Internet trailblazer Yahoo is exploring technology’s next frontier with Scout, an answer engine powered by artificial intelligence. Scout seems insightful, based on its response to a question posed by The Associated Press about why one of Silicon Valley’s brightest stars faded away a decade ago.
“Yahoo’s journey illustrates how a company with an early advantage can disappear without continuous innovation,” Scout explained, while also providing hyperlinks to other websites supporting its thesis.
Scout may have to come up with a different interpretation if Yahoo CEO Jim Lanzone can leverage AI to expand upon a worldwide audience of 700 million users who have stuck with the company’s finance, sports, news, fantasy and email services, despite a history of folly that nearly destroyed a brand once synonymous with the internet.
Yahoo has “always been the white whale of turnarounds for me,’ said Lanzone, who has a track record for salvaging internet wrecks. “I always thought I could do something with this thing.”
Lanzone, 55, finally got his chance after the private equity firm Apollo Global Management paid $5 billion to take over Yahoo in September 2021 — a fraction of its peak $125 billion market value reached during the dot-com boom’s giddy days in early 2000. Apollo’s acquisition came after Verizon Communications bought Yahoo’s online operations in 2017 and then bungled an attempt to blend those services into AOL, another internet pioneer.
Verizon never would have gotten the chance to buy Yahoo’s online operations if not for the company’s perpetual blundering under seven different CEOs in 16 years.
Although Yahoo’s checkered past didn’t destroy the company, it left a stigma that makes it unlikely that it will ever come close to what it once was, said Jeremy Ring, who was among Yahoo’s first employees when he began selling ads for the service from his New York apartment in 1996.
“Even though Yahoo isn’t what it once was, it hasn’t turned into a Blockbuster or Radio Shack story either,” said Ring, who delved into the company’s ups and downs in a 2018 book, “We Were Yahoo!” “What is going to enable them to compete against all the bigger companies using AI? I am not convinced all the best engineers in the world are suddenly going to come work at Yahoo.”
Lanzone’s renovation efforts initially focused on shedding Yahoo’s dysfunctional parts. The teardown included jettisoning some of Yahoo’s advertising technology, selling publishers such as TechCrunch and Rivals and closing down AOL’s internet dial-up service in a move that cut off its final 500 users. As it stands now, Yahoo is “very profitable” and bringing in billions of dollars in revenue, Lanzone said, while declining to be more specific.
Once he got the cleanup work down, Lanzone began overhauling what remained — a process that has resulted in an upgrade of Yahoo’s popular fantasy sports division and a major overhaul of its email service that still ranks as the second largest on the web behind Google’s Gmail.
With the recent introduction of Scout to its 250 million users in the U.S., Yahoo is leaning into the AI movement with the hope that the s technology will simplify online search and produce more personal results tailored to each user’s interests. Lanzone is also hoping Scout turns into a flywheel, continually spinning traffic through its other services.
Yahoo will be competing against a familiar foil in Google, which remains the same formidable force that spelled the company’s demise 20 years ago and has been progressively layering more AI into its search engine with its Gemini technology. As if that isn’t daunting enough, Yahoo also will be vying against other popular AI chatbots such as OpenAI’s ChatGPT and Anthropic’s Claude in addition to answer engines such as Perplexity.
In a tacit admission that it’s behind the curve, Yahoo is running Scout on AI technology licensed from Anthropic.
Unlike other AI chatbots and answer engines, Scout doesn’t simulate human conversations so users can “have a fake personal relationship with it,” Lanzone said. “The product is very unique, even though we didn’t invent AI in the first place.”
Yahoo’s pursuit of more online search traffic has been largely an exercise in futility since the late 1990s, a descent that started just a few years after Stanford University graduate students Jerry Yang and David Filo founded the company as the internet’s first comprehensive directory of websites.
But as the internet began to play a bigger role in entertainment and commerce, Yahoo shifted its focus from sending traffic elsewhere to building an all-purpose website that people wouldn’t want to leave. That strategic pivot opened the door for two other Stanford University graduate students, Larry Page and Sergey Brin, to create a search engine called Google.
After turning down a chance to buy Google for just $1 million in 1998, Yahoo poured even more resources into creating a one-stop destination while paying so little attention to search that it turned to another company to provide that technology in 2000. Yahoo not only hired Google as its search engine but also promoted its brand on its website. By 2002, Yahoo was offering to buy Google for $3 billion, but Page and Brin wanted $5 billion. The negotiating impasse launched Google on a trajectory toward an internet empire now valued at $3.7 trillion under corporate parent Alphabet Inc.
Yahoo went through a revolving door of seven CEOs, including former Google executive Marissa Mayer, on a quixotic quest to catch up in search before finally ending its 21-year existence as a publicly traded company with its ill-fated sale to Verizon for $4.5 billion. Along the way, Yahoo rejected a $44.6 billion takeover bid from Microsoft in 2008 before finally agreeing to license the software maker’s Bing search engine.
If Yahoo’s bet on Scout pays off, Lanzone concedes it could lead to the company returning to the stock market more than 30 years after completing a 1996 initial public offering that intensified the dot-com fever gripping investors back then. Lanzone believes another Yahoo IPO could still get people excited.
“We still have one of the biggest audiences on the internet, and that audience has been pretty loyal through a lot of ups and downs,” he said. “If we just ‘super-serve’ them, good things will happen.”
This story was originally featured on Fortune.com
