A Silicon Valley Giant Falls

Once an internet pioneer, Yahoo stumbled in strategy and innovation

Ask a group of people, "What comes to mind when you hear the company name Yahoo?" and you will get a mix of answers such as email, news, search or maybe that insidious yodel from the commercial 10 years ago. Unfortunately, Yahoo’s inability to translate the nature of its focus to consumers is a result of years-long internal conflicts regarding the organization’s vision and strategy.

Originally named "Jerry and David’s Guide to the World Wide Web," Yahoo was created in 1994 by Stanford students Jerry Yang and David Filo as a directory for their favorite websites, so their focus was on content.1 As technology progressed, the world outgrew the need for a single place to find useful websites, but one after another, Yahoo’s leaders failed to articulate an alternate, enduring mission statement.

In 2006, an internal memo—nicknamed the "peanut butter manifesto"—was leaked to The Washington Post. Authored by former Yahoo senior vice president Brad Garlinghouse, it addressed the organization’s lack of vision. "We’ve known this for years, talk about it incessantly, but do nothing to fundamentally address it," Garlinghouse wrote. "We are scared to be left out. We are reactive instead of charting an unwavering course.2

"I’ve heard our strategy described as spreading peanut butter across the myriad of [sic] opportunities that continue to evolve in the online world. The result: a thin layer of investment spread across everything we do, and thus, we focus on nothing in particular. I hate peanut butter. We all should."

Yahoo couldn’t decide if it was a media company or a technology company, each of which require a different business strategy.

According to Paul Graham, who joined Yahoo in 2008 after his start-up was acquired, "The worst consequence of trying to be a media company was that [Yahoo] didn’t take programming seriously enough."3

After Yahoo positioned itself as a media company, it inherently created a work culture in which programmers came last—simply there to bring the products developed by managers to fruition. This is the opposite strategy of some of Silicon Valley’s biggest names, such as Google and Facebook, where product development begins with programmers and engineers.4

Until recently, Google had a 20% policy that allowed employees to work on an approved side project one day per week, and many of Google’s current features and applications, such as Google News, have been products of this strategy.5 In contrast, some Yahoo engineering departments didn’t seem to have enough staff to handle their initial responsibilities, let alone innovate.

Marissa Mayer, who became Yahoo’s CEO in July 2012, was dumbfounded when she heard from a mobile engineer that Yahoo’s mobile team only had 60 engineers.6 At that point, Yahoo Mail, arguably the organization’s most important product, had yet to build a smartphone app. Instead, the small team had simply made the Yahoo Mail website responsive, which makes it was easier to use on smaller screens.7

Mayer said that to survive, "Yahoo will have to be a predominately mobile company."8 A major reason Yahoo didn’t achieved this goal, according to Shashi Seth, Yahoo’s senior executive from 2010 to 2013, was because Yahoo never developed a mobile operating system or widely used a browser of its own, unlike Google and Apple.9

In 2006, two years before Android phones were released with pre-downloaded Google apps, Google outspent Yahoo in R&D investments by an average of $100 million per quarter.10-12 Since then, the disparity in innovation investment between the two organizations has grown exponentially, and Yahoo has steadily fallen behind the rest of technology sector.13, 14, 15

"[Yahoo] has been mining its existing customer base and not necessarily providing new value to attract new customers," said Jo-Ellen Pozner, business professor at University of California-Berkley.16

Recruitment versus culture

Garlinghouse, who is now president and COO at Ripple, a financial technology company, followed up on his "peanut butter manifesto" in January 2013. He said that time and experience had taught him that the lack of focus, accountability and decisiveness he saw at Yahoo were only symptoms of a deeper problem. "Yahoo’s strength had emanated from the passion and entrepreneurial zeal of its employees," Garlinghouse said. "But these muscles had atrophied."17

Even before January 2013, Yahoo had lost most of its appeal to young programmers. It wasn’t as enticing as the tech companies that were constantly producing new applications or platforms, and it didn’t have the potential to make them into the next Mark Zuckerburg—like start-ups did. This made it difficult to recruit top talent.

