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the Software View: A couple of Yahoo!'s (Part II)
Welcome back, gentle reader. I wanted to catch you up and inform you of some of the technologies I am currently using at my work. The database server is a six-processor Sun Ultra-Sparc workstation running Solaris and the Oracle database management system. The Internet web HTTP server is a dual Intel Pentium processor server running Red Hat Linux and the Apache web server. The application is a collection of Java Servlets that use the JDBC API to talk to the Oracle database and create cross-Internet browser HTML files. I am proud to relay that not a single line of Microsoft software code was used throughout the application.
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Now, dear readers, on with this week's episode of the Software View!
This week, I continue my investigation of a couple of Yahoo!'s, and we are not talking about something you would yell out at either a barn raising, a country square dance, or a potlatch.
An important part of Yahoo!'s brand building has been its advertising. Yahoo! created a campaign that built on the awareness generated by the company's much celebrated initial public offering. Yahoo! is a consumer brand, not a technology company. Two decisions have been most responsible for the campaign's success. First, Yahoo! targeted people who intended to go online, estimated by IntelliQuest to number roughly 18 million in 1998, since experienced surfers tend to be loyal to the search engine they are currently using. Second, the company's tag line, "Do you Yahoo!?," conveys the brand's irreverent personality.
Yahoo! is an awesome marketing machine targeting three different audiences with three distinct messages: consumers who might use Yahoo! ("We're fun, wacky, and easy to use"); the press and financial analysts ("We're professional and well run"); and media buyers ("We're the market leader and experts in on-line advertising"). The strategy is working.
Truth be told, the Yahoo! brand may be the company's biggest asset. While rivals may match Yahoo!'s information, services, and shopping, few have come close to its branding. Some 44 percent of Internet users know Yahoo!, according to Intelliquest Incorporated - more than are familiar with Excite, Lycos, or even Microsoft. Only America On-line and Netscape are better known. "The name contains the promise of the product," says Owen Shapiro, senior analyst at market and brand research firm Leo J. Shapiro & Associates. "It reinforces the idea that when I go to Yahoo!, I'll be so pleased I'll be Yahoo!ing afterwards."
Littman writes, "Such youthful enthusiasm and inspired marketing succeeded in creating the premier Net brand in an age when Microsoft seems intent on tarnishing its image. How important is this? "History tells us that with any new medium, one or two new brands emerge," says Chief Operating Officer Jeffrey Mallett, one of several Yahoo! executives who understands the importance of early branding. "NBC was it for TV; ESPN was it for cable."
If Yahoo! becomes the NBC of the Web, that success can be at least partially attributed to the adroitness with which it has spread and protected its brand. America On-line had already set the sticky standard, holding onto users with chat, finance and other ancillary services. Following America On-line's lead, Yahoo! - through a series of adept partnerships and acquisitions - quickly added e-mail, chat, news, finance, Yellow Pages, sports and travel information to its online arsenal. Whatever customers wanted, they got: a techie search engine to complement the coveted human index for those who dug automation, a personalized (My Yahoo!) front page so regulars could regularly enjoy Yahoo! services. And to meet the needs of its international customers, Yahoo! quickly opened 14 overseas sites, including a Canadian site.
Miraculously, Yahoo! extended the brand without diluting it. Having the leadership role - and plenty of cash - allowed the company to brand everything Yahoo!. Unlike its competitors, Yahoo! didn't need to hitch a ride on other logos.
In addition, Yahoo! decided it could better serve its customers by becoming the network or executive producer that draws in the talent - a giant Hollywood studio for the Web. "We passed on Intuit Incorporated to run our personal finance (service)," Mallett explains. "Instead, we opted to produce and bring in (content such as) The Street.com, The Motley Fool and Standard & Poor's." Users liked the model because Yahoo! remained independent and flexible enough to attract the talent or services it needed (in different content categories) while still controlling production and magnifying its brand.
