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(Part 3)

Softbank has since embarked on an aggressive campaign to expand its Internet holdings. Ziff-Davis Publishing CEO Eric Hippeau (Son's "right-hand man" in the United States, Jerry says), says that Son "got so excited [about] Jerry's vision as to what could happen, not only to Yahoo!, but what was likely to happen on the Internet" that his investment in Yahoo! became "a catalyst" to his subsequent buying spree. By the fall of 1996, Softbank had acquired all or part of dozens of Internet companies. Among them were I/PRO (see Chapter 5), InterVista (Tony Parisi's company; see Chapter 4), PointCast (see Chapters 3 and 8), Agents Inc. (now Firefly; see Chapter 2), Electric Minds (Howard Rheingold's new company; see Chapter 7), Freeloader (see Chapter 8), and OnLive! Technologies (see Chapter 4), as well as E*Trade, US Web, and CyberCash.

Yahoo! filed to go public on March 7, 1996, and the frenzy for its shares started building immediately. The Wall Street Journal dramatically billed Yahoo!'s debut as a "Wall Street Event. " A clerk at Yahoo!'s lead underwriter, Goldman Sachs was soon getting over 100 Yahoo!-related, phone calls per hour�the most he had ever received for an underwriting in his four years on the job (and the most he will ever receive, as he was summarily fired for blabbing this fact to a reporter). Two Yahoo! competitors, Lycos and Excite, went public a few days before Yahoo! (InfoSeek went public some months later). But this did nothing to reduce demand for Yahoo!'s stock. Yahoo! CFO Gary Valenzuela recalls that the ratio of orders for Yahoo! shares to the number that were actually offered on the morning of the IPO was far higher than he had seen in an IPO before�and he had been through a few.

Yahoo! went public on April 12th, a Friday. Its shares priced at $13, but the extraordinary demand for them drove the first trade to clear at $24. 50. Yahoo!'s shares then changed hands an average of over six times each during the frenetic hours that followed. The stock peaked at $43 before ending the day at $33, giving Yahoo! a market value of almost $850 million�over two hundred times the valuation that Sequoia had granted it roughly a year before. It was a good day.

As the frenzy subsided over the subsequent months (and as share prices throughout the technology sector deflated), Yahoo!'s stock settled back toward (but never below) its $13 offering price. This decline did attract some attention ("Yahoo! more like boo-hoo" sniffed one particularly memorable headline in The Orange County Register). But it never elicited real acrimony. Because although the company had reacted to a market opportunity in going public, it had in no way acted opportunistically. Yahoo! had in fact left a great deal of money on the table. Analysts at Donaldson, Lufkin & Jenrette (DLJ, a Yahoo! counderwriter) and at Hambrecht & Quist (a close Yahoo! watcher) have reckoned that based on the overwhelming demand for its shares, the company could have gone public at $25 or more. This indicates that Yahoo! may have effectively transferred over $30 million in value to the investing public that it could have directed to its own balance sheet.

Yahoo's restraint allowed it to "[make a lot of friends in the community," Jerry believes. "They got a good deal, and a lot of them made money, and we didn't need the cash. " It also helped the company keep its stock trading above its IPO price throughout the unfavorable technology equities market of mid-1996, something that none of its competitors could claim. In this, Yahoo! was helped not only by its modest IPO price, but also by a significant premium that the market was granting it. By late summer, it was trading at roughly eight times its expected 1998 revenues, while its rivals were trading closer to one to two times their 1998 revenues. Analyst Sue Decker of DLJ partly attributes this to Yahoo!'s superior branding. Yahoo!'s management "understands that success in this market is about brand differentiation, not just greater traffic," she believes, which sets the company apart. Danny Rimer of Hambrecht & Quist echoes this notion. "Yahoo! is cool," he says simply. "It's not a technology company. It's a brand, it's an article of culture. This differentiates Yahoo!, makes it cool, and gives it a market premium. " Fundamental investors might be reluctant to pay a premium for cool. But intangible advantages are the hardest ones for competitors to replicate. And within its market, Yahoo! is, without doubt, inimitably cool.

Yahoo! is cool largely because Jerry and Dave are cool. Their trailer-to-riches story is the stuff of legends. It is a familiar piece of Internet lore, and the company is not shy about retelling and promoting it. Jerry and Dave's PR value has earned them coverage on countless TV shows and magazine covers (including those of Wired and Forbes ASAP). Through these channels, they can reach Yahoo! users off-line, and reaffirm their company's youth, sense of humor, and up-from-the-trenches credibility.

