Yahoo’s CEO Jim Lanzone discusses the ‘white whale of turnarounds’ and pivoting to AI—using technology licensed from Anthropic

(SeaPRwire) –   Internet pioneer Yahoo is venturing into technology’s next frontier with Scout, an AI-driven answer engine. Scout appears perceptive, as evidenced by its reply to a question from The Associated Press asking why one of Silicon Valley’s most prominent players declined a decade ago.

“Yahoo’s path shows how a company with an initial edge can vanish if it doesn’t keep innovating,” Scout noted, adding hyperlinks to other sites that back up its argument.

Scout might need to revise its take if Yahoo CEO Jim Lanzone can use AI to grow the company’s global user base of 700 million—people who’ve stayed loyal to its finance, sports, news, fantasy, and email offerings—despite a history of missteps that almost ruined a brand once tied to the very identity of the internet.

Yahoo has “always been the ultimate turnaround challenge for me,” said Lanzone, who has a history of rescuing struggling internet companies. “I’ve always believed I could make something of this brand.”

Lanzone, 55, finally got his shot when private equity firm Apollo Global Management acquired Yahoo for $5 billion in September 2021—just a small portion of its $125 billion peak market value during the exuberant dot-com boom of early 2000. Apollo’s purchase followed Verizon Communications’ 2017 acquisition of Yahoo’s online assets, which Verizon then failed to successfully integrate with AOL, another early internet leader.

Verizon would never have had the opportunity to purchase Yahoo’s online operations had it not been for the company’s ongoing mismanagement under seven different CEOs over 16 years.

While Yahoo’s troubled history didn’t put the company out of business, it left a mark that makes it improbable it will ever regain its former glory, according to Jeremy Ring—one of Yahoo’s earliest employees, who started selling ads for the service from his New York apartment in 1996.

“Yahoo isn’t what it used to be, but it hasn’t gone the way of Blockbuster or Radio Shack either,” said Ring, who chronicled the company’s highs and lows in his 2018 book “We Were Yahoo!” “What will allow them to compete with all the larger companies using AI? I don’t believe the world’s top engineers will suddenly flock to Yahoo.”

Lanzone’s initial revamp efforts centered on getting rid of Yahoo’s problematic components. This included ditching some of its ad tech, selling media properties like TechCrunch and Rivals, and shutting down AOL’s dial-up internet service—ending access for its last 500 users. Currently, Yahoo is “very profitable” and generates billions in revenue, Lanzone stated, though he declined to share more details.

After completing the cleanup, Lanzone started revamping the remaining parts of the company. This has led to an update of Yahoo’s popular fantasy sports segment and a significant redesign of its email service, which still holds the second spot among web-based email providers, behind Google’s Gmail.

By recently rolling out Scout to its 250 million U.S. users, Yahoo is embracing the AI trend, hoping the technology will make online search easier and deliver more personalized results aligned with each user’s preferences. Lanzone also wants Scout to act as a flywheel, driving consistent traffic to Yahoo’s other services.

Yahoo will face off against a long-time rival in Google, which is still the powerful entity that contributed to Yahoo’s decline 20 years ago and has been gradually integrating more AI into its search engine via its Gemini technology. To make matters more challenging, Yahoo will also compete with popular AI chatbots like OpenAI’s ChatGPT and Anthropic’s Claude, as well as answer engines such as Perplexity.

In an unspoken acknowledgment that it’s lagging in AI development, Yahoo is powering Scout with technology licensed from Anthropic.

Unlike other AI chatbots and answer engines, Scout doesn’t mimic human conversations to let users “form a fake personal bond with it,” Lanzone explained. “The product is one-of-a-kind, even though we weren’t the ones who invented AI.”

Yahoo’s quest to gain more online search traffic has mostly been fruitless since the late 1990s—a decline that began shortly after Stanford University grad students Jerry Yang and David Filo launched the company as the internet’s first all-inclusive website directory.

However, as the internet became more integral to entertainment and commerce, Yahoo shifted its focus from directing traffic to other sites to building a one-stop website that users would want to stay on. This strategic change allowed two other Stanford grad students—Larry Page and Sergey Brin—to create the search engine Google.

After rejecting an opportunity to buy Google for $1 million in 1998, Yahoo invested even more resources into building a one-stop hub, neglecting search so much that it outsourced the technology to another company in 2000. Yahoo not only hired Google as its search provider but also promoted Google’s brand on its site. By 2002, Yahoo offered $3 billion to buy Google, but Page and Brin demanded $5 billion. The deadlock in negotiations set Google on a path to become an internet empire now worth $3.7 trillion under its parent company Alphabet Inc.

Yahoo cycled through seven CEOs—including former Google executive Marissa Mayer—in a futile attempt to catch up in search, eventually ending its 21-year run as a public company with a disastrous sale to Verizon for $4.5 billion. Along the way, Yahoo turned down a $44.6 billion takeover offer from Microsoft in 2008 before eventually licensing the software giant’s Bing search engine.

If Yahoo’s gamble on Scout succeeds, Lanzone admits it could lead the company back to the stock market—over 30 years after its 1996 IPO, which fueled the dot-com mania among investors at the time. Lanzone thinks another Yahoo IPO could still generate excitement.

“We still have one of the largest audiences on the internet, and that audience has remained quite loyal through all the highs and lows,” he said. “If we simply ‘super-serve’ them, positive outcomes will follow.”