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Want to start a startup? Get funded by Y Combinator. August When I went to work for Yahoo after they bought our startup init felt like the center of the world.
It was supposed to be the next big thing. It was supposed to be what Google turned out to be. The problems that hosed Yahoo go back a long time, practically to the beginning of the company.
They were already very visible when I got there in Yahoo had two problems Google didn't: Money The first time I met Jerry Yang, we thought we were Essay ads for different reasons. He thought we were meeting so he could check us out in person before buying us. I thought we Essay ads meeting so we could show him our new technology, Revenue Loop.
It was a way of sorting shopping search results. Merchants bid a percentage of sales for traffic, but the results were sorted not by the bid but by the bid times the average amount a user would buy. It was like the algorithm Google uses now to sort ads, but this was in the spring ofbefore Google was founded.
Revenue Loop was the optimal sort for shopping search, in the sense that it sorted in order of how much money Yahoo would make from each link. But it wasn't just optimal in that sense. Ranking search results by user behavior also makes search better. Users train the search: Jerry didn't seem to care.
I was showing him technology that extracted the maximum value from search traffic, and he didn't care? I couldn't tell whether I was explaining it badly, or he was just very poker faced. I didn't realize the answer till later, after I went to work at Yahoo. It was neither of my guesses.
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. Hard as it is to believe now, the big money then was in banner ads.
Advertisers were willing to pay ridiculous amounts for banner ads. So Yahoo's sales force had evolved to exploit this source of revenue. The prices seemed cheap compared to print, which was what advertisers, for lack of any other reference, compared them to.
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