Sitting on Top of the WWWorld
SANTA CLARA, Calif. — With more than 26 million visitors a month and a market capitalization of nearly $10 billion--about twice the worth of rivals Netscape, Lycos, Infoseek, Excite and CNet combined--Yahoo can credibly lay claim to the throne as king of the World Wide Web.
Drawing nearly half of Web users, Yahoo represents the closest thing to a nexus for the new age of communications. How did a start-up do it in less than four years? And in the ephemeral realm of the Internet, can such a record possibly last?
Santa Clara-based Yahoo was founded on one big idea: A way to organize Web sites into coherent categories, called directories, that make the far-flung Internet navigable.
“Our first idea was not even so great,” notes the understated Jerry Yang, a bluejean-clad 29-year-old who, with fellow Stanford graduate student David Filo, came up with Yahoo’s directory scheme.
Such modesty derives from the simplicity of directories--so simple that by 1994 no one else had figured them out. Yang and Filo devised the Web’s first table of contents. The simple idea was great enough to give each co-founder a net worth of nearly $1 billion.
Now all the Web portals--giant sites that offer search tools, e-mail, shopping, financial services, chat, and online interest groups known as “communities”--vie for supremacy with their own categorization schemes. But unlike Yahoo, which employs a team of professional surfers to find the Web’s top sites, the others use only Web-scouring software “robots” to tirelessly view and catalog.
“It’s difficult to substitute for human intelligence in search results,” said Chris Charron, an analyst with Forrester Research in Boston. “Users find what they’re looking for at Yahoo.”
Human intelligence thrust Yahoo into the lead. A rapid roll-out of e-mail, comprehensive financial services and a marketing effort that made Yahoo the Internet’s first household brand kept the young company on top.
Staying there on Internet time--where, as the saying goes, “if you break for lunch, you are lunch”--will be a greater challenge. Going forward, the key to success is a willingness to “obsolete yourself,” Yang said. “Being nimble is the way to do it.”
Analysts agree. They think Yahoo--a rapidly growing but still-small company with fewer than 700 employees--may stay more nimble than heavyweight competitors like Redmond, Wash.-based Microsoft and America Online in Dulles, Va. A demonstrated ability to respond to change and even to write the rules for success on the Web has made Yahoo a darling of users, pundits and Wall Street alike.
One key to staying responsive, says Chief Executive Tim Koogle: Never let a breathtaking stock valuation distract from Yahoo’s business. As a result, Yahoo is profitable, unlike many overnight Internet sensations. It took in $53.6 million in the last quarter, earning a $16.7-million profit, handily beating analyst expectations, as it has every quarter since going public.
Company’s Mantra: Stay Lean and Loose
This $11-billion company does not own a building and lacks a single closed-door office; some executives share cubicles.
“We’ve always worked to build a company that knows how to make money,” said Koogle, at 47 the graybeard of a management team whose other members are in their 20s and early 30s. “If you don’t build that desire into the culture of the company, it gets harder and harder to do it later.”
Asceticism is part of the method behind the Yahoo mantra: Stay focused and make the tough decisions.
Part of that focus means Yang and Filo have not let fame and fortune go to their heads. Yahoo’s employees laud the founders for “lifestyle leadership.” Most people might not be inclined to idealize Filo’s 100-hour weeks or his cubicle--piled high with paper, dirty clothes and shoes, and assorted tchotchkes.
But in fairness, “lifestyle leadership” seems to be shorthand for when twentysomething billionaires live and talk modestly and leave day-to-day management to the pros. Yahoo cubicles--cluttered with the toys and trinkets of the video game set--might put off conservative middle America, but they’re commonplace at Silicon Valley start-ups, a culture that has served Yahoo well.
In one sign of focused frugality, Yahoo lacks a genuine R&D; department. Instead it finds partners with the best ideas and integrates them to form a superior product.
But is that product better or just better known?
“Part of the beauty of Yahoo is its simplicity--a clear, uncluttered, fast home page,” Charron said. Several competitors have copied that approach, in contrast to the prevalent trend of Web sites loaded with fancy graphics that cause navigational confusion and sluggish performance.
