Analysis: The cyberpunks

Four years ago David Filo and Jerry Yang were a couple of unknown geeks. Now the boys from Yahoo! have outfoxed Murdoch, outsmarted Gates and have built a company worth $35bn and counting. And they've only just begun...

FOUR YEARS ago, when the Internet was in its infancy and online companies were still in their equivalent of the late Cretaceous age, a venture capitalist called Mike Moritz paid a visit to two young graduate students at Stanford University's engineering school.

Jerry Yang and David Filo had just about abandoned their PhDs to pursue an all-consuming hobby, organising and categorising pages on the burgeoning World Wide Web. They were not making any money out of it, but they did seem uncommonly adept at what they were doing and it did not seem too fanciful to help lift them and their little enterprise, already called Yahoo!, on to a commercial footing.

Moritz, a partner in the Silicon Valley venture fund Sequoia Capital, has never forgotten what he saw when he opened the door to the trailer on the Stanford campus where the two of them worked. The blinds were completely drawn, even in broad daylight. The generators for their computers were whirring and creating uncomfortable waves of heat. The answer machine bleeped almost incessantly. Strewn all around were golf clubs, dirty clothes and empty take-away pizza cartons. As Moritz later recalled: "It was every mother's idea of the bedroom that she wishes her sons never had."

But, in its own way, that trailer was also a peculiar reflection of Yahoo!'s abiding mission as it then was and remains to this day: a tool with which to create order out of the chaos of the Internet; a way of cutting through the cyberspatial fast-food and soiled laundry, if you will, to make it work for the consumer; and, above all, a temple of hard work, sheer enthusiasm and a near-monastic devotion to the cause.

The participation of Moritz and Sequoia Capital was only the beginning. What started out as a highly successful, cleanly designed search engine for web pages has evolved into something more complex and more central to the future development of online computer technology. Yahoo! is no longer content to transport users to the Web; it wants to be the Web, or at least so essential a part of it that most users will have no need to search further for their Internet needs.

Already, Yahoo! provides a comprehensive news service, a full financial information package on any company, including a monitor of its share price, access to 3,500 online retailers, e-mail services, Internet access and any number of smaller, more special interests from auctions to gambling. Thanks to a customised Internet home-page builder, it is now possible to make Yahoo! the first and, for many purposes, the only stop on the World Wide Web - acting as browser, search engine and service provider all in one.

There is nothing remarkable about wanting to achieve this kind of synergy. After all, this so-called bundling of various services is precisely what the US Justice Department's anti-trust suit against Microsoft is about. But, in contrast to Microsoft, Yahoo! has achieved dominance in its field without arousing the suspicions of government regulators - for the simple reason that it provides its services entirely free of charge to the end- consumer.

And it has done so in a number of ways that are indeed remarkable. First, it has built up the largest audience on the Internet, lagging just behind its somewhat differently focussed rival, America On Line. Secondly, it has - in contrast to other, smaller search engines being snapped up by large communications conglomerates - remained fearsomely independent and true to its origins as a hand-crafted, clear guide to the morass of information out there in cyberspace.

And thirdly, it has managed to turn a consistent profit. Unlike online retail specialists such as amazon.com, which have never shown black ink on their balance sheets and arguably never could, Yahoo! has, from the first days of its commercialisation in August 1995, managed to support its operations handsomely from advertising revenue.

Last year, it showed a net profit of $25.6m (pounds 16m) on revenue of $203.3m (pounds 127m) - admittedly, no more than a drop in the ocean set against the company's market capitalisation, which has shot up from around $10bn (pounds 6.3bn) four months ago to more than $35bn (pounds 21.9bn) now - but still a rare sign of bedrock business savvy in an industry that has looked, more than once in recent times, dangerously like a hi-tech version of the South Sea Bubble. Yahoo!'s success is due to a combination of factors. It rests perhaps most fundamentally on Yang and Filo's original concept of web page design and web categorisation based on intelligent sifting by human researchers rather than a simple machine-generated word-search. Yahoo!'s system of categorisation and sub-categorisation has been much copied, but no other company in its field still maintains a large staff (in Yahoo!'s case, just shy of 700) that struggles to keep up with the ever-growing avalanche of new pages on the Net.

Yahoo! was also quick to understand the importance of providing raw information rather than fancy gimmicks or pretty graphics. People could find what they want without having to wait several minutes for fancy photographs, colour backgrounds or elaborate banners to download on their screens. The second key factor is the company's business backbone. Several months before opening as a business three-and-a-half years ago, Yahoo! made sure it had a first-rate financial team in place, and Yang and Filo found what they were looking for in Tim Koogle, another Stanford engineering graduate with business experience at Motorola and at InterMec, the Seattle- based company that invented bar codes. Like the "chief Yahoos", as Yang and Filo still call themselves on their business cards, Koogle was blessed with a kind of primal curiosity and enthusiasm: he had put himself through college repairing the broken-down car engines of his richer fellow students.

