Yahoo was always trying to position itself as a media company rather than a tech company. It was a strategic decision to fend off Microsoft -- who was a very very real threat in late 90s. Also, keep in mind that AOL was huge and actually bought Time Warner in an attempt at vertical integration (cable modems, Internet, and content). These decision made lots of sense at the time.

Portals were a big deal. Providing content and being a destination were considered important. They're still important, but apparently being a site that sells classified ads on URL redirects turns out to be a better deal.