“Yahoo understands better than anyone what the average user wants from an online experience,” said Paul Noglows, an analyst with the San Francisco-based investment bank Hambrecht & Quist, citing Yahoo Finance as a prime example. “There’s not a lot you can’t do there. This is why it’s the most frequented business site on the Web today.”
But to keep winning the portal wars, Yahoo must keep pace with fast-changing user demographics.
“As people become more seasoned and acclimated to the Web, they have less use for services like Yahoo” that package content, said Patrick Keane, analyst with Jupiter Communications in New York.
Yet a massive influx of Web neophytes stimulated by sales of dirt-cheap PCs means that the hand-holding aspects of Yahoo and other portal sites will be increasingly in demand.
Competitor Lycos Tries a Different Strategy
While Yahoo is working to promote a single brand as a universal entry point to the Web, Waltham, Mass.-based Lycos approaches these divergent trends with a network of separately branded sites. These include Tripod (a compilation of personal Web sites with a more youthful demographic profile); WhoWhere (white pages and e-mail); and the recently acquired Wired Digital (news and culture).
“We’re taking what we see as the best aspects of a network television model--massive reach--and a cable television model--better audience demographics and segmentation--and trying to apply it to the Web,” said Bo Peabody, Lycos’ vice president of network strategy.
The strategy may have merit, at least in raw numbers. Among home users, Lycos shows about a 61% improvement in reach from February to August, to 13.4 million visitors per month, while Yahoo’s home audience grew 17% to 18.5 million, according to New York-based audience measurement company Media Metrix.
Meanwhile, pressure is building on Yahoo’s human-intelligence-based system of building directories. It faces a daunting challenge keeping pace as the Web scales upward exponentially. The competition is betting they can do better without hiring a huge team of surfer librarians.
Lycos uses a hybrid search technology, or “engine,” called WiseWire that combines human and machine intelligence. Lycos also solicits viewers’ “votes” on a particular site and feeds them into its search results. Redwood City, Calif.-based Excite adds content to the search results window--such as news articles and stock quotes.
Yahoo may eventually adopt new technologies, including natural-language methods, such as that pioneered by new search service Ask Jeeves Inc., based in Berkeley, in which a user types a question rather than clipped search terms.
But for now, the company faces a bigger problem: meeting the monumental expectations generated by its early success.
The company’s share price, which has maintained its anti-gravity trick while other technology stocks have dropped like rocks, makes a few analysts skittish. Noglows, while bullish on Yahoo’s prospects, has a hold on the stock because he can’t justify a valuation of more than $100 a share given the relatively small projected earnings for the company. His views seem to be validated as Yahoo lost about a fifth of its value in the Nasdaq retreat last week.
Unlike some other portals, Yahoo views independence as one key to delivering on investors’ high hopes. While Walt Disney has taken a major stake in Infoseek and NBC has invested heavily in Snap, Yahoo has shied away from this kind of partnership despite many offers.
“It’s basically power to the people,” said Jeff Mallett, 34, Yahoo’s chief operating officer, who says the company wants to remain an honest broker of information, even steering visitors to competitors when they offer the top information sources or services.
But Yahoo may learn what it means to face off against the likes of Disney and NBC during the next few months as the portals continue an advertising barrage to increase brand awareness. Some analysts say the marketing battle could help precipitate a shakeout, ultimately leaving only three to four broad-based consumer portals standing, down from eight or nine now.
Charron predicts that a declining share of ad revenue also could squeeze out competitors. The portals attract only 15% of all page views on the Web but earn 70% of advertising dollars. This will inevitably change, he said. Some portals “will end up as what most sites on the Web are now--very focused for a particular audience.”
Experts Say Yahoo Set to Survive Shakeout
E-commerce and business services will become a key revenue source. While Yahoo is strong in those realms, Netscape’s Netcenter portal has potential. Netcenter emphasizes business services that exploit Netscape’s software, including the recently announced ability to automate the construction of custom “vertical portals” for large companies that combine Netcenter services with a company’s own Web sites.
