Yahoo!

How two Stanford students created the little search engine that could

Stanford University: Hoover Tower Credit: Geri Lavrov/Getty

Jerry Yang and David Filo are sitting in a TV studio at Stanford University, in California, waiting to shoot a remote segment for CBS News Up to the Minute. The tired young entrepreneurs slump in a pair of cheap desk chairs set against a blank blue wall, facing an unblinking camera lens. Yang, earphone in one ear, black wires taped down his back, manages a smile; he is, after all, the salesman or the pair, the guy who takes the message of Yahoo! out to the public. Filo, similarly wired and taped, looks utterly trapped, like a downed American pilot in a forced videotape confession.

Out in the ether, anchor Nanette Hansen asks the first question, and Filo, dressed in his customary shorts and T-shirt but for once actually wearing his sneakers, straightens up to respond. "Well," he starts, "we were happily on our way to getting our Ph.D.s...." And then he launches into the tale that the two have been telling since April, when they took leaves of absence from Stanford and turned their pet project into a company that has the smartest money in the country watching.

Theirs is a fable becoming almost common in Silicon Valley in these days of overheated expectations for the Internet. A couple of guys with pocket protectors and a glint in their eyes invent some garage software, round up some venture-capital financing and go on not only to make millions but also to change the outlines of the world, at least technologically speaking.

The Yahoo! version of the fable began in a trailer at Stanford, where Yang, 27, and Filo, 29, shared a tiny office that contained two desks, two computer workstations, several sets of golf clubs and a sleeping bag they took turns using. In the spring of 1994, Yang began fooling around on the World Wide Web, an electronic network of "pages" linked by hypertext. Like thousands of other grad students, he'd put up his own home page — a picture of himself with a score card from Stanford's golf course, his name spelled in Chinese characters and links to sumo-wrestling pages.

As anyone who has surfed it knows, the Web is a place of anarchic creativity — and just plain anarchy. So Yang and Filo, who were supposed to be doing research into the computer-aided design of circuits, came up with an idea: a Web directory. They hacked a tool that let them categorize Web pages and link them within hierarchies. They called it Jerry and David's Guide to the World Wide Web, and they made it available — free on Stanford's system — to anyone in need of a road map.

"It just required putting time into it," says Filo, who is blond and thin, and raised in Louisiana but speaks with no trace of a drawl. "And we had enough of that." Especially once their adviser went to Italy on sabbatical.

To create Jerry and David's, the two grad students had to write some code — geek shorthand for programming — but they spent the bulk of their time adding pages and figuring out how to link them within an overall structure. They ended up with a system with subcategories like "Hard to Believe," "Cool Links" and "Interesting Devices Connected to the Net" that might horrify students of library science but made perfect sense to them. "Under Dewey, where would we put the 'Fish Cam'?" asks Filo.

Sometime that summer — the date is hazy, but it was definitely at 2 a.m. — Jerry and David's Guide became Yahoo!, or Yet Another Hierarchic Officious Oracle (in part, a hacker's pun on a Unix program called YACC, or Yet Another Compiler Compiler). Yahoo! was not the only online Web guide, but it was the only one that categorized information in addition to offering a search function and an attitude. And you didn't have to subscribe to it as you do InfoSeek. The Wall Street Journal and the Times of London raved about Yahoo! By November the Web site was recording 170,000 hits a day, representing some 10,000 users; by February 926,000 hits were being recorded, representing 80,000 users per day.

But the online traffic was overwhelming Yang and Filo's computers and their lives. That's when the story goes into fast forward: a buyout offer from America Online, inquiries about partnering with Prodigy and Microsoft, among others (all politely declined), followed by a $1 million investment from Sequoia Capital. In May the Yahoos moved out of their trailer and into a nondescript building of office suites. They printed business cards identifying themselves as Chief Yahoos. Filo left his dorm room. Yang bought an Isuzu Rodeo and a cell phone. They hired a bunch of ex-gradstudent friends and a handful of college interns. They did an executive search and hired a CEO, probably the only person on staff who owns both a tie and a pair of hard-soled shoes.

And on Aug. 1, 1995, they launched the New! Improved! Yahoo!, complete with bright neoprimitive graphics, a streamlined categorization scheme, headline news from Reuters and, oh, yeah, right there under the splashy new logo, advertising. Yahoo! was in business.

Well, sort of. For, in fact, it is almost noon on Aug. 1, and Yahoo! doesn't actually have any ads. That is to say, the space has been sold — to MCI, MasterCard and three other advertisers — the graphics have been created, the links are in place. It's just that no one has had the time to do the bit of programming necessary to make the whole thing work. Because everything on the World Wide Web is connected to everything else, even a small change can ripple through the Web, creating a maddening series of dead ends for surfers — which is what Yahoo! users are getting at the moment. To make matters worse, the news from Reuters has turned into pages full of meaningless characters. Like most of us who use computers, Yahoo!'s advertisers are going to have to learn to wait.

