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the Software View: A couple of Yahoo!'s (Part I)

Welcome back, gentle reader. Infoworld Magazine's columnist, Robert X. Cringely writes, "I would bet that Greg Sullivan, the Microsoft product manager at the recent Large Installation Systems Administration for Windows NT show, in Seattle, wishes he had had a hypnotist at his disposal to keep the audience quiet. He was discussing a forthcoming product that aims to deliver Unix-style scripting and shell services to NT. The product includes the Mortice Kern Systems windowing Korn shell, and he got into a dispute with someone at the back of the room who claimed that the shell wasn't very compatible with Unix, and that it didn't do a lot of things correctly that are defined in the Korn shell language spec. The two kept going back and forth until the Microsoft product manager was told by someone else that he was, in fact, arguing with David Korn - the author of the Korn shell. The crowd went insane with laughter. In fact, Microsoft speakers seem to be screwing up all over the place: According to one tipster, another Microsoft speaker at a different conference let it slip that FedEx is beta testing a new tracking system using Windows CE devices with bar code readers. The next word out of the speaker's mouth: "Oops.""

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Now, dear readers, on with this week's episode of the Software View!

Here's a funny cartoon about Yahoo!
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This week, I will be investigating a couple of Yahoo!'s, and we are not talking about chocolate milk drinks here, either.

Yahoo! is a hit in our house. I frequent Yahoo! for news, e-mail, maps, driving directions, the telephone number directory (the yellow pages), and television programming listings; and my wife uses the My Yahoo! service. Yahoo!'s story is a story of Firsts. It was first to market with a detailed search service, first to go public, first to turn an annual profit, and first to go mainstream by slapping its zany name on television.

Jonathan Littman writes, "Coolness is what made Yahoo! the place to surf, chat and, yes, advertise on the Web. "What was it that made Yahoo! rise above the other players?" asks Neil Weintraut, a general partner at 21st Century Internet Venture Partners in San Francisco. "They were cool, and this coolness matched the culture of the Net."

We all know cool when we see it. Seattle-based Amazon.com Incorporated is cool; Time Warner Incorporated's Pathfinder Web site is not. But while it is easy to describe what makes a company "uncool" - Microsoft Corporation's supreme arrogance, America On-line Incorporated's ambivalence about its customers' privacy - it is harder to pinpoint what makes a company cool.

Could it be that true cool is believing in what you are doing - however wacky it may seem - and doing it for yourself and those you love? Yahoo! employees look upon their jobs as a daily quest.

Incredible as it may seem today, Yahoo!, unlike so many other Internet ventures, was not created to mint money. Yahoo! is the amateur who beat impossible odds to make the Wheaties box. When co-founders David Filo and Jerry Yang set out in April of 1994 to sort and share their favorite Web sites with friends as well as the world, they were not dreaming of millions or carefully orchestrated business plans. To them, the Web was a great procrastination machine, a wonderful excuse for the Stanford University electrical engineering Ph.D. candidates to avoid writing their dissertations.

True cool is original, authentic, impervious to imitation. Filo and Yang were cool because back when the media and software tyrants (Time Warner's Pathfinder, Prodigy, the Microsoft Network) were struggling to lock in surfers, these Stanford geeks were creating good vibrations by sharing the wealth, sending surfers wherever there was a swell. It was cool to link to everywhere else. It was also counter to corporate America's business tradition.

It may sound corny, but Yahoo! is business proof positive that - at first, anyway, - it is often better to give than to receive. Yahoo! was early to the market and offered its search services for free. The result? Today more people visit Yahoo!'s site than any other location on the Web.

Had Filo and Yang stuck with their dorky original denomination, "Jerry's Guide to the World Wide Web," odds are they would have been an Internet footnote. As Yang tells it, the duo, sick of the dumb moniker, set about rechristening their guide one evening while sitting in their trailer on the Stanford campus. They took a bizarre approach and were either extremely lucky or just plain inspired.