A recruiting strategy called "acqui-hiring" involves acquiring a start-up for its technology and, often more importantly, its staff. Mayer told Bloomberg in a 2015 interview, "People would say, ‘I’d love to work for you, I’d love to work at Yahoo—but I’m not coming alone. They wanted to bring their teams with them as a way of ensuring the Yahoo experience wouldn’t be too crazy. So, acquiring whole companies was one way to bring in talented people, along with their teams."18

In total, Mayer spent at least $2.3 billion acquiring 53 start-ups to improve Yahoo’s talent pool.19 At the same time, however, she implemented a controversial employee performance metric that further stifled innovation and weakened any sort of culture that promoted teamwork between long-term employees and the new acqui-hires.20

Mayer’s immediate predecessor, Scott Thompson, had sought to reduce Yahoo’s workforce by cutting whole divisions instead of conducting individual evaluations. The board of directors told Mayer that she should be prepared to cut 35 to 50% of Yahoo’s workforce.21

Mayer pushed back saying, "Yahoo’s basic infrastructure was so byzantine and jerry-built that it would be unwise to blindly rip whole teams of people out," according to Nicholas Carlson, editor of Business Insider.22

Her strategy was to have managers give employees a score of one to five every quarter. A one meant an employee "consistently misses" established goals while a five meant an employee "greatly succeeds" these goals.23

The controversial aspect was that managers were given target distributions for employees. According to Mayer’s strategy—which she called a "bucket sort" in an attempt to distance it from stacked ranking—certain percentages of employees had to go into each of the score categories. Because of this, middle managers had a difficult time getting talented employees to work together and workers would prioritize tasks related to their personal goals over other potential innovations.24

It also was extremely difficult to earn raises under this evaluation system. To do so, an employee had to have an average score of three for the past four quarters. When Mayer came to Yahoo, the organization had some of the highest salaries in the industry, and many employees understood that changes had to be made. It did not go unnoticed, however, that Mayer was spending big money to bring in outside help. It was rumored that the mobile engineering acqui-hires, who typically stay the least amount of time that they can with the company, were receiving three-year deals worth $1 million.25, 26

In the end, Mayer spent a lot of money in an unsuccessful attempt to catchup in a race that Yahoo started losing in 2006, and the company reported a $4.4 billion loss in 2015.27 Shareholders began suggesting that Yahoo sell off the core of its business in order to avoid paying more than $10 billion in taxes to spin off Alibaba, a Chinese online marketplace that Yahoo had bought a 40% stake in for $1 billion in 2005—The stock was worth $33 billion at the time of the suggestion.28

In July 2016, Yahoo’s board approved the sale of Yahoo’s core business to Verizon for $4.8 billion. At the time of print, Yahoo’s shareholders and federal regulators had not yet approved the deal, which is expected to close in early 2017.29

—compiled by Lynsey Hart, contributing editor


  1. David Filo and Jerry Yang, "Radicals and Visionaries: The Chief Yahoos," Entrepreneur, http://tinyurl.com/yahoobio.
  2. Brad Garlinghouse, "Yahoo Memo: the ‘Peanut Butter Manifesto,’" Washington Post, Nov. 18, 2006, http://tinyurl.com/pbmanifesto.
  3. Paul Graham, "What Happened to Yahoo," August 2010, www.paulgraham.com/yahoo.html.
  4. Ibid.
  5. "The Importance of R&D to Innovation," Incrementalinnovation.com, http://tinyurl.com/randdinnovation.
  6. Nicholas Carlson, "What Happened When Marissa Mayer Tried to Be Steve Jobs," New York Times, Dec. 17, 2014, http://tinyurl.com/mayerversusjobs.
  7. Ibid.
  8. Vauhini Vara, "Why Yahoo Couldn’t Adapt to The Smartphone Era," The New Yorker, Feb. 9, 2016, http://tinyurl.com/yahoonewyorker.
  9. Ibid.
  10. Ibid.
  11. "Yahoo! Research and Development Expense (Quarterly)," Ycharts, http://tinyurl.com/yahoorandd.
  12. "Alphabet Research and Development Expense (Quarterly)," Ycharts, http://tinyurl.com/googlerandd.
  13. "Yahoo! Research and Development Expense (Quarterly)," see reference 11.
  14. "Alphabet Research and Development Expense (Quarterly)," see reference 12.
  15. Timothy Lee, "Verizon’s Purchase of Yahoo, Explained," Vox, July 25, 2016, http://tinyurl.com/voxyahoo.
  16. Ethan Baron, "Yahoo Led Itself to Auction Block, Experts Say," Mercury News, July 17, 2016, http://tinyurl.com/yahooauctionblock.
  17. Brad Garlinghouse, "What I Got Wrong in the Peanut Butter Manifesto," Jan. 4, 2013, http://tinyurl.com/manifestofollowup.
  18. Dylan Tweney, "Marissa Mayer on Coding, Acqui-hiring, and Whether Yahoo Is a Media Company," Venturebeat.com, June 16 2016, http://tinyurl.com/mmayerinterview.
  19. Sophie Kleeman, "Here’s What Happened to All 53 of Marissa Mayer’s Yahoo Acquisitions," Gizmodo, June 15, 2016, http://tinyurl.com/mayeracquisitions.
  20. Nicholas Carlson, "The Day Marissa Mayer’s Honeymoon at Yahoo Ended," Business Insider, Jan. 2, 2015, http://tinyurl.com/carlsonyahoo.
  21. Ibid.
  22. Ibid.
  23. Ibid.
  24. Ibid.
  25. Ibid.
  26. Mark Suster, "The Corrosive Downside of Acquihires," May 13, 2013, http://tinyurl.com/acquihiredownside.
  27. Karl Russell, "Why Yahoo Sold Itself,"New York Times, July 24, 2016, http://tinyurl.com/yahoo2015netloss.
  28. Michael Liedtke, "Boardroom Intrigue: Yahoo Directors Consider Potential Sale of Company’s Foundation," Dec. 2, 2015, http://tinyurl.com/yahooboardroom.
  29. Timothy Lee, "Verizon’s Purchase of Yahoo, Explained," see reference 15.

