In 1998, Paul Graham (a popular computer scientist) was meeting with Jerry Yang, the cofounder of Yahoo, to discuss a new piece of technology called 'Revenue Loop' that his company ViaWeb had developed to make sorting of shopping search results better. But as he points out in hisessay
Jerry Yang didn't seem to care.In Paul's own words -
The reason Yahoo didn't care about a technique that extracted the full value of traffic was that advertisers were already overpaying for it. If Yahoo merely extracted the actual value, they'd have made less.
Yahoo was making a lot of money from banner advertisements on its website and they were getting blinded by it. As they tried to become a hierarchical list of links to websites, they were loosing their game to search (Google), which was becoming the new way to find things on the internet.
However, that wasn't it. Paul soon got an insider look on Yahoo's operations when he went to work there after ViaWeb got acquired by them. He says -
One of the weirdest things about Yahoo when I went to work there was the way they insisted on calling themselves a "media company." If you walked around their offices, it seemed like a software company.
From the early days, Yahoo's founders and executives were unable to set a clear company identity and a work culture to go with it. Yahoo was a website which was basically run by software engineers, but a large focus was put on a sales team that would bring million dollar deals from big clients for banner ads. All that, because banner ads made a lot of money.
In the whole thing, the executives ignored creating a hacker-centric culture, where real focus is on creating new innovative products, overcoming technological challenges and user growth. As a result, good programmers chose other companies like Google, Facebook, Microsoft over Yahoo to work for. This identity crisis sowed the seeds for a less competitive workforce and no competitive advantage (product-wise) as compared to other companies.