Yahoo!

From Hobby to Leading Provider: 1994–1999

Yahoo! was founded in January 1994 by Stanford Ph.D. students David Filo and Jerry Yang. Begun as a hobby hosted on the university's servers, Yahoo! got its name as an acronym for Yet Another Hierarchical Officious Oracle and Jonathan Swift's Gulliver's Travels brute yahoos. The site was initially titled “Jerry and David's Guide to the World Wide Web.”

In 1995, Marc Andreessen, cofounder of Netscape Communications, invited the founders of Yahoo! to move their site to the larger computer system housed at Netscape. The domain http://Yahoo.com was registered that year, and the company incorporated shortly afterward. The year was also marked by negotiations between Yahoo! and venture capitalists. Sequoia Capital, known for its investments in companies such as Apple Computer, Atari, Oracle, and Cisco Systems, among others, offered Yahoo! an initial investment of nearly $2 million in April 1995.

At the time, a very innovative dimension of Yahoo! was its marketing model. The majority of Yahoo!'s revenue came through banner advertising on their Web pages. The advertising usually involved an image with an embedded link to the advertising company's Website. In 1995, when the main advertising outlets were still represented by print and broadcast media, putting the consumer into direct contact with a company was groundbreaking.

[Page 970]Yahoo! also generated revenue from partnerships and distribution deals with Websites aiming to increase their own number of users, also referred to as traffic. In order to drive and increase the traffic of other Websites, Yahoo! led its customer traffic to the partner Websites in exchange for a cut of the transaction revenues whenever users made purchases. This is what turned Yahoo! from its first service as a search engine into a Web portal—a gateway to the rest of the Internet.

These two revenue-generating strategies allowed Yahoo! to continue expanding its services and make strategic acquisitions of other companies whose services were complementary to Yahoo!'s goals. Additionally, having secured revenue from advertising, Yahoo! could offer its user-oriented services for free, unlike competitors America Online (AOL) or Microsoft Network.

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