Yahoo! is also cool because Jerry and Dave have built their company in their own image. Yahoo! is a young, unpretentious, twentysomething place. Its dozens of surfers (full-time Web categorizers) can and do help Jerry and Dave extend the company persona in many forums. Yahoo! surfers now appear daily on TV shows like MSNBC's "The Site," where they kick back and anoint with-it Web sites. The plugged-in-but-unsnooty ethos that they project ring true because they are a sincere reflection of their company, not a marketer's fabrication. And those ethos are always evident at the Yahoo! site. There Yahoo! continually affirms its identity, uniqueness, and coolness through devices like lively contests, inventive new services, and of course its ubiquitous big, red name. In this, it's a good thing that Dave and Jerry passed on Yataghan, Yapok, and Yardage, because Yahoo!'s name is one of its greatest assets. Something wryly billed as an officious oracle is almost inevitably fun and eminently brandable. Something soberly billed as Latin for Wolf Spider (Lycos) might also be a lot of terrific things (and it is�Lycos is a fine service). But no way is it cool.

Yahoo! is now pushing hard to extend its brand, name, and image off-line as well as on-. TV shows and tellings of the Jerry & Dave saga support this. So do several recent publishing efforts. Yahoo! Unplugged, the first Yahoo! book, has done well in its first printing. Yahoo! Internet Life is meanwhile bringing the Yahoo! name and logo out of the ether and into newsstands, airports, and other real world places. This early fruit of Yahoo!'s partnership with Ziff-Davis Publishing could well be followed by other titles (Son's ambitious plans for ZD include expanding its magazine offerings from 80 to 1000 titles in 10 years, and he will no doubt be looking to leverage every brand that he can). Although Yahoo!'s staff makes only minimal editorial contributions to it (see below), Ziff-Davis CEO Eric Hippeau says that the company's name alone almost immediately "galvanized the magazine," which had previously existed as plain old Internet Life. His staff reports that its circulation doubled to 200 thousand shortly after its reflagging.

Yahoo! also extends its brand through traditional advertising. It was the first Internet company to launch a TV campaign, and is now buying time and space in a variety of media. Guiding these efforts is Karen Edwards, the Yahoo! name's full-time keeper. Significantly, Edwards' background is in consumer marketing and media, not in software or engineering (she previously worked at Clorox and 20th Century�Fox) The Yahoo! brand's success has already earned her a slot in Advertising Age's 1996 "Marketing 100" (its "salute to the people who represent the very best in brand building. " Marimba's Kim Polese was likewise honored). One of Edwards' earlier projects was to develop a "Big Idea" tag line, which she describes as "the one idea that really encompasses, or makes a statement about a company. " For now, Yahoo!'s answer to Nike's "Just Do It" and Burger King's "Have It Your Way" is "Do You Yahoo!?" Edwards now features this phrase in almost all Yahoo! advertising. Her long-term goals for the brand include making it "a thing of popular culture," not just online culture, and making the Yahoo! name recognizable to at least half of all Americans.

This might seem like an excessively ambitious, even messianic, goal for Yahoo! to have while the proportion of Americans with Internet (and therefore Yahoo!) access is closer to a tenth than a half. But Yahoo! is investing ahead of the curve. The company thinks of the audience for its promotional campaign as consisting of "Near Surfers," "Non-Surfers," and "Current Surfers. " The Near Surfers are a vast and growing group of people who "look at the Net in the same way as a lot of current surfers do," Edwards explains. They are familiar with what it is and with what it can do, but "what they don't know is how do I get on, how do I sign up, where would I start?" Yahoo! management has faith that the Near Surfers will continue to get their acts together and come online in record numbers. And as they do, "if you're the brand name that people know, [your site] is where they're going to go first," Edwards points out. By buying time and space in the off-line media, Yahoo! can therefore start winning over the Near-Surfers before they come online. This could prove to be a powerful strategy, because when markets grow as quickly as the Internet, new customers are more relevant to market share than old ones, as even monolithic installed bases quickly become rounding errors when user populations quadruple regularly.

