Acquired - Overture (with the Internet History Podcast!)

0:01Brian, have you ever had to cancel an episode like mid episode because something was going wrong and it was just unrecoverable? Yes Actually the one that was the worst that I still released was ironically enough the the guy that invented the mp3 And we right Welcome back to episode 33 of acquired the show about technology acquisitions and IPOs. I'm Ben Gilbert. I'm David Rosenpol and we are your hosts Today, we've got a great guest with us. Brian McCullough from the Internet History Podcast. We are huge, huge fans of Brian's podcast here on Acquired, so super, super pumped to have him joining us today. We're doing a double episode, so you'll be able to hear a version of this episode on Brian's podcast as well. And today, we'll be talking about the Valley Shaping acquisition that happened in 2003 of Yahoo Acquiring Overture. All right.

1:10Listeners. Now is a great time to talk about a new partner of ours here on Acquired. LaGora, the agentic operating system that is redefining how the world's best legal teams work. Yup, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. LaGora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

1:39So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review where you.

1:58drop in a folder of hundreds of contracts, and it pulls every key term into a grid a lawyer can actually work with. Lagores Bed here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work, and this means that the pie can grow even as each individual task takes less time.

2:18And they recently launched LaGora agent offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And LaGora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early LaGora numbers essentially speak for themselves when they have a head-to-head pilot with their top competitor they win 70% of the time. LaGora now has over a hundred thousand lawyers on the platform from 1200 legal teams in 50 countries and crazily they went from one million to a hundred million in ARR in about 18 months. Truly insane numbers and that is the real test.

3:10Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in house at a company, you can learn more at logora.com slash acquired and just tell them that Ben and David sent you. Now without any further ado, over to you, Brian. Guys, thanks for doing this crossover.

3:39So yeah, today we're going to be talking about an interesting acquisition story, interesting in the sense that it's not just one company acquiring another because there's a huge major third player that comes into this story. But we're going to talk today about Yahoo acquiring go2.com, which at the time of acquisition was known as overture.com. So to set the acquisition groundwork here, GoTo.com was a company that came out of an incubator in the late 1990s, incubators were hot during the .com era. And one of the hot ones was- What's old is new again these days? Exactly. The incubator we're talking about was called Idealab, which was founded by a man probably most of you know by the name of Bill Gross. Idealab generated

4:38A couple different companies, carsdirect.com, net zero, the free ISP, if you remember that bet from back in the day, the infamous eToys.com came out of IdealLab, but probably the most successful company to be incubated at IdealLab was GoTo.com. And I believe this was 100% Bill Gross's brainstorm. What GoTo was was a glorified search engine.

5:04where the results of a search were generated not by an algorithm based on accuracy or what you were searching for necessarily, but was actually the results were generated by bids from advertisers. So if you went to go to.com and you searched for flowers, the number one search result would be brought up paid for by an advertiser that had bid the most for That ad. So essentially, the, you know, doing research for this show is just so crazy to even think about today, but, you know, there were no organic search results. Like, everything you saw on go2.com and then, and then later over to we'll talk about how they shifted their product and business models was, was an ad. It would be like Google, but without the organic search results.

5:55Right, I think they might have backfed some organic search results from somewhere else. They would have had to, especially at launch, since they wouldn't have had enough advertisers to cover everything. But yeah, it's basically Google, but all ads. So basically Google these days, right? Yeah. Believe me, from someone that still owns a business that does a lot of, gets a lot of my business from paid search. I know what you're talking about.

6:25It was controversial, especially at the time. I mean, we're laughing looking back at it now. But this was completely antithetical to everything that people thought search should be. Bill Gross announced and launched go2.com at the TED conference in 1998. And a funny aside, listeners to my show know that I'm associated with TED. I've been working with them for the last year or so. They don't mention Bill Gross by name.

6:55But they do mention when you give a TED talk, not to sell. And Bill's TED talk in 1998 was very controversial within the TED community because it was basically standing up and launching a new product that people were like, well, this is not a world-changing product. You're just up there selling us on your new startup. And so it's sort of without naming him, they use that as an example of what you have to do these days. Much cheaper than renting out Moscone Center yourself.

7:23Right. Exactly. And not only wants a new product but a new product that was just ads. Right. Exactly. It's not a new product that's going to cure malaria or something like that. But one thing we have to say about GoTo is that it was very quickly successful, which makes sense because if you think about it, it's pure advertising. And we'll get to this later on, but the...

7:50The model, Google's business model, which we now think of as the greatest advertising machine ever created by man, it's already present in this first version called go2.com with obvious caveats, but it was immediately successful in the same way that Google's AdWords product was almost immediately successful. There's a couple things that I need to point out about how go2 worked. First of all, it was A destination in and of itself, they called it go to.com because Bill Gross wanted it to be a shopping destination. It also, as we pointed out, was all ads and it was paid to play essentially. If you were willing to pay $100 a click, you could be number one on every single keyword go to.com. As we'll get into later, Google tweaks that model later on.

8:44But as I pointed out, it started out as a standalone destination, which was not very helpful to Overture, slash GoTo's business model, because there were already existing properties that got way more traffic. Yahoo, AOL, excite places like that. So even though GoTo.com was successful, it was not successful enough because it wasn't scaling. So Bill Gross has the brilliant idea of syndicating the ad model of GoTo.

9:11This is when they change the name to overture because overture obviously means making an introduction. Go to slash overture begins cutting deals with every major search portal in about 1999 to 2000, including AOL, Yahoo, Excite. You name it. What started to happen is in your normal Yahoo or AOL search results you would see.

9:34two, three, maybe four overture results at the top. Those would be the same ones that you would see if you went to go two slash overture but they were just the little syndicated paid links now at the top. This model was unbelievably successful and it was successful at a time when major search portals needed some serious cash flow because by 2000 into 2001 the .com bubble is bursting.

10:03And that means that a lot of the companies that places like Yahoo were piggybacking on top of to make their money to sell the display ads that were running against their portal pages and their search results were going out of business.

10:18Yahoo, especially. I was just researching this for my book. In 2001, I believe the first quarter of 2001, they suddenly have to announce that their guidance for the quarter is going to be lower by 25%. About a month later, they come back and they say, you know what?

10:37We're going to guide down another 25%. Imagine this is how bad it is in 2001. That twice a public company has to lower guidance by 25% within the same quarter. Wow. That's unimaginable today. Well, we hope so. When people talk about how today's entrepreneurs haven't lived through the hard times, this is what they're talking about.

11:03Right, I got some more great numbers for you. Yahoo, we'll use Yahoo as an example because they're gonna come into the story now. Their market cap at its peak was 128 billion. By January of 2001, their stock price had gone down from 118 to $4.05. The market cap had gone down from 128 billion to 11 billion. That's 92% down from its high.

11:30So when people talk about the carnage of the dot com bubble bursting of the nuclear winter like we call it, that's what we're talking about, where sales are just evaporating overnight, your high flying market cap is eviscerated. Wow. Incredible. And this is the same time.

11:48on our Amazon IPO episode, the Tom was talking about when everybody was hit by this, Amazon, eBay, all the, even the companies that end up surviving and thriving today were trading for pennies of what they once had been.

12:03Well into this crazy time period where everybody's losing money all these dot-com companies are going away because that's what's exactly happening to Yahoo is that they had ridden you know the pets dot com the toys dot com the i village dot com all these dot coms that were willing to spend spend spend all their VC money in order to stand out from the crowd and hopefully have a flashy IPO they're gone so overnight Yahoo, loses somewhere around 60% of its advertising base. Into this breach, steps, overture, and immediately, as I said, is super successful for its partners. Basically, by 2001, all of the profits...

