In January 1994, Yang and Filo were electrical engineerings graduate students at Stanford University, when they created a website named “Jerry and David’s guide to the World Wide Web”.The site was a directory of other websites, organized in a hierarchy, as opposed to a searchable index of pages. In March 1994, “Jerry and David’s Guide to the World Wide Web” was renamed “Yahoo!”. The human-edited Yahoo! Directory, provided for users to surf through the Internet, became their first product and the company’s original purpose. The “yahoo.com” domain was created on January 18, 1995.
The word “yahoo” is a backronym for “Yet Another Hierarchically Organized Oracle” or “Yet Another Hierarchical Officious Oracle”.The term “hierarchical” described how the Yahoo database was arranged in layers of subcategories. The term “oracle” was intended to mean “source of truth and wisdom”, and the term “officious”, rather than being related to the word’s normal meaning, described the many office workers who would use the Yahoo database while surfing from work. However, Filo and Yang insist they mainly selected the name because they liked the slang definition of a “yahoo” (used by college students in David Filo’s native Louisiana in the late 1980s and early 1990s to refer to an unsophisticated, rural Southerner): “rude, unsophisticated, uncouth.” This meaning derives from the Yahoo race of fictional beings from Gulliver’s Travels.
In 1995, a search engine function, called Yahoo! Search, was introduced. This allowed users to search Yahoo! Directory. Yahoo soon became the first popular online directory and search engine on the World Wide Web.
Commercialization soon followed. Yang and Filo began selling advertisement space on their site in order to fund further growth. The duo soon realized that it was going to be too difficult to manage both the creative and the administrative aspects of the Yahoo! enterprise. They recruited Tim Koogle, also a former Stanford student, to come aboard as CEO. Prior to his arrival at Yahoo!, Koogle had put himself through engineering school by rebuilding engines and restoring cars and had then gone on to work at Motorola and InterMec Corporation.
One of Koogle’s first moves as the company’s CEO was to bring in Jeff Mallett as COO. Mallett was a former member of the Canadian men’s national soccer team who, at age 22, began running the sales, marketing, and business development aspects of his parents’ telecommunications company, Island Pacific Telephone, in Vancouver. Prior to joining the Yahoo! gang, he also gained experience in marketing at Reference Software and WordPerfect and acted as vice-president and general manager of Novell Inc.’s consumer division. Together, Koogle and Mallett began transforming Yahoo! from a homegrown list of interesting Web sites into the most popular stop along the information highway.
Koogle and Mallett soon became known as “the parents” at Yahoo!’s corporate headquarters. While Yang and Filo would arrive at work wearing T-shirts and sneakers, Koogle and Mallett preferred Italian silk ties. Many viewed the foursome’s working relationship as that of kids with ideas and the adults that they found to put these ideas into practice. In the August 6, 1998, edition of the San Francisco Chronicle, analyst Andrea Williams of Volpe Brown Whelan & Co. referred to Koogle and Mallett as “Yahoo’s equivalent of the Wizard of Oz, pulling the strings from behind the scenes. . . . Americans are captivated by the idea of two college kids like Yang and Filo starting an incredible service. But [Mallett] and [Koogle] have turned it into a business that advertisers and investors understand and respect.”
The majority of Yahoo!’s revenue came through banner advertising deals. In basic terms, Yahoo! sold space on its Web pages to companies wishing to promote their products to the demographic that frequented the Yahoo! site. The purchased space not only acted as a visual advertisement, as in a magazine, but often served as a link to the advertiser’s own Web site as well. Thus, a simple click on a banner ad by an Internet user could immediately transport that user to the advertiser’s Web site. In this sense, banner ads were somewhat superior to other forms of advertisement in that no other purveyor of advertising (television, radio, magazines) had ever led consumers to a company quite so immediately.
As another means of generating revenue, Yahoo! struck up distribution deals with Web sites that were looking to increase their own traffic. For example, Yahoo!, while not itself an online retailer, boasted a lot of user traffic at its site. An online retailer, however, might have goods or services to sell but a need to first increase traffic at its own site in order to sell those goods. A distribution deal would pair the two sites, with Yahoo! leading its customer traffic to the retailer’s site in exchange for a cut of the transaction revenues whenever customers made purchases. In this sense, Yahoo!, along with competitors such as Excite, Infoseek, and Lycos, came to be known as a “portal”—a gateway to the rest of the Internet.