Yahoo! is also eager to reach Current Surfers with its marketing. It is of course already a big hit with this crowd�but the company doesn't believe that it is a big-enough hit yet ("We think we have about 50 percent of all the people who are on the Web," Edwards explains, "and so I want the rest of them"). To this end, Yahoo! has spent lavishly to rebuild its position in the Navigator's buttonry, shelling out some $5 million to end its exile shortly before its IPO. Even this regal sum didn't wholly regain it its once uncontested throne, because four other services paid up as well, earning rights to equal billing. But Yahoo! also has a link on Microsoft's Internet Explorer browser all to itself, as well as tens of thousands of other links scattered about personal home pages, corporate sites, and other corners and crannies throughout the Web. All of this together gives Yahoo! a tremendous distribution network for reaching Current Surfers.

This leaves only the Non-Surfers unaccounted for. But even those people, with their smoke signals, their stone implements, their simple grunt-based languages�even they interest Yahoo! "Maybe they'll buy merchandise for their kids to wear," Edwards speculates. "Maybe they'll invest in the company. " It is partly with the Non-Surfers in mind (along with their Near- and Current- cousins) that Yahoo! promotes its "Do You Yahoo!?" Big Idea so aggressively on radio, on television, and in print.

Yahoo!'s traditional media campaigns are doing a lot to build its name and business. But much as TV ads and Dave and Jerry's cool halo help to give it a unique image, Yahoo!'s true seat of competitive differentiation still lies in its hierarchy. This is maintained by a staff of over fifty surfers whose collective efforts are needed for the job that Dave and Jerry handled alone on the smaller, simpler Web of 1995. The surfer staff carefully screens each of the thousands of site submissions that Yahoo! receives every week. Almost all are placed in the hierarchy, although sites that seem to lack original content, or which look like they're just components or repetitions of other sites are rejected. Multilevel marketeers sometimes fall into this category (although most franchisees seem to pass the screen). The hawkers of something called Super Blue Green Algae are especially legendary among the surfers ("It'll change your life!" they bellow ritually when the product is mentioned).

But while Yahoo! occasionally excludes sites to keep its hierarchy free of redundancies, it never does this to serve a moral or political agenda. It rather links to sites created by every imaginable group and arguing every conceivable viewpoint, and its staff takes real pains to avoid implicit editorial pronouncements in its category titles. For this reason, Ku Klux Klan�related sites, for instance, are listed under Society and Culture: Alternative: White Power, instead of Hate Groups, Fascists, or Troglodytes.

Yahoo! surfers start as generalists, but most take on specialties over time. They're a young group; their average age is somewhere in the mid to upper twenties. They are also a smart group; all are college-educated, many have master's degrees, and some are, not surprisingly, professional librarians. Surfers are expected to process at least 100 sites per day, but the experienced ones can make it through significantly more than that without breaking a sweat. This doesn't mean that 5000 sites are added to the main hierarchy every day, as a lot of energy is directed to keeping things current (e. g. , weeding out sites that have switched off) or working on regional Yahoo! properties (see below). Certain categories, like Entertainment: Music, are popular with many surfers. Certain others, like Business and Economy: Companies: Sex, are popular with none ("I guess it's not that bad, but you just burn out," one woman explains). For some reason, several surfers seem to find Regional: US States: Florida: Real Estate to be the all-time creepy category.

The surfers are a tremendous resource for Yahoo! They have of course brought the hierarchy further than Jerry and Dave ever could have alone, and have meanwhile become a flexible resource for the company to draw on as it extends its brand off-line. As noted, they work regularly as TV fillerpeople for Jerry and Dave. They are also an invaluable source of "Yahoo! recommends" fodder, which the company feeds to a variety of media. Among those now turning regularly to the surfers for pointers are the Yahoo! Internet Life folk (the surfer maintaining the college football category can be quite the resource if you're writing a survey of sites dealing with that subject), as well as the editors of non-Yahoo!-branded periodicals like Buzz magazine and USA Today. Also, Granite Broadcasting, which has TV stations in nine markets, has been integrating Yahoo! site recommendations with features and stories in its local nightly news broadcasts since the summer of 1996. Collaborations like these provide cheap sources of off-line presence for Yahoo!, and it is the surfing staff that largely makes them possible.

