerged with an entire business essentially built around a technology similar to Overture's.

Google perfected paid search and eventually moved into new areas, such as online applications and maps. Yahoo, meanwhile, lurched from one strategy to the next: Under former CEO Terry Semel, a Hollywood veteran, the company tried to reinvent itself as a digital-media company, complete with original web content and an office in Santa Monica. Semel resigned in June 2007, and Yang stepped in as CEO. His big idea: to seize the lead from Google in search advertising. But Yang's reign, too, had an ignominious end. He was slow to consolidate redundant businesses (two photo sharing properties, multiple social-media sites) and failed to explain the strategy behind his Get Google objective. Sensing chaos at Yahoo, Microsoft CEO Steve Ballmer made the $45 billion bid for his rival, which Yang turned down, much to the dismay of investors. (Yahoo's market cap is about $18 billion today.)