Terry Semel — a legendary Hollywood dealmaker, a guy who didn’t even use email — had not come to Silicon Valley to meekly merge with the geeky boys of Google. He had come to turn Yahoo into the next great media giant. Which might explain why the face of the famously serene CEO was slowly turning the color of Yahoo’s purple logo, exclamation point included. “Five billion dollars, 7 billion, 10 billion. I don’t know what they’re really worth — and you don’t either,” he told his staff. “There’s no fucking way we’re going to do this!”
Semel could talk tough because he had a backup plan. Yahoo would go out and buy its own top-notch search engine and its own search-advertising technology, and it would beat Google in the emerging arena of little text ads that pop up next to search results. Semel’s decision to opt for this plan B was a fateful one. It was a smart play — but Yahoo fumbled, bungled, and mishandled its execution at every step. (More on that in a moment.) As a result, Google today controls nearly 70 percent of the search-related advertising market, an industry worth more than $15 billion a year and growing at roughly 50 percent a year. It’s these ads that are the source of Google’s riches and the basis for its expanding power.
And what must infuriate Semel: This could have been Yahoo.