12:45that Yahoo is making is from its search deal with overture. Yeah, and this is what, I mean, we sort of made fun of go to in the beginning of the episode, but we shouldn't sort of change the company and Bill Gross here. I mean, it is brilliant what they do from a business perspective. I mean, they invented the paid search model and then had the insight when they didn't have enough traffic themselves as a destination site to marry that model with traffic search traffic that other portals had I mean it was it was These were really two brilliant observations from a business standpoint that Bill Gerson and Overture had so I'm going to quickly jump to the acquisition that we're talking about and then I'm going to cycle back to the third player that we're talking about here Essentially it's obvious to anyone listening to this story that

13:36Yahoo, if they're making all of their money from this deal with overture, maybe wants to acquire the company that is suddenly responsible for most of their revenue. So in mid 2003, negotiations with overture bear fruit and Yahoo agrees to buy overture for $1.4 billion, which was actually 25% less than overture was asking for. So I want to make a quick point here. Why is overture willing to sell on the cheap? Well, if you think about it, they're in an unsustainable situation. They're making everybody tons of money.

14:14but they don't own any of the properties that are getting the traffic themselves. So they're operating a business that is incredibly reliant on their partners. If they were to lose, say, a Yahoo or an MSN or an AOL, which they do, we'll talk about in a second. If they lose any of those major partnerships, they're basically out of the game. So the reason that Yahoo is able to come in and purchase an overture on the cheap is that Yahoo knows that they sort of have overture over a barrel.

14:43Yahoo is willing to pay a lot because it wants to lock down that revenue But it's worth pointing out that for all the money that overture was making people it was basically in an untenable situation and needed to be acquired by somebody so Brian do you think that that's always a bad strategy to kind of have all of your potential exits be Partners there that are direct competitors I think that obviously doesn't put you in a good negotiating situation because your acquirer can basically save you. We're willing to buy you and save your life. And if we walk away from this deal, we're killing you. So it's let us save you or we're going to kill you. So that's not a great negotiating position to be. At the same time, though, you know, it was still a $1.4 billion deal. Like that's a lot of money, especially for a company that was only founded five years earlier.

15:36And you're in the middle of the carnage of the tech bubble. I mean, absolutely. At that point, would you say like, you know, 11 billion dollars ish? Yeah, around the 10 billion. Yeah, that's more than 10% of their market cap. I would say that in this era, the two big acquisitions that made people stand up and take notice and be like, Hey, maybe, maybe the internet space isn't dead. Was this acquisition and then the PayPal acquisition? Yep. Yep.

16:03And to be fair, this was a 15% bump over where Overture was currently trading. Right, because Overture was a public company at that point. I think we forgot to point that out.

16:13All right, so I want to smash cut now over to the third player in this story, which is Google because if you're listening to this, you're thinking, well, what we're talking about is basically Google's business model which is paid search. What people forget about the Google story is that Google did not have a revenue model for a very long time. Their original business model when they...

16:36took their money from Sequoia and Kleiner Perkins was basically to syndicate search results. So again, we're in an era where there are seven or eight major search players. And I'm saying search in quotes because a lot of them weren't doing real search. They were more portals, but search was a component of what the portals were offering people. So Google's original business model was to basically offer the search results to these seven or eight players and get licensing deals for providing the service.

17:05And it's crazy to think about how different the world was back then. I couldn't be wrong on this, but I'm pretty sure that the way Google did that was through the Google search appliance, which was actually a piece of hardware that their partners would install in their data centers. For fans of Silicon Valley, they made a box. Well, so now.

17:35If you're Google in 2001 and you're sort of hunting around for a business model because really that licensing your search results to seven or eight players doesn't really scale very well. It's a decent business. It's not a multi-billion dollar business. And if you're Google in 2001, you're looking over at Overture and you're seeing that Overture is having incredible success in what is essentially your space.

18:03And they're doing it via a business model that is pretty obvious. As an example, 2001 is the first year that Google actually is profitable. And in 2001, its revenues were $85 million. In that same year, overture had revenue of $288 million. And at that point, overture was growing faster, was growing as revenues faster. So, Google does what...

18:28is the obvious thing in retrospect, and probably even at the time, they say, hey, maybe let's give this overture model a try. The original version of AdWords that Google launched was basically CPM. They were still text-based ads, and they were put at the top of search results, but they were glorified banner ads, even though they were text. Basically advertisers paid per 1000 viewers for the ads that showed up. One thing that we haven't pointed out is that overture has pioneered paying per click, CPC, which advertisers love because it's much easier to measure results versus measuring on a CPM basis. So Google first experiments by doing ad words at the top and Ford or a Coke or whoever would pay by the 1000 viewers,

19:25And then they start to introduce what overtures doing. So they're putting search results on a cost per click basis at the top and then later on the side as we're more familiar with. But they do two things that overture hadn't done. Two huge innovations. Number one, overture always had editors. So if you submitted an ad to overture and you say it want to advertise for flowers, they would have to make sure that you really were a flower business. They would have to make sure that the ad was Copacetic, they have to make sure they approve your text and all those things. Well, we know Google as the company of engineers, where there's no problem that can't be solved by math and some decent engineering. So they don't want to do this editorial stuff. And so they create an automated system, whereas with overture, you would submit your ad and it would take a day or two for the ad to go live.

20:19Google created an automated system where you would bid on keywords, submit your ad, and the algorithms would make sure that the ads were cool, and your ad would be running within the hour. They also targeted small advertisers. Overture was still in this sort of display ad business or the traditional ad business where you're chasing big brand advertisers.

20:41And Google said, hey, if you've got a credit card, I don't care who you are, throw $50 at us and you can run some ads and see if this works for you. So Google goes after small advertisers and basically creates the modern search advertising marketplace that we're familiar with today. And by going there after those small advertisers, they really created a new market too because You know, if you're Coke, you can go deploy $100 million on billboards around the country and you can buy these brand advertisements. But if you're using search ads and you have metrics on the number of people clicking through for the first time, there's a real market for direct response advertising and not just brand awareness ads. Right. And it's a different type of advertiser where it's more direct response advertising as opposed to brand advertising, which

21:29Traditionally, still is in the display business as opposed to the search business. That's even true to this day to a large extent. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI first world, that doesn't hold up anymore. Yep. Your risk surface changes every week now.

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23:24So, the second key innovation is, it's not just pay to play. You can't go into a keyword, be willing to pay $100 per click and be guaranteed at the top. Google, of course, being Google, again, wants to have this sense that, hey, it's a win-win-win for everybody. We want to have the most relevant ads so that the ads will almost be useful to a searcher, not an annoyance to a searcher. So, they introduced this key innovation of the click response rates affect the bidding process for the keywords. So it's not just the person that pays the highest gets the top. It's some combination of the person willing to pay the highest and the person whose ads gets clicked on the most and thus making that ad probably the most relevant. Yeah. And we'll we'll circle back and talk more about this later in the episode and the analysis. But this is a super key point for two reasons. One,

24:21That allows Google through their system to actually optimize revenue, not just the amount of money that people would spend on a given auction, but the way the revenue will be the amount of money spent on a CPC ad times the number of people who click. So by optimizing for also people who click, they optimize revenue. And then the second key point is that this is a really hard math problem and hard data problem that Google is going to need a lot of engineering and technology to solve. And we'll see that come back later. Right. And I think that it's worth underlining that. And that Google actually is able to make more money by this model because by making it more relevant, if you do the math, and it's too complicated to go into here, but it actually ends up making Google more money because they're getting more money from the ads that are clicked on the most.