Wall Street also likes this strategy - though for more bottom-line reasons. "Co-branding requires you to share the spoils of victory," says Henry Blodget, a senior analyst with New Yorkbased CIBC Oppenheimer Corp. "Yahoo! hasn't done that; that's why Yahoo! has an 88 percent gross margin, and Excite has a 75 percent margin. If you can stay within your brand and you make it, you get to keep everything."
Yahoo! calls this kind of partnering content aggregation, and it's key to understanding why the company has held onto its top position. Beyond its directory, Yahoo! offers an independent, efficient and friendly medium to take advantage of other companies' content and services. "We're the executive producers," Mallet says. "We're not obligated to produce or distribute anything we don't think is in the best interest of users."
Yang is a studiously casual 29 years old from Taiwan who moved to the United States at age 10. He calls himself the "Chief Yahoo!" and loves the spotlight. Yang grew up in San Jose, California in the San Francisco Bay Area. His favorite Beatle is Paul McCartney and his footwear is dress socks. His passions are sumo wrestling and golf. He went to Stanford University for his Bachelors and Masters degrees in electrical engineering. Yang has grown up and grown into his job as "Chief Yahoo!." He got married a year ago and for his anniversary took one of his only vacations, in Hawaii. He travels the world as the face of Yahoo!. His 5.8 million shares of Yahoo! stock were worth $960 million in August of 1998. His success has made him so popular in his parents' home country of Taiwan that he registers in hotels under an assumed name to avoid a crush of autograph-seekers.
Filo is 32 years old. He calls himself the "Cheap Yahoo!". Filo grew up in Moss Bluff, Louisiana. His favorite Beatle is John Lennon and he likes to stroll around the Yahoo! offices in his bare feet, sans shoes and he does not begin his work day until around noon. He went to Tulane University in New Orleans as an undergrad and majored in Computer Engineering. Then he traveled to California to get his Masters at Stanford in EE (Electrical Engineering).
Yahoo!'s stratospheric stock price makes President and Chief Executive Officer Koogle nervous. "I take nothing for granted," he repeats in interviews like a mantra. President and Chief Executive Officer Koogle, 47 (the average employee age at Yahoo! is 29), who is known as "T.K." around the office, is a Stanford-trained engineer who had spent nine years at Motorola and was President of Intermec Corporation, a Seattle-based manufacturer of automated data collection and data communications products, for a three year period. He achieved a BA in 1973 from the University of Virginia - graduating first in his class. He was awarded a full scholarship to Stanford, where he earned an MS in 1975 and a Ph.D. in engineering in 1977. Bringing in "adult supervision" to manage an outfit created by techie kids is another Silicon Valley tradition; almost all venture-capital-backed companies do this at some point. The transition can be rough, especially for the founders, but Koogle made things easy for Yang and Filo. He kept their name. He embraced their concept of wooing advertisers by attracting lots of people with useful information created by humans. Besides getting the most out of the founders, Koogle's main contribution was to steer the company as it added lots and lots of employees. "We've always worked to build a company that knows how to make money," said Koogle, "If you don't build that desire into the culture of the company, it gets harder and harder to do it later." As President and Chief Executive Officer of an Internet highflier, Koogle shuns geeky Net-speak. Instead, he talks in T.K.-isms - folksy phrases that draw on his Southern roots. "Mamby-pamby," for instance, is Koogle's term for ideas that lack substance. "Possum syndrome" means indecision - when employees see headlights coming toward them and freeze like deer. Then there is the "rowboat syndrome," which describes people who spend too much time looking backward instead of forward. Indeed, Koogle is the adult, grown-up voice of reason and a seasoned veteran in a Yahoo! environment brimming with breathless Internet enthusiasts. Ever the businessman, he partakes in few of the zaniest antics. For example, before the company went public in 1996, founders Yang and Filo took on the titles of "Chief Yahoo!'s". But Koogle steadfastly refused pleas to become the "Chief Chief Yahoo!". He has not tattooed the company logo on his rear end, either, as had the senior producer of the Yahoo! financial pages. The lanky Koogle is Yahoo!'s sixth employee. "There are lots of people in Silicon Valley who start and end with "How do I make lots of money?" I am not about that," says Koogle, who lived in a spartan one-bedroom apartment. "I am into building businesses that make money." He hasn't done too badly for himself, either: His Yahoo! stock is worth $200 million.