It happens that Unix aficionados love the self-deprecating phrase/acronym "yet another compiler compiler," or YACC. Filo and Yang clicked through Webster's online edition for words that might fit the form. About midnight, "Yet Another Hierarchical Officious Oracle," or Yahoo!, came to them. They liked the general definition of a yahoo: "rude and uncouth." And as Yang puts it, he was known for his foul language, and Filo was, well, blunt: "It fit us. We were well-regarded yahoos." The unruly ruffians from the book, Gulliver's Travels were called yahoos or co-founder David Filo's father, who called him a "little yahoo" during his childhood in Louisiana.

What serendipity. Yahoo!, after all, could have been Excite Incorporated, which is like trying to be cool by calling yourself cool. Or it could have been called something gray and geeky like Internet search companies Lycos Corporation or Infoseek Corporation. Yahoo!, like Apple Computer Incorporated and Amazon.com, was that rare great name coined by amateurs.

"Yahoo! is a provocative name. It draws attention to itself; it's rebellious," says David Placek, president of Lexicon Branding Incorporated of Sausalito, California, which named the Apple PowerBook and Intel Corporation's Pentium. In a stroke of luck, Yahoo! clicked past its horribly dull competitors and captured the joy of scoring something cool on the Net."

The San Jose Mercury news recently noted that "Yahoo is closest in spirit to the work of Linnaeus, the 18th century botanist whose classification system organized the natural world." Janice Maloney writes, "Internet web portals and/or search engine companies promise to be your digital Sherpas, guiding you through the glut of data and information residing out on the Internet and the World Wide Web. Yahoo! indexes and catalogues the Internet using a combination of technology and human know-how. Web travelers visit the web site to request the location of data on the Internet.

Its revenues for the third quarter of 1998 were $53.6 million. Total traffic to Yahoo!'s global on-line web site properties rose to 144 million average page views per day in September - October of 1998. That is larger than Time magazine's paid weekly circulation. That's more than the 30 million people who tune in weekly to NBC's top-rated television show, ER. And this year's MTV Video Music Awards telecast managed to garner only 24 million people worldwide. Its base of advertisers rose to 1,950. Yahoo!'s database of registered users grew to 25 million during the same period. Already, more people are hopscotching across the Internet and World Wide Web sites than the number of viewers of television could claim after a dozen years in existence. And there are no signs the Web's growth is slowing: By the year 2002, some 328 million people around the globe will be on-line, according to International Data Corporation.

But Wall Street's enthusiasm for Yahoo!, and the reason the company makes even Amazon.com's prospects look modest, is that it doesn't sell books but rather ads that can be sliced and diced for individual surfers. Take the television revenue model and multiply it by the Web's customized, localized advertisement possibilities. "The consensus is that this could be a major media company in five years, a multimillion-dollar company," says CIBC Oppenheimer's Blodget, echoing the sentiments of many other analysts. "These are the networks of the future," chimes in Mecklermedia's Harmon regarding Yahoo! and the also-rans. "This is what America On-line wants to be." Thus far, The Street has remained bullish, convinced there is a real and promising business under the stock. "Right now, this is a billion-dollar market," Blodget notes. "In ten years, it could be $50 billion."

"With Yahoo!, you can't measure things like price to sales," says Abel Garcia, senior vice-president at investment firm Waddell & Reed Incorporated, one of Yahoo!'s largest shareholders. "You have to look at it as the new media company of the 21st century." As of the month of February of the year 1999, the NASDAQ stock market investors' capitalization valued Yahoo! at an incredible $39 billion (that value is 1,152 years worth of its current earnings) - more than health-care giant Humana, cosmetics queen Estee Lauder, truck-rental giant Ryder System, Apple Computer, Circuit City, Dow Jones Incorporated, Knight-Ridder Incorporated or Maytag. At the time, the stock price was 305 times projected 1998 earnings of 32 cents per share - astonishing, considering that Microsoft Corporation, the computer industry pacesetter, is valued at 52 times earnings. And on July 4th of 1998, both Filo, who owns 5.8 million shares, or 12.8 percent of the company, and Yang, who owns 5.7 million shares, or 12.2 percent of the company (Yang gave some shares to family and friends early on.), became billionaires.