25:16Yeah, and Brian, is this the point that Google introduces that other innovation of lowering the price of the bid to just above the second highest bidder? Yes, in the overture model, if you were willing to pay 50 cents and the number two bidder was willing to pay 10 cents, when you got clicked on, you still paid that 50 cents, which sounds crazy, and it was, and so one of the things that really won people over from overture to Google's ad words, and I can speak from experience because I was one of these advertisers at the time, was, okay, on Google's model, if I pay 50 cents, my competitor bids 10,

25:58If they click on my ad, I'm only paying 11 cents. I'm only paying just over what the second person was bidding. And I don't have to do anything to do that. It's automatically done for me. Which really, I mean, that starts to feel like Google being a real enduring company, right? Making these decisions that...

26:16really bring the marketplace efficiency in in line with, you know, where the market actually is and not just saying, was this a smash and grab job for cash now, but really we're, you know, we want to have this advertiser relationship for a long time. Indeed. So let's, let me pick up the story.

26:33It's February of 2002 that the modern AdWords, as we know it, with the change to cost per click and with this quality score on ads is introduced. February of 2002 and one of the executives that is brought in to lead the ad team at this point is a young lady by the name of Cheryl Sandberg. And Cheryl, as we know, basically... I feel like I've heard of her somewhere. Makes her early career by the success of AdWords.

27:03But let's go back to the Yahoo overture Google triangle here because Yahoo had a pre-existing relationship with Google. Google had been since 2002 providing the search results for Yahoo. People always forget this. Yahoo was never technically...

27:24a search engine. It started out as a human-powered directory and through the mid to late 90s, that was their differentiator. You know, search engines just didn't really work very well. And so Yahoo, sort of made its name by saying, if you come to us, go through our directory. You're going to find what you want to look for because we've taken the time like actual human beings have taken the time to sort this out for you. And they were touting the fact that they were a media company and their primary revenue driver.

27:51That point, or at least a little before, was the banner ads that they were putting on their own first-party media content, right? They did a lot of things to try and introduce e-commerce. There was Yahoo shops and things like that. But yeah, there's still 80% of their business, as we discussed, were people buying banner ads, especially the .com companies buying banner ads. So Yahoo already has this pre-existing relationship with Google.

28:19And Google has seen that Overture has created this incredible business by syndicating these paid search results. So around 2002, Google starts to do the same thing. I remember there's still these multiple players. There's still AOL is the biggest player at this point. Yahoo is the biggest portal at this point. And so Google is starting to shop around this idea that hey, we can syndicate our ad words in the same way that Overture does. And so the first person that they go to to try to cut a deal like this is Yahoo, who they have this pre-existing relationship with. And so that is really when Yahoo starts to get the idea of maybe it itself needs to

29:02get into the search game, as we're saying, search was not their business. They were basically selling ads against eyeballs, thus we're calling them portal sites. But an interesting thing is, is that since Yahoo and Google have this relationship, Yahoo is able to take a look at Google's internals.

29:25And so in the same way that it can see on its bottom line all the money that it's making with Overture, it can see when Google is similarly having incredible success syndicating its AdWords ads. The big deal that Google is able to pull off is when it steals AOL from Overture. Overture had been providing those paid links at the top of AOL search results.

29:51Google swoops in and steals that business from overture to the tune of about $100 million. At least that was the deal and guaranteed revenue that they had to offer to AOL. But again, because Yahoo has this relationship with Google, it can see that the AOL deal is instantaneously extremely successful for Google. This is around the same time, if you guys might remember, the summer of 2002, that Yahoo first tries to buy Google.

30:20Before they make the overture to overture, they try to buy Google for $3 billion and are rebuffed, which is interesting because at that point, Google's revenue was...

30:32probably only about $240 million a year. And Yahoo's yearly revenue was $837 million. It's starting to recover in this period from the .com bust. A CEO by the name of Terry Semmel comes in and basically doubles down on the display advertising business and turning Yahoo into a media destination. So Yahoo's stock price was only about $7 a share. And so the five billion purchase price that Google wanted. Yahoo's offering three billion. Google wants five billion would essentially have meant that Yahoo was going to spend basically its entire market cap to swing the deal. It definitely would not have been a merger of equals. It would have been basically Google taking over Yahoo by proxy. Wow. So Yahoo does not get to buy Google. And so in its mind,

31:31It has to do the next best thing. Overture is obviously the business model that Google has copied and is having success with. So why can't Yahoo just go ahead buy Overture, buy another company, get into the search game, and basically replicate the business model that Google is having success with, that it has copied from Overture. Sounds great. What could go wrong? What could go wrong?

31:59And so this is essentially what happens. The first thing that Yahoo purchases is ink to me. So that gives them what a lot of people at the time thought was a search engine that was equivalent in quality to Google.

32:14or at least the second best search engine on the planet at that point. So they buy ink to me in late 2002 at a relative bargain, the acquisition was 257 million. And so then on top of that, they turn around and pay the 1.4 billion for the search ad pioneer overture. So those are two big acquisitions. Remember Yahoo's market cap is under 10 billion at that point, but it's a lot less than what Google had been asking for, right?

32:44Right. So the acquisition goes through and it's immediately a big win for Overture because overnight or sorry a big win for Yahoo because overnight acquiring Overture triples Yahoo's profits. In 2004 it's revenue doubled and the profit more than tripled by bringing in by bringing Overture's search ad business in house.

33:10And it actually immediately has a positive impact on Yahoo stock, which goes from $16 a share the day that the overture deal was announced to $37 a share about a year later. And there's an ironic quote from Terry Semmel around the acquisition where he says, we got into search to change the game. It's ironic because most of us thought that Yahoo was a search engine, but as we're discussing in reality, they never were.

33:37So, Yahoo's plan here is to integrate these two things. To bring the search engine in-house, to marry it to overture existing paid search business. And bam, they can replicate everything that Google has rapidly seen success with.

33:55And there was, you know, some precedents for this because remember Google used to be the search results for Yahoo. So basically you swap out into me. That's relatively simple. Seems reasonable, right? The problem was integrating the overture search ads business.

34:17Your Yahoo and your existing business for your entire life is this display ad network, where you've got hundreds of salesmen, and basically you had been in the game for a long time of just getting eyeballs to your site, people coming for horoscopes, for maps, for checking your email and things like that. All of a sudden, you basically have to upend the culture of the company and say we're in this engineering-based search business.

34:45and it turns out that that was the problem of the acquisition, that it was a huge, on some level, technical headache to integrate the overture business into Yahoo, but more than anything else, it was a cultural headache, a cultural clash of trying to change Yahoo's business model basically midstream. So many thoughts, but holding my tongue for analysis.

35:10Let me wrap this up then and explain why the acquisition, we can say, was not entirely successful. They bring in overture and the overture team conflicts with the existing Yahoo engineering team, the overture.

35:28business model conflicts with the existing Yahoo display ad business model people don't get along people aren't executing or or let's just say that different teams are moving in different directions not everyone's rowing the boat in the same way at some point in 2005 they fire the original overture CEO that was brought in with the acquisition and here's another name that you might recognize guess who they bring in to try to save the overture business, the integration of the overture business. A hint, we did an episode about his company being acquired. It was a young gentleman by the name of Jeff. Weiner. Who we know are more familiar with as LinkedIn CEO. And weiner did have success integrating the incoming search, just swapping them out that had been done before. But he had an incredibly difficult time.

