Paul Graham describes himself as “an essayist, programmer, and programming language designer”. It's no coincidence that he puts “essayist” first, since it's probably how most people now know him, and he certainly is one of the finest programmer-investor-writers around.
He's just produced another of those gems, and it's well-worth reading:
When I went to work for Yahoo after they bought our startup in 1998, it felt like the center of the world. It was supposed to be the next big thing. It was supposed to be what Google turned out to be.
What went wrong? The problems that hosed Yahoo go back a long time, practically to the beginning of the company. They were already very visible when I got there in 1998. Yahoo had two problems Google didn't: easy money, and ambivalence about being a technology company.
As this indicates, there are two main points to the essay. The first, about Yahoo's flawed business model is summed up memorably by Graham thus:
By 1998, Yahoo was the beneficiary of a de facto pyramid scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in.
The other point is about a more profound problem with the company:
One of the weirdest things about Yahoo when I went to work there was the way they insisted on calling themselves a "media company."
One reason was the way they made money: by selling ads. In 1995 it was hard to imagine a technology company making money that way. Technology companies made money by selling their software to users. Media companies sold ads. So they must be a media company.
Another big factor was the fear of Microsoft. If anyone at Yahoo considered the idea that they should be a technology company, the next thought would have been that Microsoft would crush them.
As a consequence:
They preferred good programmers to bad ones, but they didn't have the kind of single-minded, almost obnoxiously elitist focus on hiring the smartest people that the big winners have had.
In technology, once you have bad programmers, you're doomed.