There is something deeply ironic about the fact that David Filo creates order on the Web for a living. His office is chaos; leaning against the wall is a white board covered with a to-do list, and a pair of purple Rollerblades and kneepads are barely visible beneath an avalanche of detritus — copies of Micro Times and the Wall Street Journal, crumpled cans of Coke and Mountain Dew, photocopied pages of pie charts showing the results of Yahoo!'s recent online survey. On the floor near a stereo and scattered CDs is a blue-plaid polyester blanket, which Kellye, the office manager, bought for Filo. Although his new apartment is all of 300 yards from here, no one can remember the last time he slept there. He hasn't even left the office in three days.

"Did we move 'Animals'?" Filo asks his office mate, Technical Yahoo Donald Lobo. Lobo, who is in charge of rearranging all the categories of Web pages, doesn't respond. He's asleep in his desk chair, head turned slightly to one side. "Lobo, there's no time for sleeping," says Filo, nudging the programmer, a native of Bombay, India. Lobo sits up.

In the Marburg window on Filo's computer screen (the other Yahoo! computers are named Leprosy, Anthrax, Ebola and Hanta), a counter registers the number of hits second by second as Web users connect to Yahoo! He pauses and looks at the ticking numbers. Two hundred thousand during the past hour.

Jerry Yang is on the phone doing yet another interview; a crew from KTVU, the local Fox affiliate, has arrived, but Filo's on his way out of the office to reboot one of the machines kept over at Netscape Communications Corp., the makers of the dominant Web browser, Netscape Navigator. Early on in Yahoo! history, Yang and Filo struck up an alliance with Netscape Wunderkind Marc Andreessen (Page 22), who not only linked Yahoo! to Netscape's browser but lent the Yahoo! partners equipment and phone lines when it became clear Yang and Filo had to move off the Stanford campus.

Filo walks by the chief of marketing's shiny black Toyota Celica convertible to his ride, a battered Datsun filled from top to bottom with junk, including enough lumber to build several sets of bookshelves. ("If we were living in the 16th century, David would be a monk," says Yang of his partner's asceticism.) He bought the car while in high school in Lake Charles, La. As a student at Tulane University, he totaled it, bought it back from the insurance company for $300 and then had it rebuilt at a local prison, where the inmates were studying auto repair.

A few blocks away, Filo lets himself in a backdoor of Netscape and heads into the computer room. In one corner are Yahoo!'s machines: four Silicon Graphics workstations – sleek blue boxes the size of stereo receivers, each one worth about $20,000 – plus four Pentium PCs (another $16,000 in hardware), all tied into a T3 line, which carries 45 megabits per second over a fiber-optic line leased from MCI The phone line alone would cost Filo and Yang $20,000 a month if they were paying for it. But until just last month, when Yahoo! moved the entire operation over to its own building, they weren't.

Although it has always seemed free to users, the Net is actually an expensive proposition to maintain. Created in the '60s by the Defense Department's Advanced Research Projects Agency, the Net was conceived as a data network capable of surviving nuclear attack. The folks at the Pentagon had two major requirements: that many users be able to send data simultaneously, and that no one central computer be in charge. That way, if the Soviets bombed Washington, the whole system wouldn't go down. By the 1970s, what had become known as the Internet linked computers at universities and research centers all over the world, letting scientists from Buffalo, N.Y., to Buenos Aires, Argentina, communicate almost instantaneously via e-mail. As long as most users were students and professors, the Net's costs were hidden in undergraduate tuition bills and federal subsidies, and the Internet was a paradise of noncommercialism.

"Eight years ago, even mentioning trademarked names was considered a no-no," says Clifford Stoll, author of Silicon Snake Oil, a doubter's view of the digital revolution. "People would even write Unix as Un * *. Five years ago it was considered unethical to use the Internet to support one's products."

Until recently, traveling the Internet meant learning the arcane grammar of the Unix operating system, so it remained principally the domain of grad students and geeks. The World Wide Web has changed that. The Web links pages via hypertext, essentially an electronic footnoting system that delivers the source itself rather than delivering just the name of a source. In the beginning, Web users had to know HyperText Markup Language, but in 1993, a group of programmers led by Andreessen came up with a Web browser called Mosaic that did for Web surfers what Windows had done for PC users — let them point and click to get where they wanted without ever having to learn the underlying machine language.