36:26putting the overtured business together with the search business there was this huge project called project Panama that Yahoo promised for years and years and years would launch and it would be just as easy to use as ad words all you had to have was a credit card will have the automated system will do the ad scoring so that we're going to reward people for the most times they're clicked on the ad relevance that sort of thing basically everything that Google had done with AdWords. Project Panama was supposed to do the same thing, only better, of course. But they never really pulled that off. I believe that Project Panama was announced in late 2004 or early 2005. Panama does not actually launch to the public to companies willing to buy ads until February of 2007. So long after Google had IPO'd,

37:24By 2007, when Project Panama launches, Yahoo sales that year were almost $7 billion. So in the intervening years, they have been successful at turning their business around and making some money off of search. But the problem was, they were not as successful as Google, who in 2007 reported revenue of $16.6 billion.

37:45So because of the integration issues, because of the cultural issues, by the time that Yahoo finally realizes it's dream of building adwords based off the acquisition of overture and ink to me, it's too late.

37:59Google has already run away with the search crown. It has by far the largest measure of the search market overall. And Yahoo is basically an also ran. And by the way, even when it launched Project Panama was not that great. And for acquired listeners, Brian's previous episode of the internet history podcast was an interview with Gary Flake, which is really, really exceptional. If you get a chance to go listen to that.

38:24And Brian and Gary were discussing this notion of a multi-sided marketplace as a living breathing ecosystem. So when the Overture deal went through, there were customers on one side of the ecosystem and searchers on the other side of the ecosystem, and then a third party, which is the actual search providers.

38:48This is an interesting takeaway for other businesses that will be analyzing in the future. But when they decided to put a lot of the Overture engineers on pause to go and start, well, become Project Panama, you really slow down the fuel into the ecosystem and the machine stops working. So you can't just tell all your customers, like, hey, bear with us for two years while we build a better widget here for you guys. I mean, Google very, very much took that opportunity to swoop in. And then you're kind of starting from a not quite a cold start problem. But anybody who started a marketplace from scratch knows that how inefficient and how rough they are at first. And by kind of going and hitting the reset button for Project Panama really cost them a lot of ground in those intervening years. Yeah, absolutely. Well, and there's one more twist to the story before we can start to get into analyzing all of this.

39:48Remember, and everyone acknowledges this, Google basically copies Overture's business. AdWords was not a direct copy of what Overture was doing because clearly Google did it better, but everyone noticed, including Overture, that Google had basically copied them. And so even before Yahoo acquired Overture, Overture sued Google for Either copyright infringement, IP infringement or something, it's actually a little murky because it turns out that Yahoo who had acquired overture at this point eventually settles with Google. If it was a slam dunk case, why would you settle with a competitor that basically has in your eyes stolen your business model and is having great success with it?

40:40Uh, in the end, before Yahoo, before Google, sorry, uh, goes public in 2004, they settle the litigation with overture slash Yahoo. And Yahoo gets, and we were talking about this over email, the numbers are not sure about.

40:58I believe something like $400 million of Google stock, pre IPO, Google stock. The only numbers that I'm sure about, and then you can cut in and correct me if you know more, is that I believe at some point in 2005, after Google goes public, Yahoo sells 4.2 million shares of Google, pocketing nearly $1 billion, which very much boosted its bottom line in that year, so there's further irony in the sense that.

41:24All along, Google is still helping keep Yahoo a flow. Basically because Yahoo has so much Google stock. But this is something that's always puzzled me is why would... I know why Google would want to settle. They want to have this litigation go away. They're about to go public. But why would overture slash Yahoo have settled? The best that I configure is that the patents that...

41:51Overture originally had weren't that good. I found in Stephen Levy's book about Google called In the Plex. I found a quote from Bill Gross where he's talking about the patents before Overture itself.

42:04goes public, he's apparently they hadn't nailed down many patents. And Bill Gross says that they're rushing to patent everything they can. I don't know why they hadn't done this before. And the quote is, we patented everything else we could think of. A bunch of obscure things like the way we could accept the bids, but these were silly patents. The real patents would have been worth billions.

42:26Interesting, because in several places that refer to these patents, they talk about the, quote, essential components related to the features and innovations surrounding our bid for placement products and our pay per performance search strategies. And it seems like, I don't know, maybe they didn't fully think it through. And like you're saying, patent did a lot of the less valuable stuff, but there was a failure to see the forest through the trees there.

42:52I, uh, in my conversation with Gary Flake, I also got the impression that Yahoo just thought it could do it better. You know, who are these, who are these upstarts at Google? Um, we're Yahoo. We've been in this game since 1995. Um, we've got more money. We've got more, uh, the talent engineering talent. We've got more resources. So maybe it was a question of they didn't think that the patents were that strong and hey, by the way, it's not going to matter anyway, because we're going to kill these guys soon. Yeah.

43:21Yeah, I don't know. It's also kind of a fun aside, a little mini tech theme, you know, in what's old is new again. It's like this is like the OG version of Instagram stories, you know. You know, if you can't, if you can beat them, copy them. Well, and then there's always the, you know, none of us are lawyers, right? At least I don't think either of you are lawyers, but, you know, the whole idea of...

43:47There's some things that are fairly obvious so that it's not like you have to go steal industrial secrets or something in order to copy a business model. There are certain things like bidding that are fairly obvious to people. So yeah, I just would have to speculate that maybe the case was not that strong.

44:08Hey, Yahoo, settles gets decent chunk of Google stock. And then they think it's not going to matter because they're going to do better than Google eventually anyway. Yeah. And one thing that I think is worth separating out a little bit here is, Overture nailed the product model. For the first time, somebody had a performance, you know, for-pay search model that totally turned the industry on its head.

44:37That was really the product model. They were a B2B provider. They tried to be a B2C provider, but couldn't get the traffic to their search engine. And Google was the one that sort of ended up nailing the business model by stealing the product model from what overture it created, and then building that actual B2C business that has incredibly outsized returns. And I think this is probably a well-known, well-researched thing, but it really just occurred to me that if you think about the value chain, and everyone that ends up contributing to the ultimate search results that you see, or the ultimate social stories that you see on Facebook. The biggest companies that command the most market cap and capture the most value are these B2C companies. And if you're deciding, swing in a miss on B2C with go2.com, we're going to be Obacher and be a B2B provider.

45:31You may have pioneered the best product, but you're settling for a smaller opportunity in being a B2B provider if you're in a single industry like that. I could see making a case for B2B having potentially larger upside if you're serving multiple industries, but you know, search was this brand new thing and the only thing the only companies that they could serve were the search engines themselves. So they naturally had to be smaller than the combined value of the search engine and the way that they were positioned smaller than any single search engine or the largest single search engine anyway. Well, and then that's the original sin of go to overture anyway because remember the reason they were in a precarious situation is because they didn't actually own the underlying properties that were generating the traffic.