Who’s Who in Q

NAME: Kristin L. Case.


EDUCATION: Master’s degree in applied mathematics from the University of Tulsa and an MBA from Oklahoma State University in Stillwater.

INTRODUCTION TO QUALITY: Case is a second-generation quality professional. Her father was an industrial engineering professor and taught classes in statistical process control, quality control, reliability, engineering economics and total quality management. She grew up assuming everyone understood process variation and how to assess Baldrige style because that was what was discussed at the dinner table.

CURRENT JOB: Case is self-employed and operates CaseConsults, a consulting firm specializing in developing or improving quality management systems based on ISO 9001 or an industry-specific standard. Most of her clients are small businesses or in the aerospace industry.

PREVIOUS JOBS: Before starting a career in quality, Case taught seventh-grade math at a public school. She held various teaching positions at the Tulsa Technology Center, Tulsa Community College, the University of Tulsa and Oklahoma State University. She spent almost nine years as a senior quality engineer (then quality manager) for Federal Aviation Administration-certificated repair stations and has held quality-related positions in several manufacturing organizations.

ASQ ACTIVITIES: Case serves as the regional director of Region 14B (Oklahoma, Arizona and the northern part of Texas) and is a member of the Crosby Medal Committee. She has been an ASQ member since 1994 and has held several local, regional and national positions during the last 15 years. She holds six ASQ certifications.

OTHER ACTIVITIES: Served five years on the Industrial Engineering and Management Advisory Board at Oklahoma State University; volunteered for the Baldrige Performance Excellence Program from 2007 to 2011, eventually as a senior examiner and team leader; held various volunteer positions for the Oklahoma Quality Award Foundation from 1998 to 2002; and has been a professional engineer licensed by the state of Oklahoma since 2000.

RECENT HONORS: Member of 2016 class of ASQ fellows; named full academician of the International Academy for Quality (IAQ) in 2015; presented at the International Conference of ISO 9000 five times and received the Best Speaker Award in 2012; earned the Iron Butt Association National Parks Tour Master Traveler Gold Award for having visited on her motorcycle at least 50 national parks, monuments, historic sites, recreation areas or other parks designated by the National Parks Service.

PUBLISHED WORKS: Co-authored a paper for the European Organization for Quality Congress that earned IAQ’s Best Paper Award in 2015.

PERSONAL: Wife, Nancy; daughter, Kaelyn.

FAVORITE WAYS TO RELAX: Case enjoys endurance motorcycling and traveling.

QUALITY QUOTE: Quality is the integral to the value of interested parties’ net-positive perception based on key factors such as reliability, consistency, ease of use and aesthetics.