Almost immediately, the Web exploded. In 1993 there were 130 computer servers on the Web; as of June this year there were nearly 40,000, containing an estimated 100,000 sites and between 5 million to 10 million documents. Yahoo! alone gets more than 1,000 requests per day from people who want their Web pages added to the guide. The Web is by far the fastest growing component of the Internet. But the issue remains: Who's going to pay for it? So far users have been averse to signing up for paid Net services. That's why in the last few months the Web has evolved along the lines of broadcast television: the "content" remains free. What's being sold is viewers to advertisers.

"There's the Net that's existed, and the Net that's coming into existence," says Michael Moritz, a partner at Sequoia. "There's a universe that's watched the Net be invaded by a huge population that's very attuned to paying for things. We don't want to antagonize the community, but you can't develop a long-term service for free."

Nor do venture capitalists invest in companies with no revenue. Moritz's bet is this: As newbies flock onto the Web — according to one estimate, 8.3 million people will be using it by the end of this year — they will need a guide. And why shouldn't that guide be Yahoo!? And why shouldn't advertisers pay to reach all those people digitally? Of course, the commercial potential of the Web has not been lost on such big online providers as America Online, CompuServe and Prodigy. Where once they kept their users behind electronic fences, they are now releasing them into the Internet, and there's nothing to stop these providers from buying or making their own Web guides with resources considerably greater than Yahoo!'s $1 million. When it couldn't get Yahoo!, AOL snapped up WebCrawler. And then there is the Microsoft Network factor. So Yahoo! is either in the perfect position to make a killing or to be killed, whatever the market decides.

This new cyberworld, Filo says over lunch one day, will not necessarily exclude the cranky old Internet user who would rather the market decide than the government. "The traditional user is pretty intelligent with a libertarian bent. He doesn't have a fondness for the government. They're an intellectual, libertarian type."

"Like David," interjects Yang.

His partner continues. "Most people either figure they're going to be charged for it," Filo says, "or they're going to see advertising."

And, in fact, when the first ads appeared on Yahoo! — including a rectangular banner screaming DEAL OF THE WEEK: $699.99 and leading with a click of the mouse to the Internet Shopping Network — a little after 7 p.m. PST on Aug. 1, about the only complaint came from Donald Lobo.

In the hallway minutes later, Yang walked by Lobo, who'd worked all day to get the ads up, reached out his hand and slapped the Technical Yahoo on the back. "Thanks, man," said Yang.

Lobo looked back at him. "We sold out," he said, smiling.

Carrying a tostada from Taco Bell, Yang strolls into San Francisco's Sheraton Palace Hotel. He's due to speak at a conference called Net Profits, a two-day gathering of business types hoping to cash in online. The Sheraton's meeting rooms are named after parts of the city, and from Pacific Heights to the Presidio, cash-hungry entrepreneurs are making pitches to half-empty rooms of bored-looking analysts and venture capitalists. With his tostada, a briefcase holding little more than a 1995 Stanford calendar, wearing hopelessly collegiate chinos and a button-down shirt, Yang seems like a naif. He's a modern-day Jimmy Stewart, if Stewart were a young Asian-American almost-Ph.D.

But Yang has certainly learned to talk the talk. His 20-minute speech — delivered to a full, attentive house — is studded with phrases like "driving traffic to the site" and "delivering high number of eyeballs." Later he will huddle with one suit after another under the ministering eye of Yahoo! CEO Tim Koogle and Moritz, whom Yang and Filo refer to as the VC — as in venture capitalists, not Ho Chi Minh.

The current state of the Net might be a metaphor for Yang himself poised between personas: the computer jock he was, the businessman he's becoming. To a certain extent the same is true for Filo, but Yang typically has been Yahoo!'s Mr. Outside. He goes to the conferences, takes the business meetings, deals with the phone calls from advertisers. And he's the furthest thing from a Net Romantic.

"We're not hippies, you know," Yang says when I push the issue of Net utopianism. "We didn't come out of the WELL" — the online analogue to wearing Birkenstocks.

Driving down Interstate 280 on the way back from Net Profits, the San Mateo hills golden in the afternoon sunlight, Yang talks about Yahoo!'s plans to "build commercialization slowly." Right now, Yang's concentrating on "relationships" with online providers, including the Microsoft Network and CompuServe. Later, Yahoo! might offer tailored versions of its data base without sites such as "Slippery When Wet," a page "primarily about transgressive sex and fun."

As he drives, the young businessman makes calls on his cell phone. First to his girlfriend, Akiko. Not home. Then to his mother. Yang, whose given name is Chih-Yuan, was born in Taiwan. His family — his mother, younger brother and grandmother (his father died when Yang was 2) — came to the United States in the late '70s, settling in San Jose, Calif. When his mom answers the phone, Yang switches smoothly from English to Mandarin Chinese, a few untranslatable words — KTVU, VCR — bobbing up in the unfamiliar language. He wants someone to tape the evening news tonight, since he and Filo are supposed to be on. "Bye, Mommy," he signs off. No luck, he says. The VCR isn't working.

