Yahoo directory was largely pay-to-play and very affected by proto-SEOs trying to game the system for direct traffic or PageRank value. Collaborative directories like dmoz.org suffered the same fate before shutting down.

Pay-to-play is actually a very decent business model for a directory, though. Pay a one-time fee, establish that you're a legitimate business or website, undergo a quality assessment, and you're in. There's no paying for extra promotion, e.g. with ads, and website owners don't need to warp their sites in anticipation of what they think the search engine wants. (Which often results in a decrease in usability, e.g. all of those recipe sites with low-quality 2000-word essays before they get to the actual recipe.)

It's a more level playing field, and it's intrinsically more human-friendly.