Koogle, in turn, hired another bright young executive, a former member of the Canadian soccer team called Jeff Mallett who had solid experience in marketing software and telecommunications. Between them, they kicked Yahoo! into shape, first with the launch of the commercial service, then with various capitalisations leading up to the initial public offering in 1996, and beyond into the complex world of picking smaller companies to acquire and resisting takeover offers from much larger ones.

The key strategy that Koogle, Yahoo!'s chief executive officer, and Mallett, chief operating officer and now president, developed was to maximise Yahoo!'s free public access while waiting carefully for the right moment to introduce any kind of charges. When Yahoo! first introduced adverts in 1995, for example, some of its most faithful users complained about the company "selling out". But by that stage advertising was already common enough, and Yahoo! popular enough, that the risk of alienating users was long passed. The company faces a similar dilemma now, with the publicity benefits of, say, free e-mail services, needing to be weighed against making such services profitable. Some of Yahoo!'s more specialised services will probably be subject to charges soon, but it is a matter of extreme delicacy to determine when.

"If we can do a free service, that is our goal," Mallett said recently. For the moment there are still considerable mutual advantages to be reaped from big companies farming out their services on Yahoo! in exchange for the publicity and audience reach that both parties can enjoy. One recent example is Rupert Murdoch's News Corporation, which will be joining nine of its entertainment and news outlets to Yahoo! - not as a pre-emptive bid to buy the company, but merely as an exercise in joint promotion.

Back in early 1996, News Corporation had announced its intention to "bury" Yahoo! with the combined might of its own media resources, the Fox cinema and television networks and its own web service, the I-Guide. Murdoch's people had announced that the offensive would slay Yahoo! in 60 days flat, much as Time Warner subsequently threatened with their own product, Pathfinder. The fact that News Corp has now come to Yahoo! in search of an alliance pays eloquent testimony to the company's hardiness. The big conglomerates have been unable to pose a serious threat to Yahoo! because they jumped on the Internet bandwagon and, despite all their extraordinary capital resources, simply cannot hope to attract the same sort of following - in Yahoo!'s case, around half of all users of the Internet. The only serious competition, for the moment, remains AOL, particularly now that it has bought Netscape and has ambitions to set up a one-stop Internet service of its own. AOL traditionally tailors its services more to home computer users.

Yahoo! itself is in the acquisitions market, having recently snapped up GeoCities, a popular service for setting up personal home pages, and taken a stake in broadcast.com, which puts video and television footage on the web. The purpose of such acquisitions is to marry technology developed outside the company with Yahoo!'s uniquely flexible presentation and vast market - marriages that Koogle and Mallett have so far managed with great smoothness.

The secret of their success, Yahoo! says, is to have kept their feet firmly on the ground while negotiating the rapids of business on Internet time - the never-ending work cycle in which it is said that he who takes lunch ends up being lunch. Already, at this early stage in the industry, it seems that whatever the computer revolution brings, it's a fair bet that Yahoo! will be part of it.

EYEBALL ON A WEB WONDER STOCK

Chief Executive Officer: Tim Koogle

Chief Operating Officer, President: Jeff Mallett

Chief Yahoos (founders): Jerry Yang, David Filo

Employees: 700

1998 turnover: $203.3m (pounds 127m), up from $70.5m in 1997

1998 net profit: $25.6m (pounds 16m), compared with a $25.5m loss in 1997 due to large, non-recurring costs

Market capitalisation: $35.2bn (pounds 22bn)

Number of visitors to Yahoo! website in December 1998: 50 million

News
Alan Bennett has criticised the “repellent” reality shows which dominate our screens
tvBut he does like Stewart Lee
Life and Style
The Google Doodle celebrating the start of the first day of autumn, 2014.
tech
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
Sport
David Moyes and Louis van Gaal
football
PROMOTED VIDEO
News
i100
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
News
Former Governor of Alaska Sarah Palin, left, with her daughter, Bristol
newsShe's 'proud' of eldest daughter, who 'punched host in the face'
Sport
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
rugby
Arts and Entertainment
Salmond told a Scottish television chat show in 2001that he would also sit in front of a mirror and say things like,
tvCelebrity Trekkies from Alex Salmond to Barack Obama
Life and Style
Carol O'Brien, whose son Rob suffered many years of depression
healthOne mother's story of how London charity Maytree helped her son with his depression
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
The cover of Dark Side of the Moon
musicCan 'The Endless River' carry on the tradition? See for yourself
Life and Style
food + drink
News
Rob Merrick's Lobby Journalists were playing Ed Balls' Labour Party MPs. The match is an annual event which takes place ahead of the opening of the party conference
newsRob Merrick insistes 'Ed will be hurting much more than me'
News
A cabin crew member photographed the devastation after one flight
news
Voices
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Quantitative Risk Manager

Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits