Yahoo: A Retrospective of Microsoft's Acquisition Target

Microsoft has offered to buy Yahoo for US$44.6 billion -- but how did a company that started so small come to be worth so much? That's a story that began in the early days of the World Wide Web, when people were struggling to keep track of the new world of multimedia it offered them.

Early Surfing Habits

In those days people viewed the Web through NCSA Mosaic , a browser that helped popularize the Web; they could check the level of coffee in the Trojan Room coffee machine at Cambridge University using the first Web cam on the Internet, and they could read the headlines on the NandO Times, one of the first "new media" operations.

Yahoo first appeared on the Internet in 1994 when Jerry Yang and David Filo were still at Stanford University -- something that was immediately obvious from the site's first address: . It wasn't until later in 1994 that the easier-to-type came along, but even then it redirected to the Stanford server.

But back in 1994 people weren't that concerned about clunky addresses. They'd been living with the text-based Internet for years and the Web with all of its richness had people hooked. Yahoo stepped in to solve an early problem: how could users keep track of the fast expanding World Wide Web.

What Yang and Filo built was revolutionary for the time: a hierarchical index of the Web divided into subjects like "computers," "government" and "society and culture." (The service lives on today as the Yahoo Directory) 

Yahoo's Fan Base Builds

From the early days it was clear that users loved Yahoo.

"David Filo and Jerry Yang should be given a Medal of Honor, then locked in a room and never allowed to get lives: they are already doing an excellent job of categorizing the Web with Yahoo's Hostlist," wrote one user in response to a September 1994 Usenet posting asking for a directory of Web sites.

Word of the service spread through the Internet, often from enthusiastic users passing on details of the resource, but sometimes with a little promotion by Yang and Filo themselves.

"We have a pretty comprehensive listing at the Yahoo Database," wrote Yang on Usenet in September 1994. "It's an attempt to be organized by subject (although not very well) -- but we are working on it. Searchable too," he wrote.

All the time Yang and Filo continued to live everyday lives, unaware they would become billionaires in less than a decade. A look at old Usenet postings reveals Yang campaigning for fair funding for college students while Filo was trying to trade World Cup tickets online.

Raising Yahoo's Profile

As 1995 began, Yahoo was serving up 200,000 pages per day from its index of about 25,000 Web sites, and was about to hit the big time. During that year Yang published a book about Yahoo and earned an interview on National Public Radio's Fresh Air. Both cofounders appeared on a PBS Frontline TV documentary about the Internet called "High Stakes in Cyberspace."

"What Yahoo does is make your wasting your time easier. It wants you to get where you want to go to waste time faster so you don't have to waste time wasting time," is how Yang explained Yahoo in the documentary, according to a transcript of the show.

The publicity came just as thousands of people started piling onto the Web and new sites were popping up faster and faster. As a result by the middle of June 1996 Yahoo had jumped to 9 million pages per day and in the third quarter of that year traffic for the three-month period hit 1 billion page views.

Investment in the popular and fast growing site wasn't far behind its rising popularity. In April 1995 Sequoia Capital provided Yahoo with two rounds of venture funding just as Yang and Filo decided to put their studies on hold and start running Yahoo full time.

"We [hadn't] done anything on our research in the last few months," Filo told CIO magazine in a June 1995 interview. "We had to decide which thing to pursue, and we're not really interested in what our PhDs were in."

An initial public offering and international expansion was next on the cards, and by the end of 1996 Yahoo had sites in the U.K., Germany, France and Japan, and had launched the Yahooligans service for kids.

Early Rivals Emerge

Yahoo wasn't without competition back in those days.

WebCrawler was getting popular and Lycos was also making a name for itself, but none of the search engines at the time fully satisfied people. So it was common to switch allegiances whenever a better service came along. In 1996 many Internet users did just that when sites like Inktomi and Digital Equipment's Alta Vista launched.

But Yahoo managed to endure the competition, possibly because its directory often was a better place to find links that the early search engines.

Microsoft Joins the Fray

Microsoft was making a late start on the Internet, launching MSN as a dial-up Internet access service in the U.S. in 1995. It wasn't until a few years later that MSN was relaunched as a portal and still more years until Microsoft put its full weight behind developing Internet-based products and services.

Like Yahoo, Google also grew out of Stanford University but didn't start to achieve recognition until the end of the decade. Within a few years, however, it had grown to become the leader in online search.

Today Yahoo is one of the most powerful online media brands in the world. It has more than 500 million users in numerous countries and its name is recognizable to billions of people.

recommended for you

Yahoo Search: RIP

Read more »

Subscribe to the Best of PCWorld Newsletter