Barefoot millionaire boys

Barefoot millionaire boys
By Margie Wylie

Staff Writer, CNET NEWS.COM

The Internet is a wilderness of information, and Jerry Yang and David Filo are its Lewis and Clark.

Almost three years ago, the then-Ph.D. students indulged a passion for the Internet by creating a directory of their favorite Web sites. The glibly named Yahoo was run out of a trailer office at Stanford University for a year, until it started taking up more time than their studies.

Today, that hobby is arguably one of the most successful Internet companies

around. The now-public company has holdings strung over the globe. By December of last year, Yahoo properties were averaging 20 million page turns per day. In 1996, the company's advertising revenues grew more than 1,000 percent. And, at ages when both are still too young to run for the U.S. Senate, Yang and Filo are cofounders of an accidental Internet empire.

When Yahoo first caught the eye of venture capitalists, the laid-back Stanford students became poster children for achieving the Silicon Valley dream. Appearing on covers of magazines, often as they worked, barefoot and in T-shirts and jeans, the pair became icons for all those with a modem and a dream.

These days, the legendary casualness and esprit de corps at Yahoo and between Filo and Yang is looking a little strained. With nearly 200 employees, even the seven-foot-tall stuffed Gumby doll downstairs and the fooz ball machine upstairs can't hide the fact that Yahoo is turning into a big company. While both still make a point of padding around sans shoes, the gregarious Yang has gravitated toward the limelight while Filo has dug deeper into Yahoo's workings, burying himself in the minutiae of operations.

On the day we visited, Yang had a camera crew in tow. In a moment of media saturation, a documentary film crew from Stanford filmed our team's videotaped interview. His office white board was covered in Japanese writing, kanji, in preparation for working with Yahoo Japan, the company's joint venture with Softbank. And Yang seems to thrive on talking to Wall Street analysts and reporters, when the newlywed's not traveling far more than he'd like.

Filo, on the other hand, has retreated to a programmer's comfort zone, giving up his director's title in February 1996. He has even changed his official title from chief Yahoo to cheap Yahoo, a nickname that stuck after he insisted on off-the-shelf, no-frills PCs. In fact, the cheap Yahoo has so plunged himself into the operation of the site that even he is missing sleep, play, and a social life. Surfacing to give an interview seems an excruciating experience for the soft-spoken Filo. While Yang hobnobs with Vice President Al Gore, Filo can't remember if he's met the veep.

But if the pressure of success has accentuated their differences, the money seems equally uninteresting to both. They insist they've made no major purchases, they still fly coach class, and the money just doesn't mean that much.

News.com chatted with Filo and Yang in their Silicon Valley offices.

The competition in Yahoo's space has become pretty intense.
Yang: Right. Two things: [the competition] validates, obviously, the space. We sit around at night and say, "Geez, if nobody competed with us we wouldn't be a real company." So there's the sort of the pat-yourself-on-the-back answer, right?

The second principle is that you never, ever want to compete with Microsoft. And even if they want to compete with you, you run away and do something else.

We don't want to compete with Microsoft. We believe that we bring a service that Microsoft can use. We bring them customers and we help them sell software. It's likely that they will also venture into the space, but we also believe the space has opportunity for more than one player. It's not equivalent to the software industry; it's much more analogous to the media industry and where any media that you look at--whether it's magazines or TV channels or cable networks--there's always more than one choice. We believe that there are multiple choices for this sort of stuff. So that's why you sort of see multiple players jostling and juggling for position. Having alternatives for the end-user is always positive. From that end, we want to just really focus on being an alternative for the end-user, no matter what the landscape is like.

NEXT: Yang: Just for fun

Yang: Just for fun

What brought you and David together?
Yang: David was actually my teaching assistant at Stanford in a computer architecture class. That professor gave me one of my worst grades ever. When I got my homework problem sets back, I would go to the TAs and complain about my grade.

Did he change it?
Yang: No.

Later, when I went to graduate school, I needed a partner to do something in lab. You always knew that if you were ever going to do something, you'd want to do it with David because he's one of the brightest guys you'll ever meet, he's the most technology-savvy and has a great business mind. And he's like a rock--he never gets flustered, and he's just really, really solid. We were obviously great friends before we started doing this. That helps a lot.