As Margie Wylie writes, "At ages when both are still too young to campaign for a seat in the United States Senate, Yang and Filo are co-founders of an accidental Internet empire. The gregarious Yang has gravitated toward the limelight. The Chief Yahoo! has become the chief spokesperson, performing scores of interviews. Yang seems to thrive on talking to Wall Street analysts and reporters. Meanwhile, Filo, on the other hand, has dug deeper into Yahoo!'s workings, burying himself into the technology of the Internet portal's operations. Filo has retreated to a programmer's comfort zone, giving up his director's title in February 1996. He has even changed his official title from "Chief Yahoo!" to "Cheap Yahoo!", a nickname that stuck after he insisted on off-the-shelf, no-frills PCs. In fact, the "Cheap Yahoo!" has so plunged himself into the operation of the site that even he is missing sleep, play, and a social life. Surfacing to give an interview seems an excruciating experience for the soft-spoken Filo. While Yang hobnobs with Vice President Al Gore, Filo can't remember if he's met the veep. But if the pressure of success has accentuated their differences, the money seems equally uninteresting to both. They insist they've made no major purchases, they still fly coach class, and the money just doesn't mean that much.
Filo was actually Yang's teaching assistant at Stanford in a computer architecture class. That professor gave Yang one of his worst grades ever. When he got his homework problem sets back, he would go to the teaching assistants and complain about his grade. Yang says of Filo, "Later, when I went to graduate school, I needed a partner to do something in lab. You always knew that if you were ever going to do something, you'd want to do it with David because he's one of the brightest guys you'll ever meet, he's the most technology-savvy and has a great business mind. And he's like a rock - he never gets flustered, and he's just really, really solid. We were obviously great friends before we started doing this. That helps a lot."
"Neither David nor I were business people. What has made us successful so far is that we aren't necessarily focused on the business side of things. We're more product people; we're much more (engaged in) figuring out what is the ultimate coolness versus sort of how to cut the deal today - that sort of a thing", says Yang.
"For both David and me, we were doing (Yahoo!) when there was no money in it. Had we wanted to do it for money, we would have sold it very early on, because there was a lot of money dangling in front of us. We started with nothing and we have very little to lose. Just having that sort of mentality is really liberating in some ways. We're actually very cheap people. David is certainly; I am as well. Value-conscious is the way I like to put it. And I don't believe in wasting money, I don't believe in blowing it off. I believe in doing what we need to do to live well and to be able to contribute."
Filo focuses much more on technology while Yang works on the business development side. Probably the biggest change in Filo's life is really not having time to do things that he used to be able to do. For the last four years, he hasn't done a whole lot outside of Yahoo!. Going outside, playing tennis or golf, going skiing or even watching television just doesn't happen anymore. From day one, Yang and Filo considered Yahoo! as something strictly for themselves. It wasn't really intended for anyone else to use. But when they released it to the Internet, two months later, people from 40 countries were using it. A remarkable thing about the Internet is that you receive instant feedback. People started to email additional Internet web site links in. The resources and utilities they provide have changed people's lives. Many people have found either long-lost relatives or friends from a long time ago. Because Yahoo! lists a number of smaller mom-and-pop shops' Internet web sites, the sites are grateful because now their business has tripled. In gratitude, candy businesses have sent boxes of candy, and t-shirt businesses have mailed them t-shirts. That is the power of the Internet."
Yahoo! has a fairly young workforce and the environment is one where they try to create a lot of dynamism and not a lot of hierarchy. So they have all cubicles and it's a very Silicon Valley environment. People go there and just sort of assume that it's going to be totally hip and cool.
