What Happened to Yahoo

Paul Graham’s essay What Happened to Yahoo identifies two fundamental problems that prevented Yahoo from becoming what Google became.

Problem 1: Easy Money

Yahoo benefited from unsustainable revenue sources that obscured better opportunities. The company relied heavily on inflated banner advertising prices.

Advertisers overpaid through what Graham calls a de facto Ponzi scheme—startups used investor money to buy Yahoo ads for traffic, which generated revenue growth that attracted more investment.

This abundance of easy money blinded leadership to the superior business model of search-based advertising.

Problem 2: Anti-Technology Culture

Yahoo rejected a hacker-centric culture. Despite being a software company, Yahoo identified as a “media company” and organized itself accordingly.

Programmers were treated as implementers rather than decision-makers, with product managers controlling development.

Consequences: mediocre software development, inability to attract top talent, and a self-reinforcing decline. “Good programmers want to work with other good programmers.”

My Takeaway

Sustainable technology companies require cultures prioritizing engineering excellence above all else. Easy money and anti-tech cultures are fatal combinations.

What lessons do you draw from Yahoo’s decline? I’d love to hear at persdre@gmail.com.