One obvious question that the surfer model raises is, Does it scale? Its predecessor, the Jerry-and-Dave Do Everything model, worked fine for over a year. But in the end, it didn't scale. It could only go so far without breaking. So Jerry and Dave incorporated, took their company public, hired 50 surfers, stopped doing everything, and Yahoo! subsequently kept up with the explosive growth of the Web and the 25-fold surge in submissions that it generated. But if the next 18 months brings another 25-fold surge, and the next 18 months yet another, Yahoo! will either have 31,250 surfers on staff at the end of the decade or it will be on to a new model. The surfer model is in fact already pushing some limits today. As late as the fall of 1996, all of the surfers were reporting directly to the same Ontological Yahoo (an official title meaning roughly hierarchy keeper or surfer foreperson�this was still Srinija Srinivasan, whom Jerry and Dave first met in Japan). This managerial model clearly will not scale, as having 31,250 direct reports to manage (or even a mere 1250) would probably be the end of any yahoo. But these projections may be misleadingly gloom and doomsome. After all, the Web was already a big place when Yahoo! hired its fiftieth surfer. And once big, even the fastest-of-growing places tend to expand geometrically or arithmetically, rather than exponentially. This should give the surfer model some breathing room.

It is certainly in Yahoo!'s interests that the surfer model endures, because the hierarchy that the surfers maintain is a marvelous, carefully-written and intelligently organized edifice of human judgment. As such, it certainly is content in every meaningful sense of the word, however devoid it may be of subplots, heroines, and foreshadowings. And content, particularly powerful and functionally unique content like Yahoo!, can form the foundation of a highly defensible business. This aspect of Yahoo! is often misunderstood, because its content is very subtle. Its subtlety leads many casual observers to mistake the site's underpinnings for a proprietary software tool, or yet another high-output organizer.

But Yahoo!'s hierarchy is built from many surfer-years' worth of thoughtful attention. So while it may not qualify as editorial content, the hierarchy could no more be replicated by a clever software algorithm than tomorrow's edition of The New York Times. This means that until the artificial intelligence community delivers on the brave promises of the early 1980s, the only way to build a hierarchy like Yahoo!'s will be through a large staff of educated surfers. And for now at least, the only such staff is at Yahoo! Some of Yahoo!'s competitors do offer hierarchies of their own. But they are not the products of large dedicated staffs, and are comparatively halfhearted affairs as a result. Few go more than two or three levels deep (compared to Yahoo!'s occasional 15). This effectively makes Yahoo! a near-monopoly provider of in-depth hierarchy-driven searches. In this, Yahoo! is like the sole table of contents in a book with many indexes. People searching the Web face many substitutable choices and options when they need a good index service. But the Web has only one true table of contents in the Yahoo! hierarchy. The traffic that hierarchy-driven searches generate at Yahoo! is therefore highly defensible. And this is a staggering amount of traffic, as Jerry estimates that roughly 60 percent of the pages that Yahoo! serves are responses to hierarchy-related queries. This amounted almost 10 million pages daily by September of 1996�more than the total traffic of any other search service at that time.

This is not to say that Yahoo!'s competitors lack differentiation. All of the leading index search services have by now developed proprietary tools that make their automated searches more effective. Some, like Lycos and Excite, further differentiate themselves with proprietary editorial content of their own creation. Both of these companies are now well known for their vast libraries of subjective Web site reviews. The Lycos archive includes over 10 thousand entries and is maintained by a staff of roughly 50 writers and editors (including a two-time Emmy Award�winner). Lycos CEO Bob Davis describes site reviews as "a critical component of Web navigation. " He compares their utility to that of movie reviews, which act as filters for people seeking good films. Davis believes that subjective guides are particularly important on the Web, because the Web's " 'film archive' consists of over seventy million entries," and this makes it "impossible to find the quality products without some assistance. "

Yahoo! does not currently provide much in the way of site reviews (although it does flag the most comprehensive sites in many categories and maintains an extensive library of cool links). This may arguably leave a hole in its offerings. But the tradeoff that Yahoo! is making in devoting almost all of its internal content development attention to the hierarchy seems like a reasonable one for now. By mid-1996, Davis estimated that the Lycos reviews were drawing "in the neighborhood of several hundred thousand viewings" per day. This a great deal of traffic. Drawn as it is by unique content, it is also relatively defensible, and should grow with Lycos's reputation as a high-quality reviewer. But although Yahoo!'s surfer staff was about the same size of Lycos's reviewing staff, the content they created was drawing an order of magnitude more traffic. For this reason, Jerry is happy to turn to partners like Ziff-Davis and Reuters for editorial content as needed, and to keep his content development resources busy building context; context in which other content is framed, organized, and made accessible. The hierarchy is the hallmark example of this. It puts a coherent and navigable face to the otherwise dizzying jumble of the Web. Most of Yahoo!'s newer services function similarly, creating even more refined contexts that are native to national, local, or even individual vantage points (see below).