Steve Steinberg writes, "Yahoo! works like this: First, the URL's of new Internet web sites are collected. Most of these come by e-mail from people who want their sites listed, and some come from Yahoo!'s spider a simple program that scans the Web, crawling from link to link in search of new sites. Then, one of twenty human classifiers at Yahoo! looks the Internet Web site over and determines how to categorize it. The hard part is developing the classification scheme. The ontology. Dividing human knowledge into a clean set of categories is a lot like trying to figure out where to find that suspenseful black comedy at your local corner video store. Questions inevitably come up, like are movies part of Art or Entertainment? (Yahoo! lists them under the latter.)
To solve this problem, Yang and Filo hired Srinivasan, the company's fifth employee, now 27 years old, as their "Ontological Yahoo!" Her mother, having trouble figuring out exactly what a Yahoo! ontologist was, kept thinking Srinivasan was an oncologist. She used to share an office with a futon and Yang. Another former Stanford student, "Ninj," as her friends call her, is unfailingly helpful, quick to answer any question in her relaxed California accent. Newsweek included her among the 50 people who matter most on the Internet. Her background is in artificial intelligence. But Srinivasan was well prepared for tackling the organization of the Web: previously she had been working at a lunatic-fringe project in Texas, attempting to teach a computer the fundamentals of human knowledge.
Starting with the ad hoc categories she inherited from Yang and Filo, Srinivasan began slowly and deliberately steering Yahoo!'s ontology toward completeness. Mainly, it has been a matter of adding new categories and reorganizing hierarchies as the Internet evolves from containing only specialized, technical information to containing content from every field of knowledge. But she has also set up certain guidelines to ensure consistency. For example, every regional Web site is now put in the regional hierarchy, and a cross-link to the site is placed under the appropriate topic. So a Florida real estate company is listed under Florida, with a cross-link from real estate.
In 1996, she was adding categories and making changes to the ontology almost every day. Now major adjustments are becoming much more infrequent. She pointed to this as support for Yang's assertion that "at some point, our scheme will become relatively stable. We will have captured the breadth of human knowledge."
I'd like to think it was that easy, that the goal of categorizing human knowledge would finally be solved by a few computer scientists in a cramped office park. It's proof that no ontology is objective all have their own biases and proclivities. Yang was quick to admit this: in fact, he referred to Yahoo!'s ontology as the company's editorial. "Organizing the Web is sometimes like being a newspaper editor and inciting riots," he said with a touch of exasperation. "If we put hate crimes in a higher level of the topic hierarchy, well, it's our editorial right to do so, but it's also a very heavy responsibility."
"These are profoundly editorial decisions, not just a matter of dumping things into buckets," said Srinivasan. "How we choose to categorize information helps define how users perceive it," she said. Yahoo!'s surfers try to set aside bias as they select and rank sites. Still, as Yahoo!'s power grows - it already has a greater monthly market penetration than ER, the nation's top-rated television program - the idea of Yahoo! as an important media network might give some consumers pause.
Yahoo!'s success, Yang argued, is evidence that point of view and knowledge classification are not incompatible. Just as we learn to automatically compensate for right-wing bias while reading The Wall Street Journal's editorial page, we can also learn to adjust for the perspective that Yahoo! embodies. We can learn to think like a Yahoo! classifier. The real problem, Yang and Srinivasan agreed, is making sure that Yahoo!'s point of view remains consistent even as the company expands to keep up with the growth of the Internet.
After all, Yahoo!'s point of view comes from having the same 20 people classifying every site, and by having those people crammed together in the same building where they are constantly engaged in a discussion of what belongs where. Lose that closeness and the biases will start to become more diffuse. Yang admitted as much, saying, "It's hard to expand Yahoo!, because you end up with too many points of view." Instead of the Journal's editorial page, you end up with something like CNN, where prejudices are masked by a pretense of objectivity. For Yahoo!, that translates to a category scheme where users have a hard time guessing where they'll find what they're looking for.
So Yahoo! is faced with an unforgiving trade-off between the size and the quality of its directory. If Yahoo! hires another 50 or 60 classifiers to examine every last site on the Web, the catalogue will become less consistent and more difficult to use. On the other hand, if Yahoo! stays with a small number of classifiers, the percentage of sites Yahoo! knows about will continue to shrink.