Short Runs

THE TOP TWO graduate degrees in terms of career investment are master’s degrees in biostatistics and statistics, according to a recent Fortune magazine article. Fortune editors worked with PayScale, a Seattle-based company that analyzes salary databases, to rank doctorates and master’s degrees. The rankings were based on factors such as long-term outlook for job growth, median pay, job satisfaction and stress. To see the complete list, visit http://tinyurl.com/fortune-best-degrees.

FOUR PEOPLE have been appointed to three-year terms on the Malcolm Baldrige National Quality Award judges panel. Two of the new judges are ASQ members: Lawrence D. Ramunno, M.D., chief medical officer at Sibley Memorial Hospital in Washington, DC, and Diane Springer, director of Eaton business excellence assessment at Eaton Corp. in Marysville, WA. The other new judges are Tammy Dye, vice president of clinical services and chief quality officer for Schneck Medical Center in Seymour, IN, and John C. Harris Jr., assistant adjutant general for the U.S. Army and commander of the Ohio Army National Guard. For more information about the appointments, visit http://tinyurl.com/bald-new-judges.

THE AMERICAN BOARD of Quality Assurance and Utilization Review Physicians has formed a pact with the American College of Physician Advisors to offer the first physician advisor subspecialty for the healthcare quality and management certification exam. For more details, visit http://tinyurl.com/phys-adv-cert.

CUSTOMER SATISFACTION with e-business has increased, despite big drops for social media superstars Facebook and Twitter, according to new data from the American Customer Satisfaction Index (ACSI). The e-business segment, which includes social media, search engines, and information, news and opinion websites, improved for a third consecutive year, edging up 0.7% to 74.9 on ACSI’s 100-point scale. ACSI data show advertising is the most important factor weighing down e-business customer satisfaction. For more details, visit http://tinyurl.com/e-biz-satisf.

MOST SENIOR MANAGERS at professional organizations are concerned about the role relevance of training and assessing, according to a new survey by the testing company Pearson VUE and the Professional Associations Research Network, a London-based membership organization for professional bodies. The survey showed 59% of the 68 senior managers from the United Kingdom and Australia who responded believe newly certified professionals are prepared for their job roles after completing training and assessment programs, but 81% are concerned about ensuring that the learning and program content remains relevant. For more from the survey, visit http://tinyurl.com/pearsonvue-survey.

ASQ News

NEW BOOKS RELEASED ASQ Quality Press will release three new books in September. Cracking the Case of ISO 9001:2015 for Manufacturing and Cracking the Case of ISO 9001:2015 for Service, both authored by Charlie Cianfrani and John E. "Jack" West, are now in their third editions and will be released in early September. Milton P. Dentch’s The ISO 9001:2015 Implementation Handbook also will be available in early September. For more information, visit http://asq.org/quality-press.

CASE STUDY ADDED ASQ released a new case study about how an organization applied supply chain management techniques to Six Sigma to reduce major inventory stockouts. The organization, in turn, saved money and improved its on-time delivery. To access the case study, visit http://tinyurl.com/case-study-seadek.


Date in Quality History

QP looks back on a person or event that made a difference in the history of quality.

Sept. 26, 1914

Dorian Shainin, an influential quality consultant, aeronautics engineer and author, was born on this date in San Francisco.

Shainin is best known for practical tools called the "Shainin techniques" that help manufacturers solve problems, including those that previously had been considered unsolvable.

Shainin also is remembered for developing statistical engineering. He specialized in creating strategies to enable engineers to "talk to the parts." The discipline has been used successfully in areas such as product development and reliability, quality improvement and analytical problem solving.

Shainin, an honorary member of ASQ, wrote more than 100 articles and was the author or co-author of several books. ASQ established the Shainin medal in his honor to recognize an individual for developing and applying creative or unique statistical problem-solving approaches related to the quality of a product or service.



Section, Division Events Scheduled

Several section and division events are scheduled in the coming months. They include:

  • The 60th annual Fall Technical Conference will be held Oct. 6-7 in Minneapolis. Visit http://asq.org/conferences/fall-technical for more information.
  • The fourth annual Innovation Division and San Diego section conference will be Oct. 14-15 in San Diego. Find specifics at http://tinyurl.com/innovation-conf.
  • The Audit Division’s 25th annual conference will be Oct. 20 in Memphis, TN. Find out more about the event by visiting www.asqauditconference.org.
  • The Reliability Division’s annual Reliability and Maintainability Symposium will be Jan. 23-26, 2017, in Orlando, FL. Visit www.rams.org for more details about the event. 

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