By Christopher Mims 

With Yahoo Inc.'s deal to sell its core assets for a mere $4.8 billion, it is easy to forget that it once was more than an internet-industry curiosity.

There was a time when Yahoo made perfect sense. At Yahoo's founding in 1994, no one blinked at the idea of re-creating on the web the "internet portals" that had preceded Yahoo -- AOL, Prodigy and CompuServe.

As a single website that offered users everything they might want, portals were apex predators in the heady early days of the web. Being one meant Yahoo could threaten even giants like Microsoft, which tried to buy Yahoo for $44.6 billion in 2008.

The funny thing about the portal concept is that it never really died. And this is the lesson of Yahoo: every internet giant eventually succumbs to the same hubris when it is at its most commanding. They fall prey to the notion that they can be the all-encompassing starting point for every interaction with the internet.

Take Google, which in 1998 adopted as its mission to "organize the world's information" and hasn't updated it since. After usurping Yahoo's throne on the desktop, its product lines proliferated, from email and a mobile operating system to productivity software and dozens of smaller projects.

For a time, it seemed like Google could be everything to everyone, a Yahoo plus a Microsoft plus an Apple. Then in 2010 Facebook eclipsed Google in the amount of time people spent using it. A year or so later, Google Chief Executive Larry Page delivered his "more wood behind fewer arrows" memo, declaring that Google would kill off many of its smaller projects and focus on what was working.

That 2011 memo seemed to embody the turning point when Google absorbed Yahoo's essential lesson. It was as if Mr. Page were publicly acknowledging that disruption by a more nimble competitor isn't inevitable as long as a company continues to do things that are essential, and better than anyone else.

Mr. Page's reorganization was a good first step, but Google had yet to absorb Yahoo's lesson completely. Just over six months after Mr. Page's memo, Google launched Google+, its ultimately unsuccessful attempt to compete directly with Facebook.

Today's apex predator -- by share of time spent, if not revenue -- is Facebook. In its relentless and successful push to increase user engagement, or the number of users and the amount of time they spend there, it has become something like the internet's new home page. Users are spending 50 minutes a day on Facebook's products already, and the company wants even more of their time. Even Facebook's acquisitions of WhatsApp -- messaging as the new home page -- and Oculus VR, which sees virtual reality as the new mode of interaction with the internet -- speak to its ambitions to become the modern-day equivalent of an internet portal.

This isn't to say that Google or Facebook is the next Yahoo. Google, only four years younger than Yahoo, has a market value of more than half a trillion dollars and revenue last year of $73.6 billion. Facebook, founded in 2004, also has continued to grow sales and profit rapidly. Combined, the pair have managed to lock up the majority of advertising revenue on the internet.

Neither will be able to command users' attention forever. From Instagram, which Facebook acquired, to Snapchat, which it couldn't, Facebook, like Google, has faced one disruptive competitor for users' attention after another. There will be more.

For both Facebook and Google, the response to every threat has historically been to launch or acquire a service that can compete. Sometimes this strategy works, but at what opportunity cost? Google's failed social and media products attest to this cost.

It is impossible to know what Google would have done if it hadn't done these things. To take but one example, it might have used the resources devoted to trying to get everyone to log into YouTube with a Google Plus account to instead better position Google to compete with Facebook and Snapchat in video.

As for Facebook, remember when the company's Graph Search was set to dethrone Google Search? More recently, whatever challenges the company is failing to meet in its quest to compete with, for example, Snapchat will only be clear in hindsight.

It is too early to call Facebook's Live video service a success or failure. The company hasn't disclosed numbers that would help us quantify its adoption. In April, CEO Mark Zuckerberg said only that "we're at the beginning of a golden age of online video."

But the fact that the company has to pay people to use the service doesn't bode well. Internet giants don't lose their competitive advantage overnight. When a company is in the middle of being disrupted, the process can seem to move at glacial speed. But it is worth pondering the idea that one way companies make themselves vulnerable to disruption is by responding incorrectly to the possibility of disruption. By trying to be everything to everyone, by trying to respond to every competitor, big companies waste time copying rather than doing the things only they can do.

Write to Christopher Mims at christopher.mims@wsj.com

 

(END) Dow Jones Newswires

July 27, 2016 16:41 ET (20:41 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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