Was there ever a defining moment when you realized that you were really on to something with Yahoo?
Yang: We never thought of [Yahoo] as a real business until it became a business. And when it became a business, we're like, "OK, well, now we have to figure out what we do next." There's this huge, fast-moving train called the Internet. And we're just half a mile ahead laying the tracks to make sure it doesn't go off the cliff. It's felt like that since the very beginning.

Being a public figure probably puts a little more pressure on you, too.
Yang: Yeah, I think that's true. The quarterly microscopic analysis by the Wall Street community is both good and bad. I think that we have to make sure that we constantly have a clear message to the Street. You have to have a lot of discipline.

What's your message to the Street?
Yang: It's been pretty consistent ever since we went public: We know what business we're in, we're in a branded navigational space. We want to bring as many eyeballs through Yahoo to get them to other services as possible. We're intent on growing the business in the next couple of years. I think the profitability, for us, is accidental. We run a disciplined business and try to break even. We're going to focus on being a break-even business for the next couple of years. And that's been very consistent from the very beginning.

Yahoo has made it a business fundamental to make partnerships, with Softbank to do Yahoo Japan, with Ziff-Davis for a magazine. Did you know early on that partnerships would be so important to your business?
Yang: Well, I don't know who thought about the partnership part of it as being a critical part of our strategy, but I think we've always known that if we try to do everything ourselves, it is going to take much too long. And I think we never doubted the fact that the Internet was going to grow much faster than any of us can keep up with. So the more you can pool resources and create a common structure so that we can all benefit, the faster we can grow the business. I think that sounds obvious, but there's a lot of cases in which we have to work at partnerships to make it work. And partnerships are things that have to be a win for us; it has to be a win for a partner and has to be a win for our end-users. And if that doesn't happen, it's going to be very, very difficult.

We work with a lot of traditional media companies--broadcasting companies, local affiliates. We have about 20 local affiliates that we work with. We don't intend on doing our own productions. We don't have the facilities, we don't want to get into that business. But because of our local affiliates' relationships--for example, we do a little segment every night--they call in and say, "We're doing a story on how to get your cat out of a tree. Tell me all the Internet sites there are on the Web for getting your cat out of a tree." And we help them with stuff like that.

Probably one of the biggest assets that we have today is the kind of partnerships we've developed over time.

You were an engineer, and only in your early 20s, when you started the company. Did you have any training in business?
Yang: Neither David nor I were business people. What has made us successful so far is that we aren't necessarily focused on the business side of things. We're more product people; we're much more [engaged in] figuring out what is the ultimate coolness vs. sort of how to cut the deal today--that sort of a thing.

But I've learned more than I thought I ever could have in the last two and a half years. Both of us have gone through more than we ever thought we could go through in an entire lifetime in two and a half years.

You get thrown into this and you either sink or swim. We're both very, very competitive people and we want to swim. You do what it takes to stay afloat. I enjoy the relationship part of what I do and I'm still learning a ton and by no means do I think I'm good at it yet, but I think it's been such an amazing ride for us to be in contact with so many different people that when you like what you do, you keep wanting to do more of it.

Is it ever intimidating to you to deal with people who are so much older than you are, especially when you went public?
Yang: I think it never intimidates us because I guess part of it is that what we do is so new. Most people are looking at us to figure out what the answer is as much as we're looking to them for help. So I think that almost from the very beginning--from meeting the venture capitalists to going public to talking to partners--we certainly have been nervous, we certainly have been adrenaline-driven, in some instances we may even have been intimidated. But I think that at the end of the day, we are confident of what we've got.

What about you personally? Has the attention, the money, changed your life?
Yang: I guess not. For both David and me, we were doing [Yahoo] when there was no money in it. Had we wanted to do it for money, we would have sold it very early on, because there was a lot of money dangling in front of us. We started with nothing and we have very little to lose. Just having that sort of mentality is really liberating in some ways.