Yahoo! will probably take this latter path and simply admit that it is an opinionated guide, a sort of "best of the Web," and not a complete catalogue."
Advertisers are signing up for relationships with Yahoo! that bring in more cash. They're paying hefty sums, for example, to run sweepstakes in which Web surfers fork over their e-mail addresses and some personal information. Co-marketing deals and partnerships already account for 15 percent of the company's revenues.
The explosive growth of the Internet constantly redefines the landscape of cyberspace; it demands that companies adapt their strategies almost daily or be buried in ashes. In the short time since Yahoo! went public, its business plan has become obsolete. Search has become a commodity - there are now more than 200 ways to find and retrieve information in cyberspace. Even worse, Internet advertising doesn't seem to work.
Advertisers pay Web site publishers between $10 and $100 for every 1,000 "impressions," jargon for the number of times an Internet Web page is loaded. But showing results in cyberspace is more difficult than promised by promoters of Net advertising, who hyped the Internet as the ultimate medium for one-to-one marketing, or digital direct mail. Jeff Bezos, Chief Executive Officer of the virtual bookstore Amazon.com, advertises on Yahoo! - but he believes his print advertisements, in publications like the Wall Street Journal, are what bring in the business. "If you see the ad in print several times and then see the banner on a Web site," he says, "you might decide to buy something. But when the advertising's just Web-based, it's not crystal clear to the viewer that this is a real business. There are no products in the window, no other customers, no proof you are giving your credit card number to a real company."
That helps explain why advertisers have balked at committing dollars to Internet campaigns. The fact is, Yahoo! is only one of among hundreds of Internet Web sites that carries advertising. And skeptics now question why anyone ever thought that search engine sites would be effective locations for advertisements. Sure, they draw tons of traffic. But the very charter of a search engine web site is to get visitors in and out as quickly as possible.
No wonder that Yahoo! has resorted to strategies far different from the ones it started with. The company has recast itself as a digital destination and likes to bandy about the term, "community". Yahoo! has loaded itself up with content and software that will tempt visitors to linger - and read the advertisements. Yahoo! is mutating even further, diversifying feverishly in an effort to adapt to the Internet's ever-changing environment. Yahoo! is the brand to beat.
Still, Yang and Filo know that owning a brand name that wins repeat search visitors isn't enough. "The fundamental bet we are making is that we are a media company, not a tools company," says Yang. "If we are a tools company, we are not going to survive. Microsoft will just take over our space. If we are a publication, and we create brand loyalty, then we have a sustainable business." Their strategic goals are to get advertising and get in front of every browser in as many channels as they can.
First, Yahoo! secured the Internet display rights to news from such titans as CNN and Reuters Holdings PLC. Shopping opportunities can be woven throughout Yahoo!'s Internet directory services. Instead of flashing ad banners, Yahoo! can incorporate links to advertising partners right in its pages. In return, Yahoo! gets both a flat fee and a commission on sales the links generate. If you check stock quotes on Yahoo!, for example, you'll find links to online stock-trading services such as Datek. Yahoo! has announced similar arrangements with Amazon.com, the largest online bookseller, Sabre, the largest online travel site, and CDnow Incorporated, a music retailer.
Yang's push to turn Yahoo! into a brand that stands for more than searching was helped by the company's alliance with Softbank Corporation, a Japanese media conglomerate. In April of 1995, Softbank added to its burgeoning Internet portfolio by paying $106 million for a 37 percent stake in Yahoo!. Yang launched two brand extensions that stemmed directly from the partnership. Ziff-Davis, a trade-press publishing company Softbank owns, put out a print magazine called Yahoo! Internet Life (400,000 readers) and created a personal computer information center on the Web called "Yahoo! Computing". Then on July 8th of 1998, Softbank Corporation invested an additional $250 million into the company, bringing its ownership of Yahoo! to 31 percent.