Yahoo!'s model succeeds because it focuses the company on providing what's rare. There has never been an environment as rich in content (both editorial and otherwise) and poor in context as the Web. The context market has accordingly never been quite so hot. DLJ's Sue Decker estimates that search services were in fact capturing over 70 percent of the Web's gross advertising revenues in 1996. Her statistics are remarkable, as guides, directories, and pointers-to-others have never had it this good. It is inconceivable that book cataloging would be a bigger business than book writing, or that TV Guide would ring up more revenues than the TV broadcast industry. But markets reward what's rare, context is rare on the Web, and Yahoo! and its competitors have fared well as a result.

Jerry does not expect the Web context market to cool any time soon. He in fact believes that "people's interest in the Internet is going to go from just browsing and looking at very high-level information to stuff that's very specifically interesting to them in some depth. " This means that "we need to be able to have in-depth things as people grow and become more expert in the Internet. " For this reason, Yahoo! will continue to invest its finite content development resources into building context like the hierarchy, rather than in creating traditional editorial content like reviews. And as Yahoo!'s context is embedded with more and more surfer years, decades, and centuries, it will become increasingly complete and defensible.

This does not, however, mean that it will be wholly irreplicable. After all, anybody with deep enough pockets and a few good pizzas could build an even bigger surfer force than Yahoo!'s. And this could eventually produce an even bigger hierarchy than Yahoo!'s. This may indeed happen as the growing value of Yahoo!'s franchise attracts more competitive attention. But surfer-years alone will never be enough to knock off Yahoo! The surfer system is fed by submittals for one thing, and the Web is now deeply into the habit of sending its best new bits to Yahoo! for categorization. A Yahoo! rival would have to get itself into that loop. And given the Web content community's vastness and fragmentation, that would not be an easy loop to enter.

The hierarchy also derives its commercial relevance from its traffic. Traffic begets more traffic. And by late 1996, Yahoo! was drawing more traffic than any site on the Web other than Netscape. This traffic was built up not overnight, but over dozens of months of careful nurturing. Wooing it away would therefore require a long, patient struggle against a very seasoned, focused, entrenched, and well-capitalized Yahoo! It would also require many more content services than just a hierarchy. Because central as the hierarchy is to Yahoo!'s traffic, the site's headline news, stock quotes, weather reports, events calendars, flight information, maps, ski reports, and other services are also popular and integral to it. Yahoo! also provides index searches of its own through DEC's outstanding Alta Vista search engine. All of these satellite services bolster the hierarchy by making Yahoo! more interesting, versatile, and generally worthy of visits. The hierarchy meanwhile bolsters the services by bringing its enormous audience to their doorsteps. And because the services' providers are compensated with shares of the ad revenues that their content generates, Yahoo!'s audience size makes it a particularly attractive partner.

Mimicking Yahoo!'s partnership portfolio would not be an impossible task, as most of its current competitors now offer their own suites of ancillary information services. But this is yet another hardly optional offering that a rival hierarchy would have to keep up with. Yahoo! is also expanding its content partnerships all the time. In doing this, it is creating a veritable engine of attention generation. This engine has become a powerful, self-feeding dynamo, in that "The more content we have, the more users we have," Jerry explains. "The more users we have, the more advertisers we have. The more advertisers, the more content we have. It's a positive feedback loop. And that positive feedback is magnified, so to speak, by the brand. The bigger the brand is, the more each incremental pop is. You don't have to spend as much money to get more content. You don't have to spend as much money to get more users. So it becomes more leveragable. "