More people go to Yahoo! than to Netscape or America On-line. More people search at Yahoo! than watch MTV, Nickelodeon, or Showtime in any given week. More people check out Yahoo! than read the typical issue of Time, Newsweek, or Life. When one throws numbers like that around long enough, sooner or later, one starts referring to real pairs of eyeballs. Because of the Web's chaos, search engine sites have become among the most popular stopping points on the Internet. To turn that cachet into cash, the Yahoo! charges hefty fees for advertising banners that span the tops of its Web pages. Its clientele reaches well beyond Silicon Valley - companies like Nissan, Mastercard, and the Sharper Image have helped Yahoo! rank among the top advertising sites on the Internet. That's why Yahoo! has become an investor's digital darling." A demonstrated ability to respond to change and even to write the rules for success on the Internet has made Yahoo! a darling of users, pundits and Wall Street alike. Furthermore, the company - which is managed by 20-something cyberpunks and the adults they recruited to supervise them - built an elegant, shall we say "cool", search service and then quickly expanded it to meet Netizen's content needs and desires.

Randall Stross writes, "Its technology is not nearly as robust as that of its rivals, but their Internet web site loads faster because they have less graphic images. Part of the beauty of Yahoo! is its simplicity - a clear, uncluttered, fast home page," Charron said. Several competitors have copied that approach, in contrast to the prevalent trend of Web sites loaded with fancy graphics that cause navigational confusion and sluggish performance." Yahoo!'s goal was to make the technology invisible, like the quiet ride of a luxury sedan. The company focused on speed and service over volume and glitz. "Their Web pages are fast and clean. That's a point a lot of folks miss," notes Steve Harmon, a senior investment analyst at Mecklermedia Corporation in Westport, Connecticut. "Ninety-nine percent of the people designing for the Internet don't get that you're really building the creative use of white space." Low on graphics, uncluttered with excessive text or confusing links, Yahoo! became a model of simplicity in a blinking neon world of rococo design.

Yahoo!'s home page has an average download time of 3.0 seconds according to the Keynote performance index. This is one of the fastest download times among major websites. The page design is a model of minimalist design: plain and simple HTML that will render correctly in even the oldest browser. Based on hypertext with links, links, and more links everywhere you turn. Leveraging the connected nature of the Web and the many other sites rather than trying to do everything themselves. Yahoo!'s city guides are a prime example: they link to the best local content in each city - richer than anything that could be built from scratch. Highly structured navigation system that emphasizes context and a hierarchical information architecture (not that hierarchies are the only possible information architecture, but they are easy to understand and represent in the interface). Integration between search and navigation: when you search, the hits are shown relative to their location in the topic hierarchy. Yahoo!'s simplicity has its own elegance, even if it doesn't win design awards. In fact, design awards are rarely given to those designs that work best in the real world.

The real reason Yahoo! is so successful is that it embraces the new medium and designs for its strengths rather than fighting its weaknesses. So, since Internet bandwidth is very limited, Yahoo! emphasizes a slim design and forgets about emulating television or glossy magazines. Instead, they base their primary service on giving people good links: the fundamental innovation of the Web (and earlier hypertext systems) relative to other media. Web managers often discuss whether to allow links to other websites, with some claiming that outbound links involve a risk of losing users who move to other sites instead of dutifully staying where they are. One counter-argument is that users are going to leave anyway, but that they will return if they are given good service in the form of valuable links. Another counter-argument is that the most popular site on the Web (Yahoo!) built its service on nothing but outbound links.