46:18They thought they solved that problem by hooking up with Yahoo. The problem is is that Google did such a good job at being everybody's favorite search engine, of being the best in search, that by the time they, if we give them credit and say they eventually got their act together by 2007, it's way too late because everyone has already learned to Google it. And at that point Yahoo as a search destination was significantly less in market share than Google was totally and this is a really great transition into acquisition category so for listeners that are new to the show we assign a category to every acquisition and those those buckets are people technology product business line asset or other and

47:06I think so that when we look at this this acquisition it was really a vertical in Yahoo buying a horizontal in Overture and and Overture obviously trying to serve many search engines with their technology Yahoo buying them to integrate with their one search engine and You know, these are sort of hard because the let's assume that a lot of the value created by overture was by summing across all their different customers. Well, as soon as they get acquired by Yahoo, it's pretty easy to see that boy, if you're prioritizing for the vertical for Yahoo, you don't want them serving all these other customers.

47:42But the issue was, even if you're going to take that value destruction hammer and do that because you believe that the synergy and the sum of the parts created by that acquisition is better than all the previous value by serving all those customers for Overture, they actually didn't pick. And the issue is, I think...

48:00the acquisition category I'm going to assign is the problem is they acquired a technology and they also acquired a business line and tried to keep both going. So, you know, they had the technology that they were integrating into project Panama, but they also had this business line and overture continued to serve other customers. Like, you got to pick one and you got to go hard at a strategy. Yeah, I'm going to say something similar for me. I'm going to assign it.

48:28Technology category, but my take on it was Yahoo acquired a technology. They just acquired a, you know, I was gonna say bad technology, but the reality is it wasn't bad in and of itself. It was just bad relative to Google. It was orders of magnitude less powerful. And I'll get into in what would have happened otherwise in tech themes a little bit about the importance of the technology that I referred to earlier, but But yeah, for me, this is clearly an attempted technology acquisition. It is. If it's time for me to chime in, I'd say, I'd agree with attempted technology acquisition. I don't know if this is a category, though. It's an aspirational acquisition, because it's in the same way that Google had looked across at Overture and said, Hey, there's golden in their hills.

49:25Yahoo has looked over at Google and said, there's gold in them their hills and guess what, it's search. Again, we can't underline enough that what what essentially Yahoo fails to do is that it fails to recognize just like everyone else did that there was actually money to be made in search and that Yahoo should have been in the search business and was in the search business That's essentially the main reason why people first came to Yahoo in the first place But so they look over it's aspirational. They're looking over at Google. They're saying shoot They're playing in our ballgame. It's the game that we should be winning. We're going to win at this. So it's an acquisition where they're looking over the fence, looking at their neighbor and deciding to build a pool, an in-ground pool as snazzy as the Jones itself. Yeah, it's almost like they wanted to build a new business line in search. But rather than taking the market cap and

50:25cost, pain of just acquiring Google, which they should have done. They decided, instead, well, we'll buy these couple other players and search these technologies and build it ourselves into this new business line and clearly failed miserably. Well, you know, a more recent analogy would be Google looking over at Facebook and saying, wow, socials where it's at. And they did make several attempts to become a social media company to their credit. They didn't drive their business into the ground to do it. But in essence, that's the same thing that we're looking at here is looking at the young upstart coming up behind you, seeing that they've created this amazing business and trying to

51:11to copy that business or get into that business. Oh, that's not that hard. Yeah, and I think the huge takeaway and the thing that like we forget today in the world of, you know, but my job is professionally to try and start new startups. And so all the time I'm going, well, let me go, you know, see what keywords are going for in this category right now as my very first step. And you know, in the absence of that world existing.

51:35We completely forget that it was not a parent that a marketplace for search ads was going to be an incredibly lucrative business. And so if you look at the steps that Yahoo took as a business growing up, Paul Graham has this really great piece about Yahoo called what happened to Yahoo. And sort of points out that You know, they went from things web directory, and then they had to become grown-ups, and the way that they did that was say, you know, where are we sort of directionally pointed right now, that's a...

52:08a big company, and they decided media. We're going to be a media organization. And even though they included search, they were like, well, search is just a way to get people to the site. But really, we're a media company that sells these banner ad impressions. And then Google comes along and they accidentally discover the incredible power of having really, really good search for the first time. And then Overture discovers that second and innovation, the first being actually very good search using the page rank algorithm, the second being the sort of business model of selling paid search ads. And oh my god, it's tens or hundreds times more valuable than anybody thought it was going to be. So then Yahoo very quickly has to try and figure out how do we pull in about face and get into this new really big business that's even bigger than the media business that we thought we were trying to get into. All right, listeners.

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54:40So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com slash acquired and tell them that Ben and David sent you. If you guys are okay with it, I think this is a great point to jump to what would have happened otherwise, because I've been eaching all episode to bring this up. Let's do it. And the ultimate point of PG's post that Brian sent to us is that Yahoo wasn't an engineering centric culture.

55:09and Google was and that to win it search you needed to be have really excellent engineering and technology. And this is sort of what I've been referring to all along. I want to make an argument here in what would have happened otherwise that had maybe not the overture acquisition specifically, but had Yahoo not gone down this path with trying to build Panama and compete directly with Google.

55:37We would not have seen any or at least they would have looked very different. Any of the great startups that emerged out of the web 2.0 era right after this and then even into today with Airbnb and Uber because the most important thing to me that comes out of Yahoo's attempts.

55:57to compete with Google is Hadoop. And for our listeners who aren't super familiar either with what Hadoop is or the history of it, when I was referring to the really hard math and engineering problems that Google had to solve there.

56:11Both the organic search results and manage the data to deliver the best search results for what people are looking for, but also to serve the best ads that requires orchestrating just this huge, huge amount of data. And so Google invented two things that allowed that. One was the Google file system.

56:31And the second was this computation paradigm called MapReduce that allowed Google to basically operate on this huge amount of data that they were storing in the Google file system. So Yahoo, when they then try to compete with Google, they basically fund.

56:49This open source project called Hadoop, which was trying to recreate Google had published papers about how they were doing this, but they were trying to recreate these technologies that really had founded sort of the quote-unquote big data world in paradigm. Doug Cutting was a researcher who was building Hadoop and Yahoo funds him through this period in the mid-2000s and its Hadoop that really then enables Facebook to do all of the data work that they do to create the newsfeed that enables, you know, an Uber, when you order an Uber for it to get, you know, you to get matched to a driver who's two minutes away that enables when you search on Airbnb for you to find the best property. This technology that gets open sourced was all of Google's core technology innovation. And I think without this battle, wouldn't have just emerged for free for the community to innovate on.

57:44Yeah, that's a great point. And this is also kind of a not a tech theme, but a company theme that Google has is they often will write a research paper about a new method or new paradigm they've discovered. And then there's these open source projects that come out around it. And those things are lagging what Google has developed internally by about three years.

58:07for anyone who's sort of worked at Google and worked outside of Google. I've heard over and over again, oh man, yeah, I wish we had this tool that we had at Google. It was like this, but on steroids. And it's interesting to hear about, you know, the announcement of TensorFlow was after they had a very similar machine learning system at Google for about three years before announcing the same thing. Well, I mean, Docker. Yeah. The same thing. Google was running on containers long before Docker existed. Yep.

58:33And so it's really like, I think one of the themes of this acquisition is how the heck are you supposed to compete with a company that is that engineering centric and has built that far into the future relative to other companies? Well, my counterfactual would maybe go away to answering that because if we're speculating about what would happen if Yahoo had never purchased overture, then I would speculate maybe they would have been more motivated to double down on their existing successful display business. What if they seed search advertising to Google, which we know only goes so far because there's this whole universe of existing brand advertising that is more suited to display? What if instead of double click being purchased by Google? Yahoo, doubles down on display and it purchases double click. And then in the

59:28world of mobile that we now live in, where display is more suited to mobile advertising, would Yahoo have been in a stronger situation to be a major player in the next paradigm and the mobile paradigm? Oh man, I love that because that's interesting.