Yahoo! also got into television, as a provider of technology information for local newscasts. But most of its budding media ventures were on-line. In March of 1996, Yang launched "Yahooligans!", an on-line directory for children. According to Media Metrix, Yahoo!'s Internet web site has the largest share of child users from age two to eleven years old with 23.2 percent. In partnership with print outfits like Fodor's and the Village Voice, Yahoo! created travel guides for United States cities. Before traveling from New York to San Francisco, say, you'll log on to Yahoo!'s San Francisco Web site to find out what's happening in town and what people are saying about the hottest restaurants. The goal is to transform Yahoo!'s Web site into what Web-heads call "a destination" - a site where a visitor will stay to browse a number of pages, rather than just one. Keeping customers longer helps sell ads, and so does going local - Yahoo! bet that restaurants and shops would want to advertise on its city-based sites. The company also designed a number of international Internet web sites. Its news and stock-quote services have won acclaim, and the company has branched into areas as diverse as music, via a partnership with MTV, and a "chat" service that allows group yakking on-line. Yahoo! offers free e-mail services, driving directions, maps, original content, weather, sports, Yellow Pages, television program listings, real estate, health, travel, e-commerce, Internet auctions and classifieds - combined, all these give Yahoo! the feel of an on-line service. Want to house hunt, figure out a retirement plan, or research the Ebola virus? Head to Yahoo! It's even an Internet hangout for those craving a little rest and relaxation of, say, on-line blackjack, shopping for premium handmade cigars, or Koi pond supplies.
Yahoo!'s popular finance site, for instance, where Media Metrix says 1.5 million users each month spend roughly 24 minutes of their time, may alone be worth $100 million in revenues from advertisements and other commerce within a year, say analysts.
In October of 1997, Yahoo! paid $81 million for Four-11, a service that gives users free e-mail. The freebies, the branding, and the human touch combined to create an Internet web site that was more attractive than any other. What's more, Yahoo! is beginning to be viewed as a key part of the computing establishment. Chief operating officer Jeff Mallett points out that Compaq recently requested the right to preload on its desktop personal computers Yahoo! news and weather tickers that will scroll across the bottom of your monitor. Says Mallet: "Companies have come to see us as the hub of the Internet."
In January of 1998, Yahoo! announced a joint marketing deal with MCI Worldcom. The companies offer a Yahoo!-branded Internet-access service. Get your Internet access from MCI Worldcom, and you'll be headed Yahoo!'s way. MCI will collect the revenues; Yahoo! gets many more eyeballs and, if all goes well, a cut of the revenues. On June 8, 1998, the company paid $49 million for ViaWeb Incorporated, a maker of software for setting up on-line store fronts that allows Yahoo! to help small merchants get up and running and connected to the Yahoo! Internet web site.
And then there is expansion overseas. The global, international push is on. Yahoo! is currently operating in nine different languages in 14 countries, including Australia, China, and Germany. Yahoo! Japan is the most popular Web site in that country, where 10 million people are on-line. Overall, Yahoo! estimates that 30 percent of its traffic comes from outside North America.
The company is trying its hand at Hollywoodesque programming. On July 21 of 1998, for instance, more than 18,000 people asked more than 100,000 questions during an online discussion with teen heartthrobs Hanson. And during the recent World Cup, Yahoo!'s multilingual site drew an estimated 13.5 million people - 4 million from outside the United States.
Yahoo! leads the pack in personalization services with 25 million consumers registered on My Yahoo!, a feature that stores personal data, such as Zip codes and the occupations of people who choose to use it. That information, which is kept confidential, allows Yahoo! to tailor advertisements, merchants' wares, and other services to consumers who would be most interested in them.
Yahoo! plans to capitalize on knowing people's tastes by using push technology to tailor information and deliver Web material to the desktop. "I can picture Yahoo! as a big depository for people's preferences and consumption patterns," explains Koogle. "We will have the ability to notify people of things they should tune into."