The dynamic that Jerry describes is very powerful. It could well turn Yahoo! into the most powerful media property in the world in a very small number of years. Not the most powerful media company (as many media companies own hundreds of powerful properties). But perhaps the most powerful media property. This may seem like an excessively bullish statement. But consider this: In the fall of 1995, Yahoo! was serving 3 million pages per day, or 21 million pages a week, to its visitors. By the spring of 1996, it was serving 42 million pages per week. By fall of that year, well over 100 million. It is safe to assume that virtually all of these pages were examined, as each of them was actively requested by its viewer. Time, the most widely read news magazine in America (and an enormously powerful media property by any definition) had a paid circulation of roughly 4 million at that point (this was growing at an annual rate of less than 2 percent). Issues of Time are typically around 100 pages long, meaning that it was then pushing out roughly 400 million pages per week to its audience. Assuming, rather generously, that half of all of the pages of each copy of Time are examined, this amounts to roughly 200 million viewed pages. Yahoo! will probably be serving more pages than this by the end of 1997, and several times as many pages by the end of the decade.

The question of whether Yahoo! will then be a more powerful media property than Time is one of definition. If power is a function of editorial influence, than Yahoo! will certainly be the lesser property, as it does not serve editorial content of its own creation. But if power is deemed to be a function of understanding and marketing to an audience, then Yahoo! will give Time a run for its money. This is because Time, like all traditional media, broadcasts to its audience, in that it pushes out the same signal to all comers (with perhaps some minor refinements based on regional distribution or subscriber demographics). These broadcasts are one-way affairs, in that Time's audience does not really communicate back to it�save for the little white cards that are mailed in with checks every year or so.

But Yahoo! doesn't broadcast to its visitors. It instead engages them in dialogue. This means that unlike Time, it is able to target advertising and content to its audience in a very refined manner. Yahoo! has long based this targeting on its users' interests as expressed by their Internet searches, or by their queries to its Yellow Pages, its stock quote server, its news archive, and so forth. Single stand-alone queries like these can at times reveal quite a bit about the people making them. But Yahoo! is also now going beyond this by adding elements of persistence to its relationships with its visitors. This can let it start basing its understanding of them on hundreds of queries made over time. The heightened intimacy this allows will eventually let Yahoo! target its services and messaging in a far more refined manner than it can today. For instance, Yahoo! might deduce quite a bit about a visitor who searches for information about New York City sports teams, keeps abreast of the financial news, and regularly checks up on the Connecticut weather. Based on its deductions, it might tailor its marketing and services in ways that both the visitor and Yahoo!'s partners (be they advertisers, content providers, or merchandisers) would find valuable. But if the user's requests for information all come as separate, anonymous, and apparently unrelated transactions, Yahoo! can learn and tailor nothing.

A new product called "My Yahoo!" is designed to draw heavy Yahoo! users into mutually beneficial persistent relationships. My Yahoo! users enter their news, entertainment, geographic, and other interests into a system which creates personalized pages for them. Users can then visit their personal pages whenever they like. There, the up-to-the-minute sports scores, stock quotes, weather reports, and news headlines that interest them are always bundled together in one place. Users benefit from this in that it is a convenient way for them to get information that would otherwise have to be gathered piecemeal. Yahoo! benefits in that it gets to know its users better.

The most immediate material impact that My Yahoo! has had on the company has been in advertising revenues, as Yahoo! prices its ad space partly on the basis of targeting. Targeted banners command higher prices at the site because they reach more relevant audiences (see Chapter 5). Before it began to establish persistent relationships with its visitors, Yahoo! could target banners only on the basis of search terms. For instance, it could direct the banners of a technology company solely to visitors making searches in the Computers and the Internet category. But while this is a good way to reach a technically-oriented audience, a Floridian teenager digging around the category for the first time might respond to very different banners than a Seattle-based technology marketer searching it for the 2019th time. By knowing its visitors' backgrounds as well as the categories that they search, Yahoo! can target its banners in a far more refined and effective manner.

This is significant to Yahoo!, because the more targeted advertising space is, the more differentiated and salable it is to sponsors. And since Yahoo! serves so many pages that it can't possibly sell banners on all of them (roughly 75 percent of its total ad capacity was going unsold by mid-1996, according to DLJ's Sue Decker), the site's revenues are far more sensitive to the differentiation of its ad space than to its raw ability to generate it. Persistent relationships can make otherwise less-salable ad space (e. g. , the pages served to people searching the Science: Biology: Molecular-Biology: Institutions category) highly salable, because they make it possible to target banners based upon who's looking, as well as on the basis of where they're looking.

