Incorporated: 1995
Yahoo! Inc. is one of the world's leading Internet media companies. Using its seemingly neverending compilation of links to other Web sites, as well as its extensive searchable database, the company helps Internet users navigate the World Wide Web. Anyone can access the Yahoo! Web site for free because it is funded not by subscriptions but by the advertisers who pay to promote products and services there. Yahoo! leads its competitors in the amount of user traffic at its site, with over 2.4 billion page views viewed through its 25 international sites in 13 languages each day. The company also offers Internet users other peripheral services, such as free e-mail accounts (Yahoo! Mail), online chat areas (Yahoo! Chat), and news tailored to each user's demographic or geographic area (Yahoo! News). The company's principal shareholders are the FMR Corporation with 12.5 percent of the stock, cofounder David Filo with 7.9 percent, cofounder Jerry Yang (6.7 percent), and CEO Terry S. Semel (1.2 percent). Yahoo! stock sold at around $35 a share during 2004.
Yahoo! Inc. got its start in 1994 as the hobby of two Stanford University students who were writing their doctoral dissertations. Jerry Yang and David Filo, both of whom were candidates in Stanford's electrical engineering doctoral program, spent much of their free time surfing the World Wide Web and cataloging their favorite Web sites. In doing so, they created a Web site of their own that linked Internet users to Yang's and Filo's favorite places in cyberspace. At that time, their site was called "Jerry's Guide to the World Wide Web."
As their Web site grew, both in size and in the number of links from which it was composed, the number of people who used the site also increased dramatically. Thus, Yang and Filo began spending more and more time on their new hobby, gradually converting the homemade list into a customized database that users could search to locate Web sites related to specific interests. The database itself was originally located on Yang's Stanford student computer workstation, named "akebono," while the search engine was located on Filo's computer, "konishiki" (the two computers were named after legendary Hawaiian sumo wrestlers).
As for the transformation of the database's name from "Jerry's Guide to the World Wide Web" to "Yahoo!," the two men became bored with the original tag and set about to change it late one night while bumming around in their trailer on the Stanford campus. Looking to mimic the phrase/acronym "Yet Another Compiler Compiler" (YACC), a favorite among Unix aficionados, Yang and Filo came up with "Yet Another Hierarchical Officious Oracle" (YAHOO). Browsing through the online edition of Webster's dictionary around midnight, they decided that the general definition of a yahoo--rude and uncouth--was fitting. Yang was known for his foul language, and Filo was described as being blunt. The two considered themselves to be a couple of major yahoos, and thus the name which would soon become a household brand was born.
It was not long before the Yahoo! database became too large to remain on the Stanford University computer system. In early 1995, Marc Andreessen, co-founder of Netscape Communications, invited Yang and Filo to move Yahoo! to the larger computer system housed at Netscape. Stanford benefited greatly from this move due to the fact that its computer system finally returned to normal after having been inundated by Yahoo!'s activity.
Commercialization soon followed. Yang and Filo began selling advertisement space on their site in order to fund further growth. The duo soon realized that it was going to be too difficult to manage both the creative and the administrative aspects of the Yahoo! enterprise. They recruited Tim Koogle, also a former Stanford student, to come aboard as CEO. Prior to his arrival at Yahoo!, Koogle had put himself through engineering school by rebuilding engines and restoring cars and had then gone on to work at Motorola and InterMec Corporation.
One of Koogle's first moves as the company's CEO was to bring in Jeff Mallett as COO. Mallett was a former member of the Canadian men's national soccer team who, at age 22, began running the sales, marketing, and business development aspects of his parents' telecommunications company, Island Pacific Telephone, in Vancouver. Prior to joining the Yahoo! gang, he also gained experience in marketing at Reference Software and WordPerfect and acted as vice-president and general manager of Novell Inc.'s consumer division. Together, Koogle and Mallett began transforming Yahoo! from a homegrown list of interesting Web sites into the most popular stop along the information highway.
Koogle and Mallett soon became known as "the parents" at Yahoo!'s corporate headquarters. While Yang and Filo would arrive at work wearing T-shirts and sneakers, Koogle and Mallett preferred Italian silk ties. Many viewed the foursome's working relationship as that of kids with ideas and the adults that they found to put these ideas into practice. In the August 6, 1998, edition of the San Francisco Chronicle, analyst Andrea Williams of Volpe Brown Whelan & Co. referred to Koogle and Mallett as "Yahoo's equivalent of the Wizard of Oz, pulling the strings from behind the scenes. ... Americans are captivated by the idea of two college kids like Yang and Filo starting an incredible service. But [Mallett] and [Koogle] have turned it into a business that advertisers and investors understand and respect."