Yahoo! hopes to suggest items for purchase based upon an individual's preferences and past buying behavior. It also wants to launch an online billing and buying service. Yahoo! already has a relationship with Visa International and is talking with Intuit Incorporated and others about the venture. "We can be a central buying service," explains Chief Operating Officer Jeffrey Mallett, 34. The company expects e-commerce to contribute a bigger piece of its revenue pie. Currently, e-commerce is expected to bring in about 25 percent of Yahoo!'s projected 1998 revenues. The rest comes from advertising. But Koogle expects that e-commerce will climb sharply within a year.
On Monday, October 12th, of 1998, Yahoo! Incorporated entered the direct marketing arena by agreeing to buy online marketer Yoyodyne Entertainment Incorporated for 280,664 Yahoo! shares, or $32.1 million, based on that Friday's closing price. The purchase expanded Yahoo!'s sales service portfolio to include direct e-marketing. Yahoo! planned a $2 million charge for the acquisition in its fourth quarter. Yoyodyne had four Web sites: EZSPree.com, an online shopping site aggregator, GetRichQuick.com, an online traffic distributor, EZVenture.com, a small business promotional site and ZDWheels.com, a site that links car buyers to automakers.
Auto industry news and personalized reports on cars' histories have been added to Yahoo!'s Auto area. The site also steers users to national listings of new cars and available inventories. Working with CarFax, Yahoo! Autos offers a free "Lemon Check," a check of a database of 70 million records to alert a potential buyer to problems in a car's past. Users enter the vehicle identification number and CarFax reviews records collected from motor vehicle departments, emissions inspection stations and auto auctions to determine whether a vehicle has had frequent problems or even repurchased by the manufacturer. Other additions to the site include the availability of credit reports, and discussion boards.
Yahoo! is now sitting on almost $400 million in cash. The Softbank money, not to mention Yahoo!'s stock, will come in handy as Koogle pursues a more aggressive acquisition strategy than in the past. With greater competition and a need to keep expanding its services, Koogle says more acquisitions are in the offing.
Staying on top on Internet time - where, as the saying goes, "if you break for lunch, you are lunch" - will be a greater challenge. Going forward, the key to success is a willingness to "obsolete yourself," Yang said. "Being nimble is the way to do it." The Company's mantra is "Stay Lean and Loose". This $11-billion company does not own a building and lacks a single closed-door office; some executives share cubicles. Asceticism is part of the method behind the Yahoo! mantra: Stay focused and make the tough decisions. Part of that focus means Yang and Filo have not let fame and fortune go to their heads. In one sign of focused frugality, Yahoo! lacks a genuine research and development department. Instead it finds partners with the best ideas and integrates them to form a superior product. Yang and Filo are even in the process of writing a book, just to get their name out.
Now, Yahoo! is promising to go where no portal has gone before - to telephones, televisions, pagers, handheld organizers, and the like. Koogle and his troops are working feverishly so that by early next year, Yahoo!'s zippy Web pages are accessible anywhere and from any device.
Even sooner, perhaps by yearend, the company plans to give its registered users the velvet-glove treatment by offering a so-called Yahoo! wallet. This would allow users to register their credit cards and shipping addresses with Yahoo!. Then, when they shop anywhere on the World Wide Web, they can take their virtual Yahoo! wallet with them to make purchases instantly. As with credit cards, Yahoo! will keep a tab and present a monthly online bill. "We want to build the biggest company we can," vows the 47-years-old Koogle. "We've taken the lid off."
Mallett and Koogle's no-nonsense approach has led Wall Street to worship Yahoo!'s management as much as it does its brand. Part of that edge may be an apparent immunity to the Valley virus of believing your own hype. Yahoo!'s management has learned to handle the expectations of a roller coaster stock ride. "They always talk the stock down," says Paul Noglows, a senior analyst with Hambrecht & Quist LLC in San Francisco. "When people are getting carried away, they try to keep the analysts on The Street realistic."