As Yahoo! deepens its relationships with its existing users, it is of course always seeking to establish new ones. To this end, it is expanding its geographic reach rapidly. The first international Yahoo!, Yahoo! Japan, was launched in April of 1996. It has since been followed by several other national editions (including France, German, Canada, and the United Kingdom). All of these link principally to native language content, although they also tie back into the main hierarchy. Most operate as joint ventures between Yahoo! and a local partner (which is usually, but not always, Softbank). The international Yahoo!'s are bids to replicate the main site's success by seizing early share in growing markets. Yahoo! Japan's experience indicates that some of these markets could be vast. Just six months after its launch (in October of 1996) this site already had its first million-page-view day. This was as much traffic as all of Yahoo! was generating less than 18 months before.

Yahoo! is also drumming up new users (and winning even more traffic from old-timers) through a series of "community" Yahoo! sites. The first of these, Yahoo! San Francisco Bay Area, debuted in June of 1996. It was soon followed by Yahoo! products targeted at Los Angles, New York, Chicago, Washington, D. C. , and Boston. The metropolitan Yahoo!s place local information which is already scattered throughout the main hierarchy into focused hierarchies built around locally relevant topics like Transportation, Employment, and Sports and Recreation. This is rounded out with content like entertainment listings, local news, and traffic reports provided by local TV stations, alternative newspapers, and other local content partners.

Yahoo!'s community sites have become powerful vehicles for promoting and generating demand for several new Yahoo! services. Among these is Yahoo!'s national Yellow Pages directory, which itself links to another Yahoo! service that generates customized maps. Together these allow Yahoo! users to look up the address and phone number of almost any business in the United States, and also get a map to its doorstep. Yahoo! may not yet be the first thing that most of us think of when we need directions to the local hardware store. But the metropolitan Yahoo!'s are natural contexts for browsing, exploring, and learning about local services and enterprises of all types¬exploration which inevitably generates demand for directions and phone numbers. In this, the metropolitan guides are natural gateways to these other Yahoo! services, which themselves represent interesting bids to further aggrandize Yahoo!'s role as an information provider. Yahoo!'s Yellow Pages service might eventually draw over a million queries per day (its stock quote service already does). And who knows¬maybe it will one day become a more popular source of phone numbers than the phone book itself. As usual, it is hard to assess the revenue implications that this could have. But also as usual, Yahoo! is operating under the well-proven assumption that more traffic and attention is inevitably better than less. And since the Yellow Pages industry rings up over $10 billion a year in the United States alone, it safe to assume that some kind of revenue¬maybe quite a bit of it¬is out there.

Perhaps the most significant new listing business that Yahoo! has launched through its metropolitan sites is its classifieds service. Local Yahoo! classified listings cover such categories as real estate, automobiles, employment, and personals. Since Yahoo! does not have to fell trees, ink pages, and ship newsprint to create and distribute its listings, banner advertisements alone can make its classifieds highly profitable (and meanwhile create the rather odd phenomenon of ad-supported advertisements). This lets Yahoo! price its listings at their marginal cost. Rounding to the nearest fraction of a penny, that cost is roughly zero. Free listings have helped Yahoo! drum up a significant advertiser base very quickly. Ellen Siminoff, who runs the Yahoo! communities effort, reports that only four months after its debut, Yahoo! San Francisco Bay Area had already attracted 450 help-wanted advertisers, who were together running almost as many ads as the Sunday edition of the nearby San Jose Mercury News.

The advantages of online classifieds go beyond their freeness. Because they reside in databases rather than on pulp, they can be sorted quickly based on highly customized criteria. This means that perusers of Yahoo!'s car listings, for instance, can specify preferred price, year, and mileage ranges, and see only the listings that match their interests. Yahoo! classifieds can also be media-rich. Some already link to full-color images of the items, homes, or persons they promote. Some will no doubt eventually link to videos, RealAudio files, VRML models, and more.

Yahoo! is not the only online company that has identified local services as an attractive market. America Online's Digital Cities service, Microsoft's Cityscape, and an independent Web-based service called CitySearch have also entered this category. Not all of these services are necessarily wholly competitive to Yahoo!'s metropolitan sites. CitySearch, for instance, has a much stronger content orientation than Yahoo! It is now building a string of community media franchises around local writers and photographers, as well as its own content. Unlike Yahoo!, the company also builds and hosts sites for some of its content partners and others. Its business model and content ambitions differ enough from Yahoo!'s that the two services could become quite complementary to one another ("If it's great content, I'm thrilled to link with it, as that's just not our business," Siminoff says of it and the other local directories).