"Yahoo! understands better than anyone what the average user wants from an online experience," said Paul Noglows, an analyst with the San Francisco-based investment bank Hambrecht & Quist, citing Yahoo! Finance as a prime example. "There's not a lot you can't do there. This is why it's the most frequented business site on the Web today." And Yahoo! gets twice as many visitors as its nearest competitor. Gathering eyeballs has been the company plan since its inception. It turns out that this pack of Net-besotted, Yahoo!ing-their-brains-out, twenty- and thirty-something Web surfers have real business savvy, and their near-flawless execution and brilliant marketing have eviscerated the competition. What Yang knew, and Timothy Andrew Koogle came to understand, was that theirs was not a contest about search engines. It was about helping Web users find what they wanted. A powerful search engine may deliver thousands of listings in a flash. But you then have to sift through the dreck. Explains Yang: "If you have got 13 Shania Twain sites, then you probably don't need a 14th." Yahoo! aims to deliver the best of the Web, not its entirety, in a directory that looks like a book's table of contents. The goal, which is fairly modest, is to make the Internet and the World Wide Web intuitive for the user and to act as a starting point, not an end. It's kind of a discovery experience. And Yahoo! presents the information on an unadorned page that pops up on your computer screen quickly. So Yahoo! spends money on people, not computers. It is more social engineering than computer software. Its human-created directory was all that distinguished Yahoo! from its rivals as Internet euphoria swept the stock market in early 1996.

Five years ago, Yang and Filo were two disaffected electrical engineering and computer science Ph.D. candidates at Stanford University in the engineering department. They had the same advisor, an office in the same place, and were in the same pretty small group, so they got to know each other through that. The two were supposed to be doing research on the electronic computer-aided design of semiconductor circuits. Instead, they indulged in a passion and pet project for the Internet by creating a directory of their favorite Web sites.

Littman writes, "Stanford made this process considerably easier. Yang and Filo met their attorney, Jim Brock, at a Stanford function, and they studied abroad with fellow Stanford alum and "Ontological Yahoo!", Srinija Srinivasan. They hired Stanford graduates Koogle (now President and Chief Executive Officer), Karen Edwards (now Vice President for brand marketing) and Tim Brady (now Vice President for production) - to name just a few Cardinals.

Before Yahoo! became a brand, Yang and Filo benefited enormously by the Stanford brand of their Ph.D. candidate status (tip: it's cooler not to get a doctorate). Venture capitalists consider Stanford attendance people-branding. Smack in the middle of the Silicon Valley action, Stanford is a virtual Hollywood for the Net's would-be directors and producers.

"Stanford had a huge part in shaping us," Yang recalls. "We saw Jim Clark (co-founder and Chairman of Netscape) coming to the school. Bill Gates came and built his building next to our trailer. The venture capital is there (on nearby Sand Hill Road). If you're interested in starting a business, you'll find other people talking about (launching companies)." Indeed, Stanford helped Yahoo! get out of the gate quickly.

Back in late 1993, Filo had a problem. His personal list of favorite Web sites had grown beyond 200 "bookmarks," becoming so long as to be useless, especially since his browser - the earliest version of Mosaic - could not sort bookmarks into convenient onscreen folders. As a hallmark of Yahoo!'s open source software origins, he and Yang wrote some software that consisted of a few Tcl/Tk and Perl scripts and that allowed them to group their "hot list" into subject areas. They named their little list "Jerry's Guide" and posted it on the Web. People from all over the world sent e-mail, saying how much they appreciated the effort. Explains Yang: "We wanted to avoid doing our dissertations." It started out, as so many companies do, as a couple of Stanford graduate students blowing off their theses to play on their computers.

The two set out to cover the entire Web. They tried to visit and categorize 1,000 sites a day. When a subject category grew too large, subcategories were created, and then sub-subcategories. The hierarchy made it easy for even novices to find Web sites quickly. "Jerry's Guide" was a labor of love - lots of labor, since no software program could evaluate and categorize sites. Filo persuaded Yang to resist the engineer's first impulse to try to automate the process. "No technology could beat human filtering," Filo argues.

Littman writes, "The name and the branding might have been worthless if not for Filo's natural instincts: He believed that what the Web needed was a human face. Yahoo! began as a homegrown list of great sites, whereas testosterone-happy competitors, such as Excite, Infoseek and Lycos, first saw the Web as an automation video game. "Most of the other players were busy hawking their technology," says 21st Century's Weintraut. "This is yet another lesson that technology is not the means to winning. Yahoo had the things customers cared the most about."

Yang confesses that he dug his algorithms as much as the next geek and initially pushed for more automation. But Filo believed automation would eventually get out of hand. "He was insistent on the human touch," says Yang, adding that Filo warned that adopting too much technology would mean "they wouldn't be able to go back."

Michael Moritz, a General Partner of Sequoia Capital, the venture capitalist behind Yahoo! and on Yahoo!'s Board of Directors, remembers how the company almost got caught up in a "sites race" in early 1995: "We had (categorized) 5,000 sites, and we were getting into this ridiculous measuring game with all the other companies." But Yahoo! won by no longer listing the number; quality separated Yahoo! from the pack. Thousands of irrelevant search hits became the commodity service available from a half-dozen knockoffs. The other companies just didn't get it."

Though engineers, Yang and Filo have a great sense of what real people want. Consider their choice of name. Yang hated "Jerry's Guide," so he and Filo opted for "Yahoo!," a memorable parody of the high tech community's obsession with acronyms. Why the exclamation point? Says Yang: "Pure marketing hype."

Yahoo! itself first resided on Yang's student workstation, "akebono" while the search engine was lodged on Filo's computer, "konishiki." (These machines were named after legendary Hawaiian sumo wrestlers.) They had a 10 Megabit connection at Stanford, which was connected directly to the Internet. So bandwidth was never a limit. Disk space was never a problem either. At Stanford, it ended up being that the machine could not handle enough requests. Limitations on the number of TCP/IP connections a single machine could handle was their bottleneck. They wrote their own HTTP Internet web server. They were using the NCSA server in the beginning, and, around 100,000 to 200,000 hits a day, it was pretty much just killing the machine. So, they wrote an HTTP server that was extremely bare bones. CGI was slightly different and most HTTP Internet web servers were case sensitive while theirs was not. With the NCSA server the bottleneck was that it was a CPU hog. After they wrote their own server, it ended up being a TCP/IP limitation. Basically, Unix implementations of TCP/IP at that time could only handle about 100 connections per second. Today, the operating system that runs at the heart of Yahoo!'s open source software computer network is FreeBSD.

Perl is an open source, utilitarian language found to be quite suitable for the Internet and World Wide Web. "We don't create content at Yahoo!, we aggregate it," says Jeffrey Friedl, author of the book Mastering Regular Expressions and a full-time Perl programmer at Yahoo! "We have feeds from thousands of sources, each with their own format. We do massive amounts of 'feed processing' to clean this stuff up or to find out where to put it on Yahoo." For example, to link appropriate news stories to tickers at quotes.yahoo.com, Friedl needed to write a "name recognition" program to search for over 15,000 company names. Perl's ability to analyze text with powerful regular expressions made that possible.

Perl is also a central component in the system administration infrastructure used to keep the site live and current. Vast numbers of Perl scripts are continually crawling the Yahoo! servers and their links to external sites, and paging the staff whenever a Uniform Resource Locator (URL) doesn't return the expected result. The best-known of these crawlers is referred to as "the Grim Reaper." If an automated connection to a URL fails too many times, the page is delisted from the Yahoo! directory.

The hype worked. Visitors poured in. The "What's Cool?", "What's New?" and "What's Popular?" sections were among the most often visited areas on the site. Probably about six months after they started, things really changed when they enabled people to add their own links. Both Netscape and AOL offered to absorb Yahoo!, but Yang and Filo decided to take a leave from their studies and strike off on their own.

Yahoo!'s humble origins - a couple of geeks sharing cool URL's (Uniform Resource Locators). "David and Jerry embraced the community of users," says Jim Brock, a director at Menlo Park, California-based Venture Law Group. "Think about how the directory grew. Users provided the URL's. It was an interactive process. They tapped into that power in a way the other navigational tools didn't."

And Yahoo! held onto that spirit of connection with the larger Internet community. Yahoo! paid real women and men to check out and make sense of the vast information sinkhole of the Web. Real people using the Internet could see the value in that human effort.

Tech stardom started, as usual, amid pizza boxes. The launching pad was an oxygen-depleted double-wide trailer, stocked by the university with computer workstations and by the students with life's necessities - golf clubs, sleeping bags, and enough half-empty food containers to prompt a friend to call the scene a "cockroach's picture of Christmas." It was the first headquarters of Yahoo!, one of the most successful companies ever spawned by the Internet and the World Wide Web."

Mike Moritz from Sequoia Capital went over, talked to them for an hour, and saw the demo in their lab. Discussions with him went on for about six weeks. They finally decided in April on venture capital funding over corporate funding because they wanted to be an independent voice, and they thought going with a corporate sponsorship would have tainted the site. They had an ideal start as part of an educational institution (Stanford University), being a non-commercial, free service.

Filo and Yang wisely decided against mating their young thoroughbred with an old mare such as America On-line, Time Warner or any of the other big companies nuzzling up to the upstart. Of all the money men who traipsed through their trailer, it's telling that Filo and Yang settled on Sequoia Capital's Moritz. The media veteran seemed to intuitively understand that he wasn't looking at an Internet search company but rather a possible network player in a new mass-market medium.

The first time they sat down with Sequoia, Moritz asked "So, how much are you going to charge subscribers?" and Filo and Yang looked at each other and said, "Well, it's going to be a long conversation." But two hours later, they convinced them that Yahoo! should be free, and they became the only company Sequoia funded that had a free product. Unlike many others at the time, Moritz, reports Yang, believed the advertising model would work on the Net. "Mike never typecast us," he says. "He agreed with us. He didn't know what we were."

Maloney writes, "In April of 1995, they raised $1 million in venture funding from Sequoia Capital, which had helped fund Apple Computer, Cisco Systems, Oracle, and 3Com, and moved out of the trailer and into a real office in Mountain View, California. Sequoia's $1 million stake in the company at that time was worth $560 million at the end of 1997. Yahoo! had the best name, the worst technology, and a quaint belief that while other companies' machines surveyed Web site addresses by the thousands every second, the human touch could somehow win out. They had a wildly successful IPO (Initial Public Offering) on April 11 of 1996, with their stock opening at $13 per share. At the close of Yahoo!'s first day of trading, its stock had risen 154 percent from the offering price, even more than Netscape's first-day leap of 105 percent. Today, the stock is 23 times its IPO price.

Compared with Microsoft, with a share price 2.7 times its projected 1999 earnings growth rate, Yahoo! is at 4.1 times expected earnings growth. Yahoo! boasts gross margins of 88 percent, just shy of Microsoft's 92 percent. "Yahoo! has the potential to emerge as the first pure Internet giant," says analyst Paul Noglows of Hambrecht & Quist Incorporated.

Yahoo!'s original office was in a beat-up, one-level building on Pioneer Way in Mountain View, Calif. Behind the single glass door with "Yahoo!" painted on it you might have found white buckets scattered around the worn carpet and on top of the metal desks to catch drips from the leaky roof. Or the door might have been propped open because the air conditioning broke again, and the heat from a dozen high-end personal computers was turning the place into an impromptu sauna. The company is in new digs, spread across an unremarkable office park here in Silicon Valley near Santa Clara, California. Yahoo! has a tiny lobby with cartoonish purple furniture and a life-size paper mache Elvis. Inside are rows of cubicles, purple and yellow walls, hundreds of employees, and a lot less cacophony than there used to be.

Littman writes, "Sure, an occasional barefoot Yahoo! employee strolls merrily down the hall, but beyond the hyped bright colors, more than a few walls carry pictures and information about employee-inspired community efforts for youth and the environment.

