Yahoo: Losing the Geek Factor

Surrendering search responsibilities to Microsoft will likely take a toll on Yahoo's engineering and innovation prowess

By Douglas MacMillan

An identity crisis gripping Yahoo! (YHOO) had reached Shakespearean proportions by late 2007, when Apple (AAPL) CEO Steve Jobs paid a visit to the company's Sunnyvale (Calif.) headquarters. Yahoo needed to decide whether it would focus foremost on media or technology, Jobs told the small group of assembled executives, according to one executive who attended the meeting. Jobs made it clear which side he favored: "We are in Silicon Valley," Jobs said, according to the former exec.

Which direction Yahoo would ultimately take became clear July 29, when it announced a partnership that, if approved, puts Microsoft (MSFT) in charge of Yahoo's search technology. With that, Yahoo would shelve a half-decade-long effort to rival Google (GOOG) in the lucrative market for search-related advertising and go further than ever to dismantle a culture of technological innovation, say engineers and former staffers.

True, Yahoo employs legions of engineers who work on products other than search, including e-mail, instant messaging, and mobile applications. But for many developers, search was by far the most technologically compelling. "While we had lots of technologies, it wasn't rocket science stuff," says Lowell Goss, who headed user experience for Yahoo before leaving in 2006. "Search is the rocket science stuff." Goss and other Yahoo alumni say that as Yahoo outsources search to Microsoft, a wave of top-tier engineers will likely depart, taking with them the inner geekiness that's fueled much success over the years.

How Content Became King

Executives say Yahoo was electrified when it embarked on search. In 2002, Yahoo bought Inktomi, a startup that gave it the ability to "crawl" the Web for content. "The introduction of the search engine into Yahoo was a transformative cultural experience," says Raymie Stata, who's now chief architect for the company. "It injected a new type of technology that was important to the history of this company."

Yahoo's search engine evolved over the years, but lost its lead in the market as Google honed its search capabilities and made more money from ads placed alongside results. In the meantime, Terry Semel, CEO of Yahoo from 2001 to 2007, placed more emphasis on building premier content destinations like Yahoo Finance and Yahoo Sports. When founder Jerry Yang took the reins in 2007, he pledged to redirect the company's focus to cool new tech but he was ultimately undone by a growth slowdown and Google's widening lead in search. "Yahoo has been walking this tightrope between being a content company and being a search engine," says Danny Sullivan, editor-in-chief of Web site SearchEngineLand. "I think they've made the jump now" into content, he says. Yang was replaced by Carol Bartz in January.

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