Whether they eventually become the twenty-first century's phone books, newspapers, and job markets or something entirely different, the metropolitan sites are giving Yahoo! a rich context in which to promote a variety of new information services. Through them, offerings like My Yahoo!, and the core hierarchy business, Yahoo! is steadily expanding its audience, its intimacy with it, and the scope of its interactions with it. Together this could create a media franchise whose reach and facility at dialogue with its audience has no precedent. Even Jerry finds it difficult to predict where all of this will lead. But he guesses that Yahoo! will grow to "maybe a couple or three hundred" employees by the beginning of 1998 (although he hedges that "it's still too early to tell" for sure). He expects that by then, Yahoo! will have long since entered the commerce arena with its partner Visa. He also expects that many new community Yahoo!'s will have launched, and hopes that all will have acquired "souls," or have become truly distinctive products of their communities. For this to happen, Jerry believes that the services need to become convening points, rather than just information clearinghouses. To this end, they already host bulletin board discussion spaces. Jerry hopes that these forums will come to draw large constituencies, and perhaps evolve into robust and highly trafficked "chat" spaces.

Jerry doesn't speculate much about what will happen after 1998, as he believes that the Internet is moving too quickly to see that far out. Although when asked if Yahoo! will still be around at the end of the decade, he is confident. "That's a no-brainer," he says. "It's just a question of how successful well become. " As for himself, he "absolutely" plans to be with Yahoo! for at least another five years. "I love what I'm doing," he explains. "I don't even see it as a job. " What excites him most and keeps him around is "the integration of what traditionally has been a very techy, nerdy kind of a world to the mass media. I love the fact that computers are becoming more mainstream rather than less," he says. "I think that we, Dave and I and the team, are one of the first groups of people to literally take the two sides and bring them together, along with Netscape and a couple of other companies. Us more than others, because we're in contact with people who use Yahoo! every day. Marc [Andreessen] still has more corporate customers and techy MIS issues. We don't have any of that. Were a consumer brand, a consumer play, and were going to live and die on the consumer end of it. That's exciting to me. "

Jerry compares the newness of all of this to "being dropped off a helicopter, and you're the first guy skiing down this hill. You don't know where the tree is, you don't know where the cliff is, but it's a great feeling. It's like being on the golf course, and being the first guy to tee off in the morning, when there's still dew on the ground. The ball mark is yours, and the footprint is yours. You're the first one to screw up the sand trap. It's like landing on the moon. I don't know what that feels like, but I'm sure it's just an exhilarating feeling. This is a lot safer than all of those things. Including golf. "

Yahoo! is a safer game partly because "We have nothing to lose. We started this with nothing, and I can honestly say I don't mind if we went back to nothing, because I had a great time. It might be different ten years from now because I'll have a family and kids. But today, if Yahoo! went away, we had a great time trying. So I think there's that little bit of reckless abandon that makes this thing so exciting. " And just as rewardingly, "I've got a great team. Nobody has left Yahoo! yet. That's a great statement of the people we've recruited. "

For all of these reasons Jerry keeps coming back. And while the Chief Yahoo no longer subsists on four-hour catnaps next to his workstation, he still works hard, probably from 7 a. m. to 10 p. m. , he estimates, "five days a week, and one day on the weekend I work about six or seven hours. " For his part, Cheap Yahoo Dave is still known for camping out nights under his desk as often as not. Perhaps now finding it a bit lonely around the office in the wee hours, he frets that he's "always wanted to work in the startup environment, and now [Yahoo!] is becoming less and less of that. " But despite that, he seems to be in this for the long haul too.

Outside of work, Jerry spends most of his time with his fiancée Akiko. "I couldn't have done Yahoo! without her or my family," he eagerly admits. Together, the two of them are "relatively boring," he says. "I'd like to say we have twenty different hobbies, but we don't. " But in the fall of 1996, they bought their first house together, and that keeps them plenty busy. That combined with Yahoo! are probably hobby enough for almost anybody.

Part 1 | Part 2 | Part 3