59:46That touches on a few things here that the, I love that idea that if you are, if you're missing the current round, then you're actually in a better position to take on the next round. A la, you know, the iPhone being in a better, or Apple being in a better position than Microsoft to go into mobile because they had nothing to lose, whereas Windows was hugely successful and was hard to move into a mobile form factor. Sort of the same analogy of, you know, if Yahoo had really just totally lost the search ad war, would they be in a better spot for the display war? And for listeners not familiar with DoubleClick, that's basically the off-property Google ad network. So when you're going to a publisher like New York Times and you see an ad there that's provided by an ad network that's probably provided somewhere in the chain of Google and DoubleClick, which they acquired, delivering that ad off of the search page.

1:00:42So yeah, Brian that's a super interesting what would have happened otherwise like Yahoo punting on on you know paid search all together and Just maybe throw in the towel say yeah, you know what just give us ad words We'll put them at the top and our core competency competency is something that it turns out Google had to chase when when Google buys double click it is to expand beyond just search ads and into the the broader internet advertising arena in general. So if if if Yahoo had just thrown in the towel there seated the game at that point and then gone back to its core competency, then maybe it would we would have seen a situation where Google's knocking on Yahoo's door asking to acquire them somewhere. And if you look at you know what even even today, I think I was looking at these numbers maybe six months ago. And I think so Google makes about

1:01:4193% of their revenue from advertising, and about 80% of that is search ads, and about 20% of that is display ads. And it's interesting that even though Google spent all that time chasing the display ads business, their real cash cow is and continues to be search ads. So could Yahoo do something really meaningful, or could they have done something really meaningful in the display side? Only history knows.

1:02:10Well, and of course famously, you know Yaku's kind of like I don't know what the right analogy is here of you know always the brides made never the bride or just what but They famously attempt to acquire a Facebook as well That's right shortly after this and Really interesting to think about you know display and More Impression based advertising. Let's say open it up beyond Just display is really much closer to Yahoo's core competency than search and performance based advertising which of course is what Facebook does and you know in a large amount That was exactly sort of the the counterfactual dream that I was having Not that I have any vested interest or love for for Yahoo, but in a world where like you said impression based ads

1:03:07are more important, or growing more important every day, could Yahoo still be a major player? Had they stayed in that core competency? Yeah. Well, I think no matter what's cool about this acquisition and this period of history, and why we're doing it on both of our shows, is not so much. I mean, the acquisition itself, most people have forgotten, but this really was a crossroads of history. I mean, the amount of things that both happened and didn't happen because of this really shaped, you know, every major platform that's emerged ever since. Yeah. Yeah. And absolutely did. And we also, you know, there's, there's two major innovations here. And one of them, Google came up with one of them didn't. And, you know, one is the page rank algorithm to actually have good search on the internet. And two is the business model of search. And that business model was, was overtures innovation.

1:04:03Well, we're talking about counterfactuals a little bit. Brian, you'd mentioned on your last episode with Gary Flake that, yeah, who never had any power over their customers since they never had a first-party offering. It would seem that there are business model ways to make this not a big deal. Like, you look at Microsoft until recently, they never made hardware, but boy did they command power over all the OEMs that were installing Windows. Do you think that the the way to stay in a good position when you're a horizontal provider like this is not to let any of your customers get too large on their own, or do you think it's that you do have to have a credible first party offering, or maybe it's that you're so big that you're never trying to sell? What do you think the way that Overture could have solved for that problem would have been? Yeah, you said Yahoo at the beginning, but I know you met Overture. Yeah, sorry about that.

1:05:01Yeah, I don't think so because the answer to your question, no matter how many ways I could twist my personal logic to try to make it happen, what fundamentally...

1:05:13Overture was in was a platform business. And so without a platform of its own, it was never sustainable in the end. I mean, I see what you're saying. There's gotta be some sort of a world where you supply the ammunition to all sides and you're just a neutral arbiter in the middle.

1:05:35That would never happen because of the politics involved. The next time the three-year deal with AOL was up, or the next time the deal with Yahoo was up because your partners at the very least are always going to try to pay less. And at the very least, if you try to play each other off each other, you're going to piss one guy off and then maybe they leave your network. I just don't see a scenario.

1:06:03Unless, unless overture had been lucky and had been earlier and so it had the larger market cap and so it could have started buying off or buying up its partners. By being late, by being smaller, I just don't see any scenario where they would ever be able to relax. It would always be a shifting sand that they were standing on and I just don't see it could ever work. Yeah.

1:06:31Yeah. Yeah. All right. Anybody have anything before we move into tech themes? Not the word. I feel like we're already deep in the tech theme. What do you see? Why don't you kick it off then? Yeah. You know, I actually don't really have one right now. I think I've talked a lot. We've been doing it for 15 minutes. Yeah. I'm looking here at my list of tech themes and I'm like, talked about that, talked about that, talked about that. Well, I want one thing I want to put in there, which is.

1:07:00A little bit of tech theme, a little bit just like a rumination as I was thinking about this. You know, we talked in our last acquired episode, we had Brad Stone on and we talked about Uber and DD and probably by the time we post this on the acquired show we will have done, the Snapchat IPO is this week and we're going to do a sort of real time reaction to that. So I suspect this episode will come out after that. But I think these three episodes together sort of form sort of a series here on acquired about kind of the nature of competition and the importance of sort of sustainable, defensible competitive advantages. You know, like I'm thinking about

1:07:48in Uber and DD, how we talked about with Brad, how this sort of idea of like scorching the earth versus building a moat that the ride sharing companies have all taken. And then certainly with Snap, you know, we haven't recorded that episode yet, but there's lots of discussion and consternation in the market about what is Snap's moat? Does it have a, does it have one? Or is it, as Ben Thompson says, you know, pursuing the digital bread man's strategy of just constant Undefensible product innovation, but this Google I think is really an example and maybe one of the best we've had on this show of an incredibly sustainable, defensible competitive advantage. And we see it at work here between, you know, overture had the head start, had figured out the business model, but then Google came in and just ate their lunch and sustained that.

1:08:43Why was that? I mean, I think I'm tempted to say it was the technology, and that's why I got all excited about, you know, GFS and MapReduce and then Hadoop that comes out of it. But I think it's even more than that. I think it's using that technology to create this platform that is matching supply and demand and both users on one side and producers and advertisers on the other side, producers of content and advertisers, just in a fundamentally better way.

1:09:13than other people are capable of, but I don't know, curious what you guys think. Yeah, David, it's like, you know, I think we touched a little bit earlier on it, but the reason that they have long-term defensibility is I think is related to that, you know, whatever the second person was willing to pay auction and extrapolated out real far, it looks like Everybody is getting a good deal. It's a continued feeling that me as a customer when I'm or as a searcher, when I go to search on Google, yeah, there's a bunch of ads, but it's, you know, either they're relevant, they're most of the time relevant or other times I can very quickly get to the organic search. Like I feel like there's a free service out there that's really good where I'm getting a good deal. And many times as an advertiser and Brian, you can probably shed some more light on this.

1:10:07I give money to Google, and I get more value out of it. I feel like I'm getting a good deal. And over and over again, I think that these enduring companies are made when everybody in the ecosystem looks at it like, hey, this is not a zero-sum game thing here. Everybody's doing well by this thing existing. I think that's a great point. And if you think about just to jump in real quick, and then I'm curious, Brian, you're thought on as an advertiser in Google.