This spirit of giving is hardly standard Silicon Valley fare. And indeed, much has been made of Yahoo!'s fun, high-energy atmosphere. But what may endure long after the stock rocket settles closer to earth is that Yahoo! walks and talks like a company that hasn't lost sight of its roots. The executive office shares a building with Amdahl Corporation, and visitors and employees have to scale a steep set of stairs to reach Yahoo!land - there's no grand, imposing entrance. Sure the purple-painted cubicles are eclectically decorated by the ethnically diverse 20-something employees. But despite the friendly neon-yellow café with espresso bar and Foosball tables, this is a fairly typical Santa Clara, California, office. Contrast that with number two portal player Excite, which hired a swanky high-tech architecture firm to build a loud, self-congratulatory pantheon to the portal space in Redwood City, California.

Young and hip as most Yahoo! employees are, they seem to understand that a spiraling stock does not a long-term success make. Credit the grown-ups for that. Filo and Yang didn't just partner with the right venture capital, law firm and financial/technology backer. Early on they realized they needed some over-30 types to run things. They quickly hired 47-years-old Koogle as Yahoo!'s President and Chief Executive Officer, and 34-years-old Mallett, the former Vice President and general manager of Novell Incorporated's Consumer Division, as Chief Operating Officer.

Koogle, Mallett and the rest of the management team are perhaps the best reason to bet on Yahoo!'s future success. People make or break high-tech companies, especially when they're growing at breakneck speed. "So often you find companies that are popular, (but) the quality of the management team is uneven," says Steven Bengsten, director of emerging companies services at New York-based Coopers & Lybrand LLP, which helps launch startups. "You talk to five people, and you get two or three versions of the company," Bengsten says. Many Yahoo! employees possess both the integrity of Hewlett-Packard Company lifers and the talent and ambition of Microsoft employees.

Yahoo! is the Internet branding case study, the example so many others (often clumsily) try to imitate. This is the company with the panache and genius to transform nearly every static, electric, moving (and, yes) human surface into a Yahoo! billboard. In the process, Yahoo! has launched the first Coca-Cola of the Internet, a brand so vibrant its value may outweigh the actual services the company provides.

For it isn't enough to be cool or boast a groovy name. Truly successful companies are brilliantly marketed. On the Internet, Amazon.com again serves as a case in point. It had the name and the early Internet buzz, but despite what you've read, it made it big by spending piles of money on ads in the New York Times and other old-media haunts.

Yahoo!, much like Amazon.com, built a natural Internet brand through its simple desire to satisfy customers. "We didn't know it was a brand," Yang says. "It became a brand when real business people told us it was a brand."

At the start, the strategy was simple: Push the brand. Luck helped - Netscape Communications Corporations's co-founder, Marc Andreessen, was so impressed by the Yahoo! directory that, back in January 1995, he made Yahoo! the default directory for Netscape's Navigator Internet web browser - users who clicked on the Net Search button at the top of their browser screen were automatically routed to Yahoo!. The arrangement helped make Yahoo! famous on the Web." When Yahoo! was just starting, Netscape even let them borrow four SGI Indigo Unix machines, each with a Gigabyte of hard disk drive storage space, in the Netscape server room and the Netscape connection to the Internet, which Yahoo! wouldn't have been able to afford on its own. Netscape nurtured Yahoo! in its infancy because Netscape viewed using directory services as being very important. Without those services, the Internet would become unattractive to users. Users would then all go to America On-line or CompuServe.

The method in Yahoo!'s tactics is nothing short of madness. Indeed, the company's motto demands it: "Do what is crazy, but not stupid." Nowhere has this principle been stronger than in Yahoo!'s branding campaigns. By conjuring up a cool California image - hip but not rad, easy-to-use but not simplistic - it has managed to create a cultlike following not unlike that of Apple Computer Incorporated's Macintosh.

