Do you love these awesome titles lately as much as I do? Yeah, probably not.

My new copy of Wired Magazine just arrived in the mail. I love Wired. If you don’t get it – it is just $10.00 a year online. They have an article on the demise of Yahoo!. There is some good info in there, but they also missed a ton of stuff. So, I thought it would be a good SEO History lesson to review what has gone on so we can predict what may happen in the near future…

Terry Semel, the CEO of Yahoo! was pissed and rightfully so. This was in the summer of 2002 and he just offered Google $3 billion to acquire them and they said “no” pretty fast. Just two years earlier Google came begging for an infusion of cash, which Yahoo! gave. Semel couldn’t understand why their “good faith” in the past didn’t allow him to acquire the up-and-coming search engine for what he deemed, “a great offer”.

But was it?

Semel’s lieutenants were telling him that, in fact, Google was worth in the neighborhood of $5 billion. Semel scoffed at the thought that these punks could be worth so much … he knew that Google’s revenues were a mere $240 million … a huge step down from the revenues that Yahoo! was posting of over $800 million.

But the industry was still stinging from the dot com bubble burst two years previous and Yahoo!’s stock was stalled at $7 per share. Semel knew that if he upped the price to $5 billion, he would have to spend their entire market value to close the deal. Doing so would mean that instead of a “purchase” it would be viewed as a “merger” and Semel was not going to “merge” with anybody.

Semel was hell bend on turning Yahoo! into the next media giant.

He had a backup plan – and while it seemed great on paper. It was mismanaged, misexecuted, and mishandled at nearly every step. Here is what occured:

1. The year is 1999. Yahoo! has strong revenues and a strong market share. Their secondary search provider, Inktomi, is contacted regarding acquisition. Their asking price? $1.4 billion. Yahoo! offers $1.2 billion. Talks break down completely by the spring of 2000 with the dot com bubble burst.

2. July 4, 2000. Independence Day. Yahoo! announces that their relationship with Inktomi to supply secondary results will be replaced by upstart Google.

Inktomi announces it “will not be affected” by this news although in the six months after this announcement, they have massive layoffs.

3. October 2002, Yahoo! abandoned displaying their directory listings at the top of the SERPs and instead showed Google results causing a huge uproar in the SEO community.

4. December 2002, Yahoo! announces that they are acquiring Inktomi for $235 million … nearly $1 billion less than they offered to pay three years previously.

5. Then in February of 2003, Overture acquires AltaVista and the engine for AllTheWeb … in a move to increase their “acquired” value as Yahoo! acquires them a short while later.

So, Yahoo! seems to have everything in place, right? Right. Problem is, they can’t get everything to work as it was planned.

The first screw up was that it took Yahoo! a year to integrate Inktomi into their company and forumlate a search engine … why it took so long, who knows. I mean, the engine was used just two years previously. When it did launch, the directory listings were still not factored into the algorithm. This stung marketers even more.

Then when they tried to revamp Overture (formerly GoTo.com) as project “Panama” it failed (I know, I helped test it) and it was years before the public launch, which is going on right now. Seriously, three years of rewriting the code and function and it still isn’t that great. I’m a veteran of software development and I have no idea what they have been doing for three years because the results look more like 8 months of work, not 36.

The results: When Yahoo! switched from the clean and relevant Google results to their own, spam was everywhere and there was a lot of heat on Yahoo! to clean it up. Rumors of employees manually changing the top ten listings were all over the forums, blogs (yes, even back then) and newsletters.

The Overture integration was about as bad. It was hoped to bring everything in as one, but when giant Microsoft, who displayed Overture’s listings for their search results, learned of the buyout, they were not happy at showcases a competitor’s (Yahoo!) ads. Instead of holding firm and willing to risk the 10% revenue from Microsoft, they buckled and told Microsoft that Overture was remaining a separate entity.

Please. Who was going to buy that? Not Microsoft and they began to build their own ad serving network. All this ploy did was buy Yahoo! some time, and not much. Microsoft ended up leaving anyway, and Yahoo! was left with a product line best described as dysfunctional.

Is it any wonder that the price of Yahoo! stock plummeted 36% in 2006? Not to me. Look at this hard. A search engine was acquired in 2002, a search driven ad firm in 2003. Here we are in 2007. What has changed? Google’s market share has increased while Yahoo!’s has dropped.

With the massive layoffs that Yahoo! has undergone, and the large monetary investment it made in Alibaba instead of fixing Inktomi, it is clear that Yahoo!’s focus is not in search. Here is some advice for Yahoo! and they can take this for free. Implement this and don’t pay me a dime. I just want to see your search engine work again.

1. Use the Inktomi-crawled results as secondary search listings.
2. Use the directory listings for your primary results.
3. Grandfather all current Directory listings and cease the $299.00 fee as long as the site is spending $500.00 or more per year with PPC. Sites not meeting the yearly spend are billed $299.00.
4. New sites will be required to pay $299.00 recurring fee along with a ten cent per click charge to be listed in the “organic” section. This will stop Spam in its tracks.
5. Upgrade the Sitemap functionality in SiteExplorer so it gives as good or better feedback than Google’s does. Befriend the Webmaster and SEO and Yahoo! will once again be one that is recommended often.

If Yahoo! continues in their current path, I don’t see them focused on organic search as a main focus by the end of the year.

How the mighty have fallen.