Only as Yahoo Crumbles Can We Truly Appreciate Google (YHOO, GOOG, MSFT)

With the whole crumbling of the Yahoo - Microsoft deal, and Yahoo instead running into the arms of its arch enemy Google, one has to wonder what happened to Yahoo, the greatest tech company of the 1990s? There was once a time when Yahoo was the dominant player, and Google was merely a startup fighting for survival. Heck, there was a time when Yahoo could have bought Google! How ironic it is that Yahoo now must join forces with Google simply to avoid a shareholder beating for letting a $40 per share Microsoft offer slip through its hands in January.

Silicon Alley Insider has an interesting article on the matter titled "Was Yahoo's Terry Semel the Worst Internet CEO Ever?" In it, SAI breaks several fatal errors that Semel committed that would ultimately lead to the failure of Yahoo.

• Yahoo focused more on being a media portal, rather than concentrating on search
• Yahoo failed to buy Google, offering only $1 billion, when Google was seeking $3 billion. Google's market cap now? $180 billion
• Semel created a relaxed culture, with no urgency or drive to dominate
• Yahoo was slow to buy Omniture and attack Google on search, then it was slow to rollout its own search advertising program Panama
• Yahoo failed to buy Facebook, again underbidding the $1 billion asking price with only $800 million. Really, what was $200 million to Yahoo? Facebook's most recent valuation? $15 billion
• Yahoo failed to buy DoubleClick. Yahoo offered $2.2 billion. Google ended up buying the company for $3 billion.
• Yahoo failed to sell itself to Microsoft in January 2008 for $40 per share.

It's quite sad that when Microsoft made its offer public at $32 a share Yahoo felt it was worth more simply because Microsoft had bid more earlier. Was Yahoo really worth 50x forward earnings?? While Google was hovering around 30x forward earnings?? No way in you know what. Yahoo's growth would come from:

1. The growth of the internet
2. The growth of its stake in Alibaba
3. Maybe its new search software would gain marketshare
4. You tell me.

The fact of the matter is that while Yahoo became complacent, Google is constantly trying to innovate. Google gets a lot of strife over its "wasteful" projects that are more for play than for pay. But this culture of innovation and of constant growth is what seperates Google from the rest. Yahoo and Microsoft are playing copy cat. They both rolled out new mail services, map services, and search services. They are all better than before, but they did so in response to the new frontier that Google created. Why shouldn't users have unlimited storage capacity for email? Why shouldn't users be able to find local business with an interactive map? Why shouldn't users be able to collaborate on work documents online hassle free?

Don't get me wrong, there are places where Microsoft innovates, but up until now the internet is not one of them. Microsoft's internet forray is like a mix of copying both Yahoo (with its MSN portal) and Google (with its Live Search). If you're interested in Microsoft innovation, you should Google (or Live Search, or Yahoo Search if you prefer) "Microsoft Origami" and "Microsoft Surface."