1:10:34Amazon works the same way, right? As a consumer, you're like, yeah, I'm getting a great deal here. I'm getting better price, more selection, more convenience. And as a seller on the marketplace, I think you also feel like you're probably getting a pretty good deal. In terms of the volume, you're going to be able to sell versus anywhere else. Versus, you'd look at something like Uber, and then Uber certainly has still as potential to be an incredible company and a dominant platform.

1:11:03However, I think there's a hole on the driver side right now. I don't feel like drivers on Uber feel like they're getting a great deal. Yeah. My closing point, then Brian, I'd love to hear your thoughts. This always comes down to the network effect, the flywheel, the ecosystem. They're all slightly different. They refer to slightly different things, but when you bucket them all together, it really comes down to the engine for continuing to grow those things is incentive alignment. And for everybody on each side to I keep saying it but feel like they're getting a good deal it being in their own personal selfish incentive to continue to pour resources and time and effort into that platform and and Google definitely had that going on here. Well, I you know again to mention that Gary Flake episode that I did he to him.

1:11:53That was the miracle that you create a marketplace where everyone feels like they're coming away better off. And I want to point out in a way that it was super important that maybe we don't remember. Some of the shine has come off of the Google halo in suing 20 years or so. But I guess the shine has come off a lot of tech companies in that time too. But it's easy to forget how much everyone thought Google was this angel in the early days.

1:12:20Don't be evil is their motto when people You know every time in the internet history advertising was introduced people complained but then grudgingly accepted it Google already had this reputation of oh my god. It just works They're the don't be evil people and when they introduce ads to us it doesn't feel terrible. It feels like Google intended. It felt like, yeah, these are ads, but they're not, you know, whack-a-mole animations flashing, taking over my screen.

1:12:55They're just, you know, text ads off to the side. And by the way, they're useful when I decide, you know, I search for flowers, but, you know, Valentine's Day is coming up. Well, let me take a look at those ads. It's actually, and so the fact that they did make that key change to make the ads relevant fit into...

1:13:15The opinion everyone had of Google, the good feelings everyone had about Google, it fit their MO. And so I think that we shouldn't overlook how important that was at the time that sense of good feelings that it engendered. But then the ultimate story here, and this is where I'll bring in my personal experiences as an advertiser, my first Startup, when I was 22 in college, I bought an ad on go-to before it was even overture. And I paid $40. And I paid $40 and got $80 back within 24 hours. And that's an amazing event in the life of any business person where you think.

1:14:03If every time I spend 40, I get 80. I'll do this all day, every day for the rest of my life. It's like you've learned how to turn lead into gold. Right. So like that was the magic of paid search, of like we said, the greatest advertising engine ever, ever devised my man for reasons that other people have talked about because you're at the point of intention and things like that. But then that business, my first company was actually built on adwords. And the reason was not that Oh, when I used AdWords for the first time, it was more magical. No, it was the same magic, but the difference was that's where the traffic was. So even though for years and years and years, I still probably maintained a certain...

1:14:45budget on overture and eventually Yahoo. That business was built on Google. It was built on AdWords because it was a business that the best way to market the product was direct marketing at the point of intention. It was a web-based product. And so, you know, I was never going to buy ads on TV or magazine. I was always going to buy ads online and most of the audience.

1:15:13In my mind, it felt like 90% of the audience, even though I don't think Google's market share has ever surpassed 70% or something like that. But it felt to me the audience that mattered. And the same way that people talk today about the, for app development with iOS versus Android, the money is really in iOS. For whatever reason, iOS users spend more than Android users.

1:15:35It always felt that way that the money was with Google. The market, my customers were on Google, and that's why my first company was built on Google. Which is just such a great real-world illustration of the flywheel, right? More customers bring more advertisers, which gives more money to Google, and all the data generated by both further improve.

1:16:03the search results which bring more customers which bring more advertisers. Yeah. Yeah. And shameless plug here. I for listeners that are interested in like real zooming in on network effects and flywheels.

1:16:17David, I mentioned a few episodes ago, but the talk that I gave on that is up. We'll tweet that or maybe put on the website or something, but it'll definitely be on our Twitter. Go check that out if you want to hear me ramble about network effects and flywheels and ecosystems for a while. It feels like we're drifting aggressively toward rendering conclusion. You guys first.

1:16:43Did it end up being a good deal? And I think the way that we talked about these things on acquired is, uh, was it a, uh, in the long run, did it end up being worth it and strategically a good decision and a good use of capital for the acquiring company to buy the acquiring. And for a variety of reasons, uh, no, I think there was big integration failure. There was lack of clarity on why they were making the acquisition internally, because they tried to have it both ways by being its own business and by integrating it. Yahoo really wanted to be a media company, not a tech company, got to the tech company game kinda late. And if we look at what they are today,

1:17:27It's still a media company. I mean, they've bought up all these other media companies, Tumblr, and Flickr, and the things that do well are stocks and sports, and none of these are their search business. And at the end of the day, they're getting sold to Verizon. I mean, I think...

1:17:45Maybe I would call this successful if they had managed to get more out of the patents, maybe some kind of like rev share on a in perpetuity with Google where they could actually make money from each and every one of Google searches through that license or something. I don't think that's the best way for a company to make money or the most noble way, but it seems like a way that they could have gotten something better out of this deal. And I'm going to call this a D.

1:18:11Because while not being a total failure, this did not help Yahoo compete in what would eventually become entirely Google's market. Yeah, I am. I'm gonna give two grades here as I sometimes exercise my route to do. I'm gonna grade Yahoo and yeah, I'm with you like D like this was the wrong thing to do like Everything about it was wrong. They should have just like essentially sold themselves to Google But regardless like trying to acquire all these mishmash companies and rebuild Panama and like we're gonna beat Google at their own game even though we're not a technology company culture wise wasn't going to work, but I'm going to say like a plus plus plus for the startup ecosystem because I know I've said this several times on this episode, but like I can't underscore enough how important Hadoop and all of the technology and all of the people who come out of Yahoo's efforts with Panama.

1:19:21Become in the next 15 years of tech and you know, we talked about Jeff Weiner We talked about the importance of Hadoop the technology and then you know Hortonworks and Cloud era directly you know come out of those people as well But there's actually you know even even another set of companies What's app would not have happened? I don't think without Project Panama because Brian act on and and and Yankeum you know They worked on Project Panama. Yeah, that's where they met. And then they left and they started WhatsApp. So the list just goes on and on. It's almost like a PayPal mafia type moment.

1:19:58Well actually and people forget that that Yahoo was a huge player in Web 2.0 and in Web technologies coming back I mean with the flicker acquisition delicious acquisition You know, they made a stab there. This is almost an aside They made a stab there at at a very important moment of in time Remaining relevant and and providing support for a lot of people that would go on to do things that create the world that we know today. Yeah, and that's what makes it, you know, and you mentioned Flickr, even Stort Butterfield, right, who's, you know, founder and CEO of Slack now. It's both so sad for Yaku that they had this talent and these technologies within the company and now they're part of Verizon. But also just so great for innovation in the ecosystem that

1:20:54these people pass through there and met one another and I think that's the magic of Silicon Valley right is these interactions that you can't foresee between technologies and people and companies lead to this innovation that takes the world in new places. Well my grade is going to end up being a C and I'll explain why in a second it's partially grading on a curve because the intentionality of the acquisition is to buy the pieces that will allow you to copy the greatest advertising machine as we said several times now in the history of the world. So if that's your intention to create, to put the pieces together that will create

1:21:44what we now know to be Google, then absolutely A plus you've got to make that acquisition. It's an F on terms of how it turned out because in the end they say don't bring a knife to a gun fight. If you fail to bring engineers to an engineering battle, then you're never going to have a chance of success. The reason I'm going to give it a C is because of the fact that Yahoo existed as long as it did.