It's late afternoon back at the office, and in the dungeon, the windowless back room, the college interns are adding new pages to Yahoo! The process goes like this: Wanna-be's send in the addresses of their pages and where they would like to put them. Using an automated form, the interns, known collectively as surfers, call up the page, edit its description, do a minimal content check and create links to any additional categories that seem to make sense. It's digital piecework.

By Lobo's estimate, each of the surfers should be posting 150 adds a day, but they're not even close. Sitting in the dungeon with a surfer named Derek, who conducts a tour of the Web, it's not hard to see why. Since Yahoo! has a T3 line, pictures load smoothly and effortlessly. The effect of traveling outward along electronic rivers of information is mesmerizing. Click. The "Cat's Meow" home-brewing page, with its recipes for weiss and bock. Click again, and we've moved to the "Terrorist's Handbook," with line drawings of pipe bombs. Click. ESPNET's "Sports-Zone." Click. The "Piercing Gallery."

If a lot of stuff on the Web seems sophomoric — vide not only "Turtle" but also "ToiletCam" — there's a reason. Until recently the tools necessary to create Web pages — a computer, an Internet account, knowledge of HTML and plenty of free time — were possessed mostly by college students.

Then click. The UPS Package Tracking page. "That's cool," says Conor, another surfer, who has been sitting at his computer watching the tour. He rolls his desk chair over, muscles command of the keyboard from Derek and starts typing in numbers, trying to come up with one that'll match a package out in the physical world.

"That's cool?" I ask.

"It's not cool cool," Conor says, having no luck with the package tracker. "It's neat."

"The web's a waste," says Filo. We are once again sitting at his computer, looking at a screen filled with HTML commands, a dense series of letters, numbers and symbols. "A lot of stuff that's out there is useless."

"Come on," I say, "isn't there anything out there you like?"

"Not right now," Filo says. "I'm too tired."

Today's fatigue is a result of a glitch in Yahoo!'s search function: It has stopped working (a situation Lobo explains as, "Basically, the front end was getting hosed"), and befuddled e-mail is pouring in.

Filo attempts to deal with the disaster of the day as I question him about the Web. Talking to him is like working on a computer before parallel processing. He'll be going along deliberately but with speed, then he'll pause for a long moment as though another task were running in his brain, then pick up again where the first task — talking to me — left off.

"The Net connects everyone in the world together," Filo says. "You can talk to a lot of people at a time or to a single person. Not just talk but transfer data. It's a new paradigm in communications."

In fits and starts, Filo becomes the visionary of the Net. It will redefine the business playing field by giving consumers perfect information, he says, lower prices by getting rid of middlemen, remove the barriers that keep certain kinds of music or art from getting a hearing, change the way reporters do their jobs and allow for direct democracy with online voting.

But, of course, Filo has doubts about the digital future: Some companies are already selling CDs online, he notes, but they're not charging any less for them. So much for getting rid of middlemen. And he realizes that the very advertising supporting Yahoo! means that bigger budgets will have an easier time getting their message heard. There goes that level playing field. As for voting, it's easy enough now for a lone hacker to electronically stuff a ballot box; won't the big interests rushing onto the Net just rig things in their favor?

By now it's 4:30, and yet another television crew is setting up in Yahoo!'s lunchroom. BayTV, a local cable channel, is launching a new technology show that'll run three times a week (remember, this is Silicon Valley), and the producer wants to tape Yang and Filo Web surfing. To make the Yahoos seem just a bit wilder, the TV crew moves two mountain bikes into the shot (they don't actually belong to Yang or Filo, but then, this is television), then the cameraman bathes the shot in a deep pink light. Crazy!

Later I'm sitting in Yang's office — neater than Filo's but with its own pile of dirty laundry in one corner — when Yang comes in, sits at his computer to answer e-mail, then takes a call from an advertiser. As he talks, Yang slips out of his desk chair, sitting first with his back against the wall, then getting progressively more horizontal. Soon he's lying flat on his back, talking up into the phone, trying with his nice Jimmy Stewart sincerity to persuade the advertiser to change the look of his ads — one of those rectangles screaming "discount!"

From where I'm sitting, I can just see Filo's office across the hall with Kellye's blue polyester blanket on the floor. Soon, Filo will go in and turn out the light, then he'll stretch out on the floor and go to sleep. It strikes me as the perfect Yahoo! image: both founders lying there in their offices. They're young, they're in charge, and they're tired.