David Filo & Jerry Yang

David Filo & Jerry Yang
Founders of Yahoo! Inc.
Founded: 1995

“This company isn’t really about technology; it’s about solving people’s basic needs for efficiency, effectiveness and simplicity.”–Jerry Yang

“Don’t put off until tomorrow what you can postpone to the day after.” This parody of the old proverb could very well be the motto of Yahoo! Inc. co-founders David Filo and Jerry Yang. By following such a philosophy of procrastination, they not only created the world’s most popular (and most profitable) World Wide Web search engine; they also made themselves multimillionaires in the process. Well, sort of.

The story of Filo and Yang’s success begins at Stanford University, where the two doctoral candidates were involved in a project to create computer chips using computer-aided design. Both found the work less than exciting, and when their faculty supervisor took a sabbatical to Italy, the duo decided to take a little sabbatical of their own. Forsaking their academic work, they began spending most of their time surfing the Web.

This proved to be a delightful diversion from their engineering studies as they surfed the Net in search of new and exciting sites to explore. There was only one problem. Even though there were plenty of interesting sites, due to the Internet’s lack of formal organization, finding them was akin to searching for a book in a library without the aid of a card catalog.

Time and again, Filo and Yang would find a site that interested them, then would be unable to locate it the next time they logged on. Frustrated at their inability to keep track of the good places they’d visited, Filo and Yang came up with the idea to provide a kind of road map for online users. They put together a list of their favorite sites, organized them into topics, then designed a search engine that made finding the right site as simple as typing in the right keywords.

In early 1994, they began posting their list online as “David and Jerry’s Guide to the Web” so their friends could access the informal guide to “cool” sites. As the list of sites grew, Filo and Yang began dividing them into categories, then subcategories to provide more structure and easier searching. Later that summer they re-dubbed the system Yahoo!

As Yahoo!’s list of sites expanded, so did its number of users. By November 1994, 170,000 people a day were visiting the site. By 1998, Web surfers were dropping into Yahoo! at the rate of more than a million a day. Internet access service giant AOL offered a buyout. Microsoft and Prodigy approached them with partnership deals. But Filo and Yang refused them all. They weren’t in it for the money. They were doing it for the sheer enjoyment of it.

Stanford, however, was not enjoying Yahoo!’s tremendous success. Claiming that Yahoo! was tying up their network with all the traffic and regularly crashing their system, the university suggested Filo and Yang move Yahoo! off campus. Given the bum’s rush, Filo and Yang began considering turning their hobby into a business. “It was a really gradual thing, but we’d find ourselves spending more and more time on it,” Yang told the San Jose Metro. “It was getting to be a burden.” In fact, Filo and Yang were putting up to 20 hours a day into their labor of love, and not making a dime.

At the end of 1994, Yang recruited Tim Brady, a college friend who was then attending Harvard Business School, to devise a prospectus for Yahoo! that he and Filo could use to lure in potential venture capitalists. It didn’t take long for someone to take the bait. That someone was Mike Moritz of Sequoia Capital, the same venture capital fund that financed several other Silicon Valley start-ups, including Apple, Oracle and Cisco Systems. Despite his reservations about the venture-among them his doubts that the grungy young co-founders could manage a company, the fact the Yahoo! had yet to make any money, and not to mention its goofy name–Moritz staked $1 million on the fledgling Web directory.

Armed with Moritz’s money, Filo and Yang took a leave of absence from Stanford, printed business cards identifying themselves as Chief Yahoos, and hired a staff of graduate school friends and interns. Realizing that neither of them had any real business experience, the Chief Yahoos hired former Motorola Inc. executive Tim Koogle as company president and CEO.

By the summer of 1995, thanks to a series of shrewd business moves and timely events, Yahoo! had become one of the hottest high-tech properties around. Filo and Yang began selling advertising on their page. Initially, the move prompted a hail of criticism from Web purists who accused Filo and Yang of “selling out.” But the criticism quickly died down as advertising became a regular feature on the Web. In a second groundbreaking move, Yahoo! teamed up with London-based Reuters news service so users could access news wire stories online with the click of a mouse.

Over the next two years, Filo and Yang added new enhancements that further increased Yahoo!’s popularity. Their innovations included links to weather, stock quotes, phone listings, sports scores, interactive maps, flight schedules, “My Yahoo ” (a feature which enables users to create their own customized Yahoo! page with the particular information and links that interest them), and “Yahooligans”–a special version of the directory tailored to children ages 8 through 14.

Yahoo!’s popularity was not lost on investors looking for ways to turn a profit from the booming interest in the World Wide Web. When Yahoo! made its first public offering on April 12, 1996, shares originally priced at $13 rose as high as $43 before closing at $33, making it the second-largest first-day gain ever recorded on the NASDAQ exchange. At the end of the day, Yahoo! was valued at $850 million. Although its stock prices fluctuated, Yahoo! remained the only search engine company to post a profit until March 1998, when its closest competitor, Lycos, boasted its first profits.

By 1999, Yahoo! was making money not only by charging for ad space on its pages, but also through special co-op deals with online retailers. The arrangement entitled Yahoo! to a flat fee and a commission on any sale made to a customer Yahoo! directed to their site. Yahoo! also established a partnership with MCI and became an Internet service provider as well as an information provider.

Even though they are now the owners of a controlling interest in a multimillion-dollar business concern, Yang says little has changed in his and Filo’s lives. Yang has bought himself a nice home in Los Altos, California, and a new Isuzu Rodeo, while Filo still drives a beat-up, junk-filled Datsun to the company’s headquarters in Santa Clara, California, where his office is littered with empty cans, Rollerblades and assorted CDs.

As for the dynamic duo’s future with Yahoo!, Yang says, “Both Dave and I realize that we want to be contributors to Yahoo! The inevitable fact is that we want the company to get to the point where it perhaps doesn’t need us.where it’s on its own. At that point, it will have grown enough for us to say we’re successful.”