Forbes magazine writes, "With all the hype over the suddenly superrich founders of Internet companies, hearing Yahoo! co-founder Yang admit that he has no idea what his salary is, is refreshing. Only when pressed, does Yang guess that last year he was paid in the modest neighborhood of $60,000. He thinks his partner, Filo earned about the same. "This year I actually don’t know what we’re making," Yang says, and then deadpans, "I hope David doesn’t get paid more than I do."
That the creators of one of the Internet’s biggest franchises appear completely uninterested in the material rewards of success is as well documented as their penchant for bare feet and business cards inscribed with "Chief Yahoo!" But little has been said about the way this down-to-earth attitude ultimately helped them achieve their billions in the first place.
"The mark of any great company, whether it's Intel, Microsoft or Cisco Systems, is that management is not distracted by material success," says Moritz, who led the investment in Yahoo! for Sequoia Capital, Silicon Valley’s oldest venture capital firm and a Yahoo! board member. "Competitors are nibbling at Yahoo! from every direction, so the moment you get diverted, corrosion sets in and the company will wither. Through it all, (Filo and Yang) have both been the picture of grace, never forgetting where they came from."
A lovely testimonial from a backer who’s no doubt tickled pink about the $1.5 billion return his firm's $2 million total stake has reaped to date - a 75,000 percent return - thanks to Yahoo!'s staggering success. The kind words about the pair's modesty and humility are more than flattery. They point to the characteristics that keep the two entrepreneurs focused on creating order out of web chaos with a genuine enthusiasm that borders on zealotry. Their lack of self-absorption is what permits them to be consumed by Yahoo! much like a religion. This in turn has made the search engine a behemoth Internet brand.
Even that infamous messy and oft-written-about Stanford trailer conveyed their dedication to Sequoia’s Moritz when he first visited the pair. "The intense devotion to a pursuit that the state of that office indicated is something investors find very encouraging." That and the fact that the site’s computers were so busy with traffic, there was practically smoke coming out of the disk drives.
"We sat on the floor, and all I could think of was getting out of there quickly to avoid getting the parking ticket that was usually involved in any trip to the Stanford campus," jokes Moritz, a veteran of meetings at the university of Silicon Valley stars. "What struck me was how passionate they both were about maintaining the quality of their service."
No great business, however, has been built on focus and fervor alone. What struck Yahoo! President and CEO Koogle about the pair, he says, was that "these guys had a gut sense of how to translate what they'd created into a business. It's classic in Silicon Valley to see founders who are great technologists without that understanding. David and Jerry understand what consumers want, and I think that’s because they’re so grounded," says Koogle. "Jerry was raised in East San Jose by a single mother. They both have real backgrounds, and they’ve never lost that.""
Yahoo! executives have been in nonstop meetings (in sparsely furnished conference rooms bearing names such as Decent or Consistent - just so people will be forced to say that they are "in Decent" or "in Consistent") to discuss the company's tenuous future. "We are in the business of obsoleting Yahoo!," says Yang.
Yahoo! is sitting pretty: The company has respected senior managers, a cohesive branding strategy that it has been pushing for years, and perhaps most significant, money in the bank. But, with emerging, formidable competitors like America On-Line (America On-Line tried to buy Yahoo!, and when Yang and Filo said no, America On-Line said, "We'll crush you in two months"), Disney/Infoseek, Microsoft, Excite, Lycos, and NBC/Snap!, Yahoo! must nimbly morph itself into something new. But Koogle coolly notes that big seldom translates into speed or innovation. "Typically larger companies have had a hard time changing the paradigm," he says. "You have to ask, 'What is the probability of success?'"
For now, though, all hands at the company's spartan headquarters are focused on the bout before them. And they know that even one misstep will be seized upon by a legion of Yahoo! wannabes. "There's a vast universe waiting for Yahoo! to fall or stumble," says Moritz. Littman writes, "People forget that Yahoo! is a tiny company," says Moritz, "with few people, surrounded by far larger companies and competitors." True. But this is the Internet and the World Wide Web. Small and simple are beautiful. And money and size can't buy you cool."
Sincerely,
Mark Kuharich
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