Inventing Yahoo!

Jerry Yang (left) and David Filo

(COURTESY OF YAHOO!)

When the closing trading bell rang on April 12, 1996—ten years ago today—it was the end of what must have been a surreal day in the lives of two former Stanford University electrical-engineering students, Jerry Yang and David Filo. The company they had founded in a campus trailer only two years before had just raised $34 million by selling 2.6 million shares in an initial public stock offering, or IPO. Suddenly their tiny Internet search engine company, Yahoo!, was a major player in the business world.

The two had started down the path to Yahoo! by creating a bare-bones Web site in early 1994 named, simply enough, “Jerry and David’s Guide to the World Wide Web.” It was a list of links to Web sites that interested the pair, broken up into searchable categories and subcategories. By the end of 1994 their lists had been accessed by more than 100,000 visitors, racking up a million hits. Seeing business potential in their creation, the two founders incorporated their enterprise, renaming it Yahoo!—a whimsical acronym, they said, standing for “Yet Another Hierarchical Officious Oracle”—and went on the prowl for investors.

By April 1995 they had raised $2 million, and even more funding was secured by the end of the year. Meanwhile the site also began accepting advertising to make its Web pages generate more revenue. An IPO seemed the next logical step, and in the heat of the Internet-investment speculation fever sweeping Wall Street, the stock sold like wildfire. Yahoo! quickly became a catchword for Internet success. It was an amazing journey for a company that at the time had a mere 49 employees.

Soon the company set up Yahoo! Web sites geared specifically toward international markets (including Yahoo! Japan, Yahoo! UK & Ireland, and Yahoo! France), started a print magazine called Yahoo! Internet Life, and a wildly successful free e-mail service, among many other expansions. Yahoo! was a real force during the dot-com boom, and the money poured in.

But even in 1996 there were signs of trouble. At the time of the IPO, the company was reporting a loss of more than $600,000 for the previous year. Despite the influx of cash, within months Yahoo!’s stock price was down a whopping 44 percent from its IPO high, and like many other Internet firms of the time, it struggled hard to turn a profit. Nevertheless, Yahoo! continued to expand, and when the dot-com investment bubble burst in early 2000, the company was able to take the crushing financial hit and continue onward. Through many ups and downs, Yahoo!’s tenacity has paid off. It recently reported a 2005 profit of $1.2 billion—outperforming such worthy search-engine competitors as Google—thanks in part to its hiring of the former Warner Bros. executive Terry Semel as its new chairman and chief executive.

On its path to success, however, Yahoo! has also proven to be at the forefront of Internet civil-liberties controversy. In 2000 a French court ruled that the company was violating French law by allowing users to sell Nazi memorabilia on Yahoo! Shops Web pages accessible by French citizens; Yahoo! argued that this was a free-speech issue but eventually lost the lawsuit. More recently the company has been criticized for divulging information about one of its Chinese users to Chinese state security authorities, leading to the imprisonment of a dissident journalist in the Communist country. “To be doing business in China, or anywhere else in the world, we have to comply with local law,” Yang said. Such troubles just go to show what a major force Yahoo! is on the Internet—and likely will continue to be for years to come.

However, change happens so fast on the Web that no one can know how long any company can thrive there. Just look at how much change Yahoo! has been through already. By the end of 1994 its original incarnation had more than 100,000 visitors. Today the number is close to 3.5 billion.

—David Rapp has written about history for American Heritage, Technology Review, and Out.