August 30, 2002      The Times  www.timesonline.co.uk

Yahoo! founder inspired by a fresh approach by Abigail Rayner

EIGHT YEARS AGO Jerry Yang decided to quit his PhD in electrical engineering at Stanford University to mess around with a little understood and intangible thing called the internet. “I had a hard time explaining it to my mom,” says the man behind Yahoo!.

As one half of the brains trust that created the internet portal which now boasts 200 million users chats to me in his imposing offices in Sunnyvale, California, the decision seems a little more obvious.

True to the anarchic nature of the internet, the child of Taiwanese parents who moved to the US with his family when he was ten, explains there was no grand ambition behind the creation of what has become one of the best-known names on the web. Rather it was an accident born of two students’ efforts to avoid their studies.

“We had our fill of softball and golf, mountain biking and doing everything not to do the thesis. We’d always used the internet in academic work but that was the first time that we started to really pay attention to it,” he says.

Frustrated by their inability to access the information that was exploding on to the net, Yang and David Filo began piecing together a directory of their favourite web destinations, which they published so that others could use it.

There were plenty of other people doing the same thing, Yang says, but none seemed as committed to what amounted to a massive filing operation. Soon the pair were swamped by people who wanted their website to be listed on Jerry and David’s Guide to the World Wide Web.

“As you can imagine we are glad that we didn’t stick with that,” says Yang. The pair wanted something short and they looked for an acronym that started with “yet another”. According to Yang, while flicking through the dictionary: “Yahoo just stood out,” and not, as some might imagine, because of the energy and emotion it exudes. “It means somebody who is very uncivilised and we figured that was a perfect description of us.”

By late 1994 Yang and Filo were still operating Yahoo! from their university cubicles but they were so overwhelmed that they had to take it in turns to sleep. Around that time, Netscape, the internet browser, had become a company and it became clear to Yang that the net was going to take off. “I remember saying to David, ‘there’s no way we can keep this up — we’ll die’, and we started to think about getting other people involved.”

It was around that time that venture capitalists began calling. In early 1995, when names such as Lycos, Infoseek and Excite@Home were receiving funding, the pair agreed to take on some money from Sequoia Capital. “I said to David, ‘look if other people are willing to fund us as a business we should start to convince ourselves of it.’ That was when we realised it was serious.”

Having made that mental leap, Yang now has to convince the rest of the world that Yahoo! is a viable business. Originally, the Yahoo! business model borrowed heavily from that of television and radio services that offer free content funded by advertising. But two years ago, the bottom fell out of the advertising industry.

Many dot-coms didn’t make it; some, such as AOL and MSN, leant on their wealthy parents. Yang brought in Terry Semel, a former Warner Bros co-chief executive and hard-nosed traditional businessman. As CEO, Semel was charged with a task that has confounded the industry since the internet was born: how to make people pay for it.

Little more than a year on, Yahoo! has added more than 20 premium services and persuaded one million users to cough up. Yahoo! lonely hearts can post a personal ad for free but it costs $20 (£13) a month to reply; the company charges $14.95 per astrological answer, $9.95 a month for real-time stock quotes and $4.95 a month for archive searches.

It seems to be working. Last month Yahoo! announced its first quarterly profit in six quarters. It was a modest yield of $21.4 million (£14 million) but a vast improvement over the $48.5 million loss the company reported a year earlier. Semel has forecast that paying users could reach two million by the end of the year.

In the wake of the merger of AOL and Time Warner and as dot-coms floundered, many speculated that Yahoo! would merge with a more traditional media company. Yang is happy for Yahoo! to remain independent as long as it makes sense but cannot rule out a takeover. “We are working for shareholders, so if that’s what it means to maximise value we have to consider it.

“But from my perspective and I think this is Terry’s as well, we believe the opportunity ahead of us is pretty big.”

Part of that confidence comes from his passionate views about the part Yahoo! has to play in the world of broadband, which fuels consumption because patrons are willing to pay for speed, efficiency and reliability — all valuable commodities that were maddeningly scarce in the early days of the internet.

“If you look at the way people pay for the internet today, a lot of the money is going into internet access. People are willing to pay more for speed and I think part of our business model is that, as the price of access becomes more competitive, it comes down to developing better services, better applications and content.”

It is at the core of what he believes is the next phase of the internet and it will also facilitate the company’s strategy to offer more profitable “bundles”, where people can get a discount for signing up for more than one service.

Yahoo! will roll out its DSL internet access service with its broadband partner, SBC Communications, this year. The service will combine some traditional Yahoo! attributes with new ones to take advantage of broadband’s “broader pipes”.

Even though advertising has proved to be a fair-weather friend, Yang believes it is still central to Yahoo!’s game plan. “Yahoo! intends to grow even in our advertising and marketing-based businesses, even if the market continues to be flat or not visible.”

Advertising as a percentage of Yahoo!’s revenues has fallen to 60 per cent in the most recent quarter, compared with 85 per cent advertising a year ago. But this reduction is not a long-term goal. “If advertising rebounds it will probably be a bigger percentage of our revenue but if the other things grow faster then it will probably become more diversified. We are focused on making sure we have three or four good revenue streams that are all growing and which one is what per cent as they fall out is not as big an issue.”

The talk of advertising, shrinking percentages and revenue streams is indicative of the inevitable change in the culture at Yahoo!. Consumer groups have been irked by Yahoo!’s shift from independent provider of information to vendor of placements priced by their prominence and of more intrusive pop-up adverts.

Other changes are noticeable only from within. Semel reined in the profligacy born out of the internet boom years, scaling back Yahoo!’s legendary parties, cutting staff and curtailing a desire to go after ideas merely because they seemed “cool”.

Yang insists that despite the changes the company is united and that there are no cultural divisions between the anoraks and the suits. “It has to be a very horizontal and open environment so that people talk to each other and have mutual respect. I think we’ve done a good job of blending the traditional world experience that we’ve got through our new management team as well as the internet culture of believing we can change the world.”

Despite the progress, the negatives still seem to outweigh the positives. Investors seem wary of all US corporations after so many scandals and Wall Street analysts are still calling Yahoo! stock — which hit $200 a piece in March 2000 but which now trades at about $10 — overvalued. As if to illustrate this, on Wednesday, the US arm of Japan’s Softbank reduced its stake in Yahoo! by half to about 7 per cent.

The fall in the stock price is mirrored by the fall in Yang’s wealth. In 2000 Forbes magazine listed Yang as America’s thirty-eighth wealthiest man, worth a staggering $6.4 billion. A year later he only just managed to creep into the survey, worth a meagre $625 million.

Yang insists Yahoo! is here to stay. “Building a business today is more fun than even in the early days because this feels real. This is my first job and hopefully my last. I hope we have the privilege of doing it for a long time. I hope this is a company that lasts way beyond me and everybody else that’s here today and that’s a lot to ask for but that’s what we are working towards.”