Yippee, shouts Yahoo, as investors lap up Internet float
Sunday 14 April 1996
The stock market debutant, Yahoo, enjoyed a kangaroo leap in price that is now almost normal for Internet stocks. And it created two more "nerd millionaires" in the form of its founders, former Stanford University students Jerry Yang, 27, and David Filo, 29. Even at the issue price of $13 per share, each was worth $65 million.
But are the people who made them rich taking part in a smart investment, or simply wild speculators?
Yahoo, like its many rivals, offers a free "search engine" service, which helps people to search the "pages" of the World Wide Web and to pinpoint the information they want.
Three rivals already have listings: Lycos and Excite, which gained listings in the past fortnight, and OpenText, which came to the market in January. More are set to join them in the next couple of months. Together, they represent a considerable investment risk.
The risk derives from the fact that their revenues come almost entirely from advertising, and that they are engaged in a technological race in which they must impress some of the most fickle shoppers around - computer buffs. If a particular search engine does not run as quickly or smoothly as a competitor's, Internet users will drop it without a qualm.
Search engines are an answer to an infuriating aspect of the Internet. As it is a global network with no central control, there is no order and no index to the enormous amount of information available via computers.
Search engines solve that. They are computers with huge databases that record where information is stored on the network. However, the computers required to do such work - running thousands of times faster than a home PC, and with millions of times more data stored - are expensive. Given the reluctance of cybersurfers to pay for anything, the only way such companies can cover their costs is by advertising. A text message or a picture in the greeting page of a search engine can cost $20,000 per month - a reasonable charge given that there are 30 million users worldwide.
The rush to buy into Internet stocks began last August, when the software company Netscape, which provides a program allowing Internet users to surf the World Wide Web, came to the market and saw its stock price double in a day. It is now worth $4bn, despite never having made a profit.
But the next wave belongs to companies such as Yahoo, which offer the use of their search engines to passing users.
Some analysts are dubious about the advertising model on which search firms are basing their business plans. Last year Forrester Research, a market research company, estimated that the market for Internet advertising would reach $74m this year and exceed $2bn by 2000.
That is a spectacular growth rate, but even that might not be enough to sustain a market with almost 20 competing search engines and more arriving almost daily.
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