To tell you the truth, I look at the stock once a day, when it closes, and I don't even know how many shares I have. It's so irrelevant to me right now. I mean, I'm 28--I don't need the money, I don't want the money, I don't want to pay taxes. It's all on paper, it's all in stock. It's some big amount...it almost seems unreal, it almost doesn't matter. It's more money than I'll ever need and I don't necessarily need more of it.

We're actually very cheap people. David is certainly; I am as well. Value-conscious is the way I like to put it. And I don't believe in wasting money, I don't believe in blowing it off. I believe in doing what we need to do to live well and to be able to contribute.

Maybe when I'm 40 I'll be sick of everything and do something different, but right now our mindset is still very much that of people who are in their 20s and early 30s.

Silicon Valley seems more politically conscious than ever before. Do you think that's being driven any by a new generation of entrepreneurs, such as yourself?
Yang: I think Silicon Valley has traditionally been a community that really worried about its own interest for a long time. And that's not bad at all--I think that's positive. But I also think that what has been produced out of this area has been influencing not only the country, but around the world in a way that is so profound and so sustained that a lot of people are not only trying to figure out what makes this place tick, but people in this trade are beginning to figure out how we can continue to prolong this interest. And I think a lot of people sort of say it's about time that the community got galvanized around securities litigation and some of the bigger issues like encryption, privacy. And we realized as a community that we have some voice and that voice should be heard across a pretty broad interest group.

I don't know if I'm part of that new consciousness. I think the younger generation, the people who have achieved some level of success in this area, have a civic duty to continue to try to do what's right for our region and for our growth. And I think that's bringing in a lot of economic benefits, but I'm not sure I like the way that this sort of portrayal has been--that it's the new guys that are sort of getting awareness and all that stuff. I think a lot of the older generation of Silicon Valley executives have done a lot to promote the causes of Silicon Valley on Capitol Hill, etc. I think it's as much the media seeking out the new aspect of this more than anything else. I think it hasn't really been necessarily that because of the new Internet companies there is a new political consciousness. I think it's just a gradual coming of age of the political process being involved in Silicon Valley.

I think the fact that [Vice President Al] Gore pays more attention to Silicon Valley and Clinton pays more attention to Silicon Valley has as much to do with all of this as anything else, even if the Internet didn't happen (well, maybe they won't pay as much attention if the Internet didn't happen), but I don't necessarily attribute it to our involvement.

But yet you're 28 you've met Vice President Gore.
Yang: If I was 48 and running Yahoo or founding Yahoo, I would be talking about the same thing. It's really the maturity of the industry rather than the people in it. Now, we may bring a different perspective. I think that we've always had a sense that, if this industry gets into a certain stage of maturity, there has to be some necessary interaction with the government. And we're just trying to play that role in a cooperative manner, rather than sort of going on our own until it's too late, then you have to interact. I don't think that's healthy.

I understand that recently there was a little bit of disagreement amongst the search engines about whether to carry ads for adult sites or not.
Yang: We're very free speech and free First Amendment-oriented. We also see the right to advertise as not nearly as sacred as the First Amendment, but it's certainly a very important element of our society.

To be able to have influence over consumers through advertising is a major basis of our free-market system. So I really look at it as a censorship issue. When you exclude certain advertisers, then you're denying them the opportunity to reach their consumers. And I think especially with the sexual advertising, it's a tough call. But, for example, we don't allow tobacco advertising and we don't allow hard alcohol. On those you can draw a line and say they're bad for you and they're healthy. But the advertising policies with regards to sexual content is that we a) pay a lot of attention to it, meaning that we make sure that it satisfies some very strict guidelines in terms of what it appears on and how it's soliciting; and b) that it's very, very targeted. You have to really look for that stuff to see that advertising. And as long as those two things are happening, there's no reason that we should move down to the path of setting policies of saying that you don't accept those kinds of advertising.

I think the philosophy of the people on the other side tends to be we should be able to use the industry to sort of impose self-censorship, not only on advertising, but perhaps even on other content. And I just don't think that's the right direction because I think the whole point of defeating the CDA [Communications Decency Act] is to a) preserve the First Amendment rights and b) try to find ways to protect the kids. And if you compromise one or the other too much, it defeats the purpose.

So that's sort of our viewpoint, and until we come up with an overall solution that solves those two very fundamental issues, taking on advertising on sex sites, it's not going to help and it certainly could hurt our business. So I think we want to do what's right for the long term and not try to be too reactive and too short-term about some of these things.

What about rating? People have held up filtering software as being the answer to heading off any censorship from the government. But isn't rating software also a manner of censorship, depending on who's making the software?
Yang: Yeah. I think the rating issue is going to be critical in the next few months, maybe a year, to try to define because figuring out how those things will get rated themselves is a very difficult task. You look at the TV ratings war and you look at the movie ratings and you look at the music industry rating their own music--assuming that you can even come up with a very well-defined rating system, I believe that the task is to incentivize people to allow them the option to rate themselves. And for those people who do rate themselves, give them a little bit more incentive and give them some way of saying that, "Here is a better way of looking at content. Should you choose to look at and rate content, here's a better way to look at it."

But we're not in the camp of excluding content that is not rated because I think it will take a long time to get the kind of critical mass. And if you cut the Web at its knees where you say all of sudden, tomorrow, Yahoo only has the rated sites, well, it's certainly not healthy for the Web and it's certainly not healthy for our business.

So what role do you two play since you hired CEO Tim Koogle?
Yang: David is still pretty much the chief technology officer. He makes sure our Web site, which is probably one of the largest in the world, makes sure it runs properly, makes sure we have the right infrastructure, makes sure we have the bandwidth [and] machines. He also tries to figure out the next level of challenge. What happens if multimedia comes on? What happens if high-speed access becomes a reality? What is our role? So he's much more the technology guy.

I think I'm probably more on the business development side, which thinks about what we need to do in the next 12 months to be competitive, to be serving our users, to be forming business models that make sense to build partnerships.

We have much more of an influence role rather than a control role. For us, the success of what I do and David does is our ability to convince people in this company that without proprietary interests, we don't have any sort of functional interest. So our goal is, we get rejected more than we get accepted. And I think that's the way it ought to be because people are developing their own sense of what's right and what's wrong and we're just sort of trying to guide them in the right direction.

We're very much the facilitators. We're trying to make Yahoo run better; we're trying to make Yahoo a better partner for people outside and we're trying to make other people a better partner for us.

NEXT: Filo: The net Net

Filo: The net Net

How did you two meet? Why did you decide to do Yahoo together?
Filo: We were in the Ph.D. program at Stanford in the engineering department and we ended up for some reason with the same advisor. We ended up having an office in the same place and we were in the same pretty small group, so we just kind of got to know each other through that.

Jerry says he knew you before then, though.
Filo: I don't remember this at all, but he says I was his teaching assistant for one of the classes he took and I gave him a bad grade. But I had no idea he was in that class and didn't actually know that until pretty recently, so I'm not sure that it's true or not. He tends to exaggerate.

I understand you still spend a lot of time working on the nuts and bolts of the site. How difficult is it to keep up with the traffic Yahoo gets?
Filo: In the last year traffic has been probably somewhere between double and three times what it was, which is actually slowing down. In the first year it was doubling every month and it's kind of slowed down. As we get bigger the growth will obviously slow down. You can't continue to double every month. But it continues to grow relatively quickly. And so a lot of the problems that we solved in the past with certain solutions no longer work. So you have to, a lot of times, redo problems that used to work but don't anymore. And as more users come in, you have to deal with that in trying to spread the Web site, not just having it in one location but in multiple locations. Now we're moving to internal sites. So dealing with all of this, at least the operations side of managing all the data and all the users and all the stuff is a pretty big challenge.

So are you running into a lot of problems with the Internet itself, which doesn't seem to be really made to do what we're using it for?
Filo: I think the Net's scaled a lot better than people thought it would. A lot of people have said it would fall apart and it continues to work. Companies dump lots of money into it and new lines are being added every day. So I think amazingly it's actually kept up relatively well with use.

For the most part, I think things have probably been getting better lately. I think things get better for a while and then there might be something where things go bad for a period of time and then people end up putting more money into it, more equipment, more lines, and things get better. Kind of a cycle.

But yeah, a lot of our problems are Internet problems that we don't have control over. And those are the most frustrating problems because we can't do anything about them, but when people can't get to our site that's obviously not a good thing for us. And if we could do something about it, great--we can fix the problem, we can buy more equipment or whatever, but when it's something else out there between us and the user, whether it's their ISP or something in-between, then there's not a lot we can do about it.

What about the limited resources on the Net and questions about how to share them?
Filo: I think most of those issues are being addressed. I think by the time they become critical issues there will be solutions in place. So for example, the IP [Internet Protocol] numbering issue, that's being resolved over time. And I think by the time we actually run out of addresses, the solution will be in place. And the domain name issue, I think will kind of work itself out. There's so much interest in it today, so much money being spent on it, that solutions will be found and will be implemented.

Doesn't that cause a little more conflict though?
Filo: Yes, it's harder to get a consensus. It used to be either students or research groups or whatever would set standards, but today, now it's the commercial companies. Netscape and Microsoft, they're setting the standards. But the end result is still the same thing: HTML is moving forward, new tags are being added because Microsoft and Netscape are pushing that.

Is that OK?
Filo: Yeah, I think it's fine. Whether it's a student or it's a company, the key is having the stuff open and it has remained relatively open. When Netscape adds a new tag, everyone else is free to do the same thing. And that's generally what happens. It's still an open system for the most part. As long as the system remains relatively open, then whether it's commercial interests or it's students or whether it's government-funded things that are driving it, I think it's kind of irrelevant.

Companies getting into the Web has been a good thing, because a lot more money is being spent. There's a lot more resources. So if you look at the development of the Web over the last three or four years, it's been orders of magnitude more quick. Just the infrastructure that's been built and the technology advances have been an order of magnitude faster in development than, say, the previous five years.

It's been suggested that the solution to the domain name system crisis is to simply abolish domain names and replace them with a mega-search engine. Would that be good or bad for Yahoo?
Filo: Well, I think that you still end up with similar problems. When you search for "United," you're going to get back a ton of stuff. You're still going to have the problem of people will typically just type in whatever comes to their mind and it's usually maybe one or two words, same as when they try to guess a domain name.

When we do move to multiple domains, then the search engines will always be there to be able to find what you're looking for. It's basically the evolution of the search engines.

If you think about it, the biggest problem with that is that search engines typically will include a lot more stuff than just what's at the organizational level. Over time, you'll be able to search through the actual domains. Directories like that will evolve.

Search engines will also probably play a role in that and if anything, will be the place that people go to do that actual look-up. Hopefully, that will be one of the solutions to the whole domain name space problem.

Yes, but all the solutions so far have been politically charged. Do you think Yahoo should get involved? Are you interested in the resurgence of politics in the Valley?
Filo: Not that much. I think there's a necessary role that Silicon Valley needs to play in politics. But, especially with the Internet, it's a whole new thing and people have a lot of concerns about it and it's not really clear what role government is going to play in it. And so I think it's important for some of the executives from Silicon Valley to have some role in that.

But for the most part, I think getting involved is probably a really frustrating process. Things here move so quickly. You're used to getting things done and not the bureaucratic nightmares that you get involved with [in politics], not having things get done and the compromises that are involved and all of that stuff. I think getting into politics is just a whole different world. I have no interest in getting involved in that.

NEXT: Filo: The rewards of Yahooin'

Filo: The rewards of Yahooin'

Do you still have fun doing this?
Filo: Yes. In some ways it's different, obviously, than it was three years ago, but it's still very challenging, it's interesting. I think it's just as much fun as it has been from day one, though in different ways. It's obviously a bigger company now. In the early days we had complete control over the product. That's not the case anymore, but there are a lot more resources to do interesting things that we could never do before. So there's new challenges, but it's still very challenging. It's also being, I think, involved in the growth of the Internet and being on the leading edge of this whole new industry is very exciting.

Has Yahoo's success changed your life?
Filo: Probably the biggest change is really not having time to do things that I used to be able to