Netscape also enjoys a far-reaching deal with Qwest Communications International, designed to let customers manage all phone, fax and online communications via Netcenter.
Despite such competition, industry experts agree that Yahoo, along with Microsoft and AOL, will survive as dominant players.
To maintain that trajectory, Yahoo models itself as the media company for the next century--what Koogle calls “a global-branded network.” Like the TV networks, Yahoo is a content aggregator and distributor. Unlike the networks, it produces no original content. Instead, Yahoo wants to stamp its products with a recognizable voice.
This works most clearly in directories. “These are profoundly editorial decisions, not just a matter of dumping things into buckets,” said Srinija Srinivasan, 27, the company’s fifth employee with the title of “ontological Yahoo.”
“Ninj,” as her friends call her, manages the building of directories. “How we choose to categorize information helps define how users perceive it,” she said.
Yahoo’s surfers try to set aside bias as they select and rank sites. Still, as Yahoo’s power grows--it already has a greater monthly market penetration than “ER,” the nation’s top-rated television program--the idea of Yahoo as an important media network might give some consumers pause.
It’s one thing to have a crew of scruffy, workaholic Gen-Xers with little adult supervision writing code and setting a technology agenda. It’s another to have them deciding what represents the best of the Web for tens of millions of people.
But Yang knows that his company has to be a big tent. “If we come off as exclusionary, we’ve failed,” he said. “We don’t envision doing everything, but we’re building something people can trust.”
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Charles Piller can be reached via e-mail at [email protected].
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Power Portals
While Yahoo trails America Online in Web audience rankings, AOL has a head start in the race by counting its base of 13 million members. Many analysts view Yahoo as the strongest pure-Internet portal brand.
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Major Web portals and chief Web address: America Online; www.aol.com
Unique or notable features: Longest track record as content aggregator; collects billions in Internet service fees
Pct. reach, Aug. ‘98*: 47.2%
Visitors**: 27,304,000
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Major Web portals and chief Web address: Yahoo; www.yahoo.com
Unique or notable features: Highest market capitalization of any Internet company; widely considered tops in search, finance and news.
Pct. reach, Aug. ‘98*: 46.9
Visitors**: 27,108,000
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Major Web portals and chief Web address: Microsoft MSN; www.msn.com
Unique or notable features: Has so far failed to consolidate portal as top dog, despite strong travel, auto and local entertainment services.
Pct. reach, Aug. ‘98*: 46.2
Visitors**: 26,672,000
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Major Web portals and chief Web address: Lycos; www.lycos.com
Unique or notable features: Pursuing an acquisition strategy, linking separately branded sites that serve different demographic segments.
Pct. reach, Aug. ‘98*: 37.5
Visitors**: 21,671,000
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Major Web portals and chief Web address: Netscape Netcenter; www.netscape.com
Unique or notable features: Maker of the leading browser and big purveyor of Web commerce technology and services.
Pct. reach, Aug. ‘98*: 32.3
Visitors**: 18,687,000
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Major Web portals and chief Web address: Excite; www.excite.com
Unique or notable features: Strong personalization, health and search features; default Web page for Dell PC buyers.
Pct. reach, Aug. ‘98*: 29.6
Visitors**: 17,094,000
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Major Web portals and chief Web address: Infoseek; www.infoseek.com
Unique or notable features: May help produce or be folded into a forthcoming Disney portal to be named Go.com.
Pct. reach, Aug. ‘98*: 22.8
Visitors**: 13,174,000
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Major Web portals and chief Web address: Altavista; www.altavista.com
Unique or notable features: Owned by Compaq ; strong in search, now including natural-language search, but lacks breadth of other portals.
Pct. reach, Aug. ‘98*: 16.6
Visitors**:9,595,000
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Major Web portals and chief Web address: Snap; www.snap.com
Unique or notable features: Offers best range and depth of technology-related information
Pct. reach, Aug. ‘98*: 12.1
Visitors**: 7,105,000
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*Portion of Internet users who visited Web sites owned or controlled by a company. **Includes both home and business users during August.
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Sources: Media Metrix, Los Angeles Times