Yahoo! might never have won out had it not been for Yang's obsession with what he saw as the fundamentals of his business: Give users abundant reasons to visit your service, and promote the hell out of the brand. In January of 1996, he recruited a vice-president for brand marketing and the brand's steward: Edwards, who had worked on the Apple Computer account at advertising company BBDO Worldwide Incorporated. Soon after she arrived, Yahoo! launched $5 million worth of television commercials. It was, says Edwards, "the biggest check Yahoo! had written to date." The nervy ads were directed at people who had heard about the Web but hadn't yet logged on. Eschewing the bloated and insular high-tech ad agencies, Edwards pushed to hire Black Rocket of San Francisco - four hot, independent ad executives (one engineered the clever "Got milk?" campaign) who between them did not own a single computer.

In spring 1996, when the Web was still in its infancy, Yahoo!'s great Gone Fishing ad ran on, yes, television. The guys at Black Rocket understood the equation TV + brand = new customers. If Yahoo! was to outgrow its tech roots (as an Internet search company) and evolve into a new-media company, it would have to appeal to the mass market, the average Joe. The Gone Fishing ad was a first for directory navigational guides - and a whopper. A wizened old angler dipped on-line into Yahoo! for some baiting tips and then landed one humongous fish after another. The faux testimonial captured the Net's spirit without being the least bit techie. Who could help but let out a "Yahoo!"?

By June 1996, Yahoo! didn't have just a name - it had a wacky, original brand. It didn't matter that the few weeks of TV spots had burned up most of the advertising and marketing funds allocated for the year; Yahoo! had momentum.

Edwards deftly followed the great television spots by moving into "guerrilla marketing" mode: "wild postings" - campy Yahoo! posters on construction sites and other outdoor venues - and tie-ins with major concerts, Nascar and professional sports teams. Yahoo!'s logo was becoming nearly ubiquitous. She pushed the brand into sports events, rock concerts, magazines, and other conventional locales, as well as some strange ones - she gave free paint jobs to any employee who would splatter the logo over his or her car. Five lucky employees even won the right to get their cars "shrinkwrapped" with a purple and yellow plastic Yahoo! sheet (they had to lobby for the privilege). And when the company's stock soared to more than $50, a senior producer of the Yahoo! financial pages made good on a bet and tattooed the company logo on his buttocks. Yahoo! licensed its name to merchandise like snowboards. It has co-branded products, services, and contests with such well-regarded brands as Ben & Jerry's ice cream lids, Visa, and MCI Worldcom. It runs a community outreach effort that extends to 75 nonprofit organizations. And it has pursued a lively grassroots program, much of it focused on the Bay Area, that includes a "Yahoo! for Barry Bonds" sign that flashes on the 3Com Park screen every time the Giants slugger hits a home run. Today, the Yahoo! name is scrawled on seemingly every available surface. At the hockey rink of the San Jose Sharks, it is on the Zamboni ice-shaving machine. It is wrapped around tins of breath mints. It is on Slinkys, parachutes, skateboards, sailboats, surfboards, yo-yo's, shirts, golf balls, Visa cards, beach balls, license plates, and kazoos. And the purple and yellow letters will soon appear on shoes, a music CD, the ER television show, and the upcoming Ron Howard motion picture Ed TV. The best part: Yahoo! has paid barely a whisper for all this publicity. In its early days, the company bartered for placement, but now - since gaining cachet - it gets much of this gratis. Yahoo! was the first Internet upstart to hit the airwaves with a series of humorous television commercials in 1996 ("Do you Yahoo!?" remains a company tagline). Now, Yahoo! is trying to go one step further with product placements on television's Ally McBeal and Caroline in the City. And in an August 27 of 1998 announcement, Yahoo! linked its brand with the likes of the Oakland Athletics baseball team and the popular Comedy Central cable channel by forming online clubs for their fans.

In a stab to get beyond tee-shirts, of which it already has 20 different varieties, it licensed the logo to Gregory Mountain Sports, which is making computer bags to be sold in Staples Incorporated and REI stores this fall. "We want a name that will stand the test of time," says Edwards. Edwards is so gung ho that she planted her Palo Alto, California garden this summer with purple petunias and yellow gladioli - the company's colors.

To be continued ...

Sincerely,
Mark Kuharich

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