The majority of Yahoo!'s revenue came through banner advertising deals. In basic terms, Yahoo! sold space on its Web pages to companies wishing to promote their products to the demographic that frequented the Yahoo! site. The purchased space not only acted as a visual advertisement, as in a magazine, but often served as a link to the advertiser's own Web site as well. Thus, a simple click on a banner ad by an Internet user could immediately transport that user to the advertiser's Web site. In this sense, banner ads were somewhat superior to other forms of advertisement in that no other purveyor of advertising (television, radio, magazines) had ever led consumers to a company quite so immediately.
As another means of generating revenue, Yahoo! struck up distribution deals with Web sites that were looking to increase their own traffic. For example, Yahoo!, while not itself an online retailer, boasted a lot of user traffic at its site. An online retailer, however, might have goods or services to sell but a need to first increase traffic at its own site in order to sell those goods. A distribution deal would pair the two sites, with Yahoo! leading its customer traffic to the retailer's site in exchange for a cut of the transaction revenues whenever customers made purchases. In this sense, Yahoo!, along with competitors such as Excite, Infoseek, and Lycos, came to be known as a "portal"--a gateway to the rest of the Internet.
Through banner advertising and distribution deals, Yahoo! was able to continue offering its services to Web surfers for free, as opposed to online services such as America Online (AOL), Prodigy, and Microsoft Network. The latter three charged monthly fees for the use of their offerings. Although these online service companies' offerings were often more graphically intricate and visually pleasing than the Yahoo! site, they were essentially providing the same thing as Yahoo! while at the same time charging for the service. According to Jonathan Littman in the July 20, 1998 edition of Upside Today, "Yahoo, much like Amazon.com, built a natural Internet brand through its simple desire to satisfy customers." It was not long before Yahoo!'s user base was comparable to that of industry giant AOL, even though its 1995 revenues topped off at only around $1 million.
In 1996, Yahoo! went public, offering shares of its stock for $13. In the first day of trading alone, the company's stock price sailed to $43, and its estimated valuation was quoted at upwards of $300 million, more than 15 times its eventual 1996 revenues of approximately $20 million. Around that time, Yahoo! decided to start promoting itself in through advertising. Another former Stanford graduate, Karen Edwards, was brought aboard as the Yahoo! "brand marketer," and she immediately lined up ad agency Black Rocket of San Francisco to handle Yahoo!'s account. Black Rocket was composed of four independent advertising executives who, ironically, owned no computers.
That spring, Yahoo! used almost its entire advertising budget for 1996 to run its first national-scale ad campaign on television. Luckily, the ad was an immediate hit. In the television spot, a fisherman used Yahoo! to obtain some baiting tips, then proceeded to land a number of gigantic fish. According to Jonathan Littman in a July 20, 1998 edition of Upside Today, "The faux testimonial captured the Net's spirit without being the least bit techie." From this campaign arose the company tagline "Do you Yahoo!?" Yahoo! executives hoped that the efforts would help their operation to blossom into a full-fledged media company.
The quest to turn the Yahoo! name into a major brand took a few wacky turns along the way. For example, Edwards decided that the Yahoo! name simply needed to be out in the public eye as much as possible, regardless of the manner in which it appeared. Yahoo! posters began appearing at many outdoor locations, such as sporting events, concerts, and even construction sites. The Yahoo! logo was placed everywhere, with one of the most notable places being a tattoo on the rear-end of a Yahoo!'s financial pages' senior producer, when he made good on a lost bet. It was also plastered on the side of the San Jose Sharks' Zamboni ice machine and printed onto items such as Ben & Jerry's ice cream containers and VISA cards. The yellow and purple Yahoo! logo even appeared shrink-wrapped onto five Yahoo! employees' cars, and one spring Edwards planted her flower garden at home in yellow gladioli and purple petunias.