1:22:14because, remember, they're coming out of the bubble, their entire business model is evaporating overnight. I think, you know, their revenues were about a billion dollars around 2001, and then, you know, as high as $7 billion by the end of the decade, the fact that Google made billions and billions and billions more than them does not hide the fact that they were able to spot her along, even if they weren't able to successfully copy the model. That acquisition still allowed Google to be a big enough player that Microsoft wants to buy them for what was it, 35 billion or something. And kept them going as a multi-billion dollar profitable concern.

1:23:02all the way into the second part of this decade. Got them to 20 years as an independent company. So I'm going to give it a C because it did do its intention, which was save the company, shift to this new way of doing business, survive the .com bubble, and remain a player. They didn't become the player that Google became, but the acquisition did allow them to get this far.

1:23:29That's a great point. Yep, a lot of shareholder value for a lot of years there that I glazed over and saying they didn't beat Google and then sold to Verizon. Like there's 15 years in the middle that weren't so bad. All right. With that, should we move on to carve outs? Yeah, let's do it. Let's do it. I've got a quick, easy read that is...

1:23:55I would say fun, but it might make you take a hard look at things. My buddies get married in September and he sent me some of the stuff he was reading and he loved this one article. The secret to love is just kindness.

1:24:12This is a bunch of research done over a 20-year period by Dr. James Gottman, actually here at the University of Washington from research conducted with couples. And there's a lot of really good stuff in there. If you're in a relationship, not in a relationship, whether you're looking at your relationship with someone romantically or if it's other people in your life, co-workers, friends, family, it's a lot of really interesting.

1:24:40Just observations about the way people who are together for extended periods of time interact and here's here's one quick little quote from it that I found really fascinating Having a conversation sitting next to their spouse was to their bodies like facing off with a saber-toothed tiger Even when they were talking about pleasant or mundane facets of their relationships, they were prepared to attack and be attacked. This sent their heart rate soaring and made them more aggressive toward each other. And this is talking about there's sort of two different types of couples that from all these years of research. They were sort of the ones that succeeded and the ones that failed. And the ones that failed years before they failed were exhibiting these like intense biological signs of, you know,

1:25:25Heart racing when they were around each other yet we're exhibiting complete sort of like calm stone face demeanors to the world so you know imagine Trying to read a person that you're around extremely often and having that internal internal turmoil in both of you biologically But representing it as as you know a very amicable relationship. It's the findings are super fascinating. I highly recommend you go read it for whatever purpose in your life. That sounds That sounds especially dangerous as a recommendation, because what if you're in a relationship and you read this and you're like, uh-oh, I'm identifying with that problem. Well, you know, I zoomed in there on the sort of one of the most crazy negative comments of the piece, but really the goal is it turns out that the secret to love in all forms truly is kindness. And I think, you know, there can only be a gain by more people.

1:26:21whether you and your partner are you and the people around you reading it? Yeah. Well, this discussion is judging up memories and emotions in turmoil for me because I have a lot of experience with Dr. Gottman's work. His research basically forms the core of this really famous course at GSB at the Business School at Stanford that I took and that almost everybody takes called Touchy Feeling and it's basically One of the most intense it's certainly the most intense experience that you go through edg and I did and it was You get put in these groups of of 12 people you and 11 other people and then you sit in a room once a week for six hours at a time with with a food break in between and and you just sort of talk and See what happens, but but you prepare for it by reading reading dr. govins research anyway, it's it's a really cool experience and

1:27:17had a big impact on me and generations of people that have gone through GSB. Cool. With that, mine is really quick as my friends know, and many of my friends know, and other folks, my wife Jenny and I are on a extended trip throughout Europe right now, which is why Ben and I are recording remotely for the next few episodes.

1:27:39We just visited Berlin last week, and I'd never been before, but I was blown away, such a cool city. And the fact that everything was just destroyed in World War II and seeing this incredible architecture of sort of modern new building and growth in the ruins of this old city. And the culture was there. We got to meet with a bunch of really cool startups there, great tech scene. I can't recommend it highly enough. If you have a chance to visit Berlin, Lots of cool stuff going on there. My carve out for you then in particular is I hope you get to go to Vienna soon. Oh, we went to Vienna right afterwards. So different, but also very cool. Right. What I like about that is Vienna actually does have a center, a core of the city that survived that wasn't completely bombed into ruins. But then its environment is sort of like that modern modernist architecture that Berlin is so famous for.

1:28:37But my larger takeaway aside from I recommend everyone check out the internet history podcast because I think it complements this one in the sense that this show looks at history from sort of an analytical angle from a strategic angle.

1:28:57from a sort of an MBA angle. And the Internet History Podcast is trying to look at it 100% from a historical angle. I like to call my interview episode's oral histories, where I just let people sit down and tell me how they did the stuff that they did. And there's gonna be a book coming out sometime next year with Norton.

1:29:22currently called How the Internet Happened, and I'm basically going to be using what I've learned from the podcast to tell the story of tech from the Netscape IPO through the launch of the iPhone. However, plug aside, shameless plug aside, because I'm coming here from the history angle, I thought I'd come to the table with a history book. It's one of my favorite books that I've ever read, and I basically only read history. It's called The Dark Valley.

1:29:51a panorama of the 1930s by Pierce Brendan. And the reason that, first of all, it's just amazing one way or another. I read it maybe 20 years ago now. But the 1930s is obviously the decade of the Great Depression, the Nazis coming to power, the prelude to World War II. And I always thought of this book as, wow, can you imagine what it would be like to live in interesting times, you know, that that proverb.

1:30:18You shouldn't wish to live in interesting times. Well, I'm not making the analogy today that we're living in a new 1930s, but I do think that that book is probably more relevant now that we're definitely living in interesting times to say the least. So I'm recommending The Dark Valley, a panorama of the 1930s by Pierce Brendan. Very cool. And we should say to you, we've talked about Brian's show.

1:30:47you know, on our show, several times in the past, but it is so good. And if you like our show, or if you like Brian's show, you know, I think our show is form a natural counterpoint to one another. So like two hands clasping. Yes. The great work that Brian does over at AHP. Yep. Well, thank you much. Well, Brian, thank you so much for coming on. We really appreciate it.

1:31:12An absolute pleasure because I, again, doing the history angle, I would have told the story. And actually, I probably wouldn't have gone into much detail. So the ability to flex my muscles a bit and analyze is a lot of fun. So it's been fantastic. And boy, I'll tell you, it was awesome having your diligence and research and kind of academic historical approach here on this episode today. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig. Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale. Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what

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1:32:38Well, listeners, that's it. Feel free to join us on the slack. I looked last night, we're 470 strong, so come join us and talk all things, M&A, IPOs, tech and strategy. And if you have been a fan for a long time or if you're new to the show and want to give it a little boost, we love reviews in the iTunes store. It's how we can continue to grow the show, have more guests and continue to dedicate more time to producing more episodes. So yeah, that's it. Thanks a lot, everyone.