Through banner advertising and distribution deals, Yahoo! was able to continue offering its services to Web surfers for free, as opposed to online services such as America Online (AOL), Prodigy, and Microsoft Network. The latter three charged monthly fees for the use of their offerings. Although these online service companies’ offerings were often more graphically intricate and visually pleasing than the Yahoo! site, they were essentially providing the same thing as Yahoo! while at the same time charging for the service. According to Jonathan Littman in the July 20, 1998 edition of Upside Today, “Yahoo, much like Amazon.com, built a natural Internet brand through its simple desire to satisfy customers.” It was not long before Yahoo!’s user base was comparable to that of industry giant AOL, even though its 1995 revenues topped off at only around $1 million.
In 1996, Yahoo! went public, offering shares of its stock for $13. In the first day of trading alone, the company’s stock price sailed to $43, and its estimated valuation was quoted at upwards of $300 million, more than 15 times its eventual 1996 revenues of approximately $20 million. Around that time, Yahoo! decided to start promoting itself in through advertising. Another former Stanford graduate, Karen Edwards, was brought aboard as the Yahoo! “brand marketer,” and she immediately lined up ad agency Black Rocket of San Francisco to handle Yahoo!’s account. Black Rocket was composed of four independent advertising executives who, ironically, owned no computers.
That spring, Yahoo! used almost its entire advertising budget for 1996 to run its first national-scale ad campaign on television. Luckily, the ad was an immediate hit. In the television spot, a fisherman used Yahoo! to obtain some baiting tips, then proceeded to land a number of gigantic fish. According to Jonathan Littman in a July 20, 1998 edition of Upside Today, “The faux testimonial captured the Net’s spirit without being the least bit techie.” From this campaign arose the company tagline “Do you Yahoo!?” Yahoo! executives hoped that the efforts would help their operation to blossom into a full-fledged media company.
As Yahoo! became a certifiable household brand name, the company began striving to further satisfy the needs of its users. Following the trend set by online service companies such as AOL, Yahoo! added services and features such as chat areas, Yellow Pages, online shopping, and news. The company also added a feature called “My Yahoo!,” which was a personalized front page for regular users that displayed information tailored to each user’s interests. The company also teamed up with Visa to create an Internet shopping mall (an idea that was later aborted), with publisher Ziff-Davis to create “Yahoo! Internet Life” (an online and print magazine which never came to fruition), and with Netscape to develop a topic-based Internet navigation service to be used with the Netscape Communicator browser software.
By 1997, Internet surfers were using Yahoo! to view approximately 65 million pages of electronic data each day. That year, Yahoo! acquired online White Pages provider Four11 for $95 million. The purchase gave Yahoo! access to Four11’s e-mail capabilities, which when integrated into Yahoo!’s offerings allowed the company to provide its users with free e-mail (Yahoo! Mail). By mid-1998, over 40 million people were logging on to Yahoo! each month, 12 million of whom had become registered Yahoo! e-mail users. To put those numbers into perspective, one can consider that at that time, only 30 million people were tuning in to network-leader NBC’s top-rated show ER each week, and the number of Yahoo! e-mail users was comparable to that of online service giant AOL.
In July 1998, Yahoo! received a $250 million investment from Japan’s Softbank Corporation, increasing Softbank’s share of the company to approximately 31 percent. Yahoo!’s market valuation at that time was $6.9 billion, which was much higher than that of most other media companies. As an emerging media company, Yahoo! began to move into the Internet access market that year through the launch of Yahoo! Online. To do so, the company initially formed a partnership with MCI WorldCom, but the arrangement deteriorated later that year. Subsequently, Yahoo! crafted a deal with communications giant AT&T to provide Internet access through AT&T’s WorldNet service.
Also in 1998, Yahoo! replaced Digital Equipment’s Alta Vista with California-based search engine specialist Inktomi as the supplier of Yahoo!’s search engine. Yahoo! then purchased Viaweb, a producer of Internet software programs. The acquisition resulted in the posting of a one-time $44 million charge in 1998. Yahoo! planned to use Viaweb’s software to start a new service, which would allow its users to set up their own Web sites for the purpose of buying and selling goods online.
In October 1998, Yahoo! purchased Yoyodyne Entertainment for 280,664 shares of Yahoo! common stock. Yoyodyne added its permission-based direct marketing capabilities to Yahoo!, which also obtained the company’s database of consumers, valuable demographic information, and other Yoyodyne assets. Prior to the acquisition, much of Yoyodyne’s direct marketing was done through online games and sweepstakes at Internet sites such as EZSpree.com, GetRichClick.com, EZVenture.com, and EZWheels.com. Yahoo! announced that while those four sites would remain intact after the integration of Yoyodyne into Yahoo!, the former company’s overall brand would be phased out.
By the end of the year, Yahoo!’s user traffic had increased considerably since 1997, with Web surfers viewing approximately 95 million pages of information through Yahoo! each day, a huge increase from the previous year’s average.