As Yahoo! became a certifiable household brand name, the company began striving to further satisfy the needs of its users. Following the trend set by online service companies such as AOL, Yahoo! added services and features such as chat areas, Yellow Pages, online shopping, and news. The company also added a feature called "My Yahoo!," which was a personalized front page for regular users that displayed information tailored to each user's interests. The company also teamed up with Visa to create an Internet shopping mall (an idea that was later aborted), with publisher Ziff-Davis to create "Yahoo! Internet Life" (an online and print magazine which never came to fruition), and with Netscape to develop a topic-based Internet navigation service to be used with the Netscape Communicator browser software.
By 1997, Internet surfers were using Yahoo! to view approximately 65 million pages of electronic data each day. That year, Yahoo! acquired online White Pages provider Four11 for $95 million. The purchase gave Yahoo! access to Four11's e-mail capabilities, which when integrated into Yahoo!'s offerings allowed the company to provide its users with free e-mail (Yahoo! Mail). By mid-1998, over 40 million people were logging on to Yahoo! each month, 12 million of whom had become registered Yahoo! e-mail users. To put those numbers into perspective, one can consider that at that time, only 30 million people were tuning in to network-leader NBC's top-rated show ER each week, and the number of Yahoo! e-mail users was comparable to that of online service giant AOL.
In July 1998, Yahoo! received a $250 million investment from Japan's Softbank Corporation, increasing Softbank's share of the company to approximately 31 percent. Yahoo!'s market valuation at that time was $6.9 billion, which was much higher than that of most other media companies. As an emerging media company, Yahoo! began to move into the Internet access market that year through the launch of Yahoo! Online. To do so, the company initially formed a partnership with MCI WorldCom, but the arrangement deteriorated later that year. Subsequently, Yahoo! crafted a deal with communications giant AT&T to provide Internet access through AT&T's WorldNet service.
Also in 1998, Yahoo! replaced Digital Equipment's Alta Vista with California-based search engine specialist Inktomi as the supplier of Yahoo!'s search engine. Yahoo! then purchased Viaweb, a producer of Internet software programs. The acquisition resulted in the posting of a one-time $44 million charge in 1998. Yahoo! planned to use Viaweb's software to start a new service, which would allow its users to set up their own Web sites for the purpose of buying and selling goods online.
In October 1998, Yahoo! purchased Yoyodyne Entertainment for 280,664 shares of Yahoo! common stock. Yoyodyne added its permission-based direct marketing capabilities to Yahoo!, which also obtained the company's database of consumers, valuable demographic information, and other Yoyodyne assets. Prior to the acquisition, much of Yoyodyne's direct marketing was done through online games and sweepstakes at Internet sites such as EZSpree.com, GetRichClick.com, EZVenture.com, and EZWheels.com. Yahoo! announced that while those four sites would remain intact after the integration of Yoyodyne into Yahoo!, the former company's overall brand would be phased out.
By the end of the year, Yahoo!'s user traffic had increased considerably since 1997, with Web surfers viewing approximately 95 million pages of information through Yahoo! each day, a huge increase from the previous year's average.
By the end of the 20th century, the computer industry, and the Internet industry in particular, was becoming increasingly inundated with new players. In July 1998, NBC had purchased a 19 percent interest in Snap!, another portal operated by CNET Inc. Disney followed suit by grabbing a 43 percent stake in Infoseek Corporation. At Home Corporation purchased Excite, Inc., and Microsoft Corporation increased promotion of its MSN portal. Even America Online made moves to increase its scope through the acquisition of Netscape and its Netcenter portal. Nobody wanted to be left out of the Internet game, since many analysts predicted that it would be the next true media industry.
Yahoo! tried to maintain its large share of the market by continuing to focus on its users and their satisfaction. Recognizing that it would only take one click of a computer mouse for a Yahoo! user to defect to one of its competitors, the company began to provide its users with even more features and services. In January 1999, Yahoo! announced the purchase of GeoCities, the third most-visited Web site in December 1998 (directly behind top-rated AOL.com) and second-rated Yahoo.com. The GeoCities site was a creator of electronic communities for people. Based on people's interests, GeoCities allowed its users to set up their own personal home pages. Yahoo! hoped that the acquisition of GeoCities would bring many of that site's users to Yahoo!, and vice versa.
The new century saw a dramatic rise in both sales and profits for Yahoo! In 2001 the company had sales of $717 million; in 2002, $953 million; in 2003, $1.6 billion; and in 2004, $3.5 billion, a one-year increase of 120 percent. This period began with a loss of $92.8 million in 2001. In 2002, however, the company posted a net income of $42.8 million. This rose in 2003 to $237.9 million and to a healthy $839.6 million net income in 2004. Such phenomenal growth was fueled by a number of factors, including steady acquisitions of other Internet companies. During the years 2000 to 2004, Yahoo! acquired thirteen companies: Arthas.com, eGroups, Kimo, Sold.com, Launch Media, HotJobs, Inktomi, Overture Services, Beijing 3721 Technology Co. Ltd., FareChase, OddPost Inc., MusicMatch, and Kelkoo. Web traffic increases have also played a part. As of March 2004, the Yahoo! network of properties received some 2.4 billion page views per day.
A flurry of new joint ventures also promised continuing growth for Yahoo! In November 2001, the company teamed with SBC Communications to offer co-branded DSL and Dial services. This partnership was reaffirmed in November 2004 when the two companies agreed to a multi-year extension of their venture. They planned to move beyond products offered only on a home computer to products for home television and audio systems, Cingular wireless phones, SBC FreedomLink Wi-Fi, and SBC Home Networking equipment. Yahoo! CEO Terry Semel explained: "The new services that will be developed out of this expanded relationship represent the next step in Yahoo!'s strategy to further deepen consumer relationships by extending our products and services beyond the desktop. SBC and Yahoo! are putting consumers in the driver's seat, delivering what they want--when, how and where they want it." In December 2004, the company teamed with Nextel Communications Inc. to offer a group of Yahoo! products and services, including e-mail, instant messaging, games, and news content, on Nextel handheld devices. The venture combined Yahoo!'s wireless messaging capabilities with Nextel's nationwide network. In January 2005, the company signed a deal with Verizon Communications Inc. to offer Verizon's broadband customers a new Verizon Yahoo! portal. "We are very excited to team up with Verizon, the largest communications company in the U.S., as their partner of choice, in order to provide Verizon's subscribers with a compelling new Verizon Yahoo! offering," said Dan Rosensweig, Yahoo!'s chief operating officer. With such ambitious plans for the future, growth projections for Yahoo! remained optimistic.
Principal Subsidiaries
HotJobs.com, Ltd.; Kelkoo S.A.; Musicmatch, Inc.; Overture Services, Inc.; Yahoo! Europe; Yahoo! Japan.
Principal Competitors
America Online, Inc.; About Inc.; Google Inc.; Microsoft Corporation.
Further Reading
Alden, Christopher J., "Kingmaker," Red Herring, August 1998.
Angel, Karen, Inside Yahoo!: Reinvention and the Road Ahead, New York: Wiley, 2002.
Delaney, Kevin J., "Forging Yahoo's Future; CEO Terry Semel Revitalized Web Portal, but Rival Google Could Complicate 'Phase Two,'" Wall Street Journal, June 24, 2004, p. B1.
Delaney, Kevin J., and Dennis K. Berman, "A Big Buy for Yahoo Isn't Likely; Company to Focus Spending Spree on Expanding Global Presence and Increasing Its User Base," Wall Street Journal, December 15, 2004, p. C1.
Gumbel, Andrew, "The Cyberpunks," Independent, March 24, 1999, p. BR5.
Hansell, Saul, "Yahoo to Acquire GeoCities," New York Times, January 28, 1999.
Himelstein, Linda, et. al., "Yahoo!: The Company, the Strategy, the Stock," Business Week, September 7, 1998.
Mittner, Greta, "Yahoo Plays Yoyodyne's Game," Red Herring Online, October 13, 1998.
Napoli, Lisa, "Yoyodyne Deal Signals Next Stage of Marketing," New York Times, October 14, 1998.
"SBC, Yahoo! Extend Pact," Grand Rapids Press, November 19, 2004, p. C3.
Schlender, Brent, "How a Virtuoso Plays the Web: Eclectic, Inquisitive, and Academic, Yahoo's Jerry Yang Reinvents the Role of the Entrepreneur," Fortune, March 6, 2000, p. F79.
Swartz, Jon, "Yahoo's Other Dynamic Duo," San Francisco Chronicle, August 6, 1998, p. D3.
"Winning on the Web," Success, February, 1996, p. 27.
"Yahoo! to Strengthen Investment in China," Alestron, January 31, 2005.
— Laura E. Whiteley; Updated by Thomas Wiloch
