July 19, 2021 • 37min

Jerry Yang: How Yahoo went from a hobby to the early King of the Internet

Pattern Breakers

This episode features an interview with Jerry Yang, co-founder of Yahoo, one of the pioneering companies of the early internet era. Yang discusses Yahoo's origins as a Stanford graduate student project, its rapid growth into a major web portal, and key decisions and factors that contributed to its success in the 1990s.

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Key Takeaways

Yahoo started as a hobby project by Jerry Yang and David Filo at Stanford, originally called "Jerry and David's Guide to the World Wide Web"
The name "Yahoo" was chosen somewhat randomly after looking up acronyms with "Yet Another" and finding it meant "uncivilized, uncouth, rude" which they thought was funny
Yahoo grew rapidly as the web expanded, becoming one of the first major internet portals and search engines
They raised $1 million from Sequoia Capital at a $4 million post-money valuation in 1995
Yahoo went public just 13 months after incorporating, in April 1996
They hired an experienced CEO (Tim Koogle) early on to help with business execution while the founders focused on product
Yahoo was one of the first major websites to run display advertising, which was controversial at the time
Key success factors included:
- Designing for scalability from the start
- Rapid prototyping and iteration
- Building a strong company culture
- Focusing on user experience and speed
Yang and Filo often disagreed but maintained a strong working relationship based on trust and shared goals
Yang advises entrepreneurs to have an achievable plan while keeping an eye on the big vision and being willing to pivot

Introduction

This episode features an interview with Jerry Yang, co-founder of Yahoo, one of the pioneering companies of the early internet era. Yang discusses Yahoo's origins as a Stanford graduate student project, its rapid growth into a major web portal, and key decisions and factors that contributed to its success in the 1990s.

Topics Discussed

Yahoo's Origins as a Stanford Project (7:51)

Jerry Yang describes how Yahoo began as a hobby project while he and David Filo were PhD students at Stanford:

They started compiling a directory of websites in late 1993/early 1994
It was initially called "Jerry's Guide to the World Wide Web", then "Jerry and David's Guide"
They chose the name "Yahoo" somewhat randomly after looking up acronyms
"We looked in the dictionary and kind of Yahoo stood out. Partly it was because if you look in the dictionary, it means people who are very uncivilized, uncouth, rude. And we were like, that's great. We're just a couple of yahoos."

Yahoo's Early Growth (11:50)

Yang discusses how Yahoo started to take off as the web grew rapidly in 1994-1995:

By late 1994, they were getting traffic from over 100 countries
Millions of unique IP addresses were accessing the site
They became a key place for webmasters to register new sites
Yahoo's human-curated directory became a valuable resource as the web was still somewhat chaotic
Yang says: "You could feel the energy of the web growing through the work we were doing and that was really compelling."

Raising Venture Capital (14:42)

Yang describes the process of raising Yahoo's first round of venture funding:

They talked to "a handful" of VCs but quickly settled on Sequoia Capital
Mike Moritz led the investment for Sequoia
Yang doesn't recall giving a formal pitch deck presentation
Sequoia invested $1 million at a $4 million post-money valuation
It was an unconventional investment at the time - two PhD students with no business model

Going Public Quickly (17:14)

Yahoo went public very rapidly after incorporating:

Yahoo was incorporated on March 1, 1995
They went public on April 12, 1996 - just 13 months later
Yang says they went public quickly because "it was so competitive, it was a land grab, and we had to at least get enough cash so that we're not, so that cash wasn't going to be the reason we didn't succeed."

Hiring an Experienced CEO (18:06)

Yang explains why they hired an experienced CEO (Tim Koogle) early on:

They felt they needed experienced management to execute quickly
Yang and Filo wanted to focus on product and technology
They didn't want to make mistakes due to lack of business experience
"We felt like what we didn't want to do is make a mistake on execution. That for lack of experience for lack of having done it before."

Yahoo's Early Product Strategy (25:56)

Yang describes Yahoo's approach to product development in the early days:

Rapid prototyping and iteration - launch quickly and improve based on user feedback
Focus on speed and functionality over aesthetics initially
Expand beyond just a web directory into news, sports, finance etc.
"Our theory back then was our users would tolerate something that isn't beautiful but if you got to them what they wanted and got their information, and they would come back again, then you can iterate on that and make sure that it looks better over time."

Pioneering Web Advertising (27:26)

Yahoo was one of the first major websites to run display advertising:

They started with just 5 advertisers paying about $10,000/month each
Had to figure out ad formats, reporting, pricing etc. from scratch
Some were concerned about "commercializing the web"
Yang personally handled ad reporting initially
Leveraged their large user base to convince advertisers of the web's potential

Balancing User Experience and Monetization (30:31)

Yang discusses the challenges of balancing user experience with monetization:

Constant tension between focusing on users vs advertisers
Tried to keep the core service free and user-centric
Had many debates internally about product and business decisions
"This audience and monetization dialogue was not always automatic. In many ways, it's in tension all the time."

Working Relationship with Co-Founder David Filo (32:05)

Yang describes his working relationship with Yahoo co-founder David Filo:

They often disagreed and "fought like cats and dogs"
But maintained trust and aligned on doing what's best for the company
Complementary personalities - Filo more contrarian, Yang more action-oriented
"Once you kind of air out all the arguments, make a decision, you move on and you trust that decision. We're going to try to figure it out and stick it out."

Advice for Early-Stage Founders (33:20)

Yang offers advice for founders in the early stages:

Have an achievable near-term plan within your control
Keep an eye on the big vision / "North Star"
Be willing to pivot if needed as you learn
Try to catch big trends / "be on the right part of the tide"
Work extremely hard to seize opportunities when they arise

Conclusion

Jerry Yang provides valuable insights into Yahoo's early days as one of the pioneering companies of the consumer internet era. Key takeaways include the importance of moving quickly, focusing relentlessly on users, being willing to experiment with new business models like web advertising, and assembling a strong team with complementary skills. While Yang acknowledges the role of luck and timing, he also emphasizes the incredible amount of hard work required to seize the opportunity presented by the rapidly growing web in the mid-1990s. His story illustrates how student projects can evolve into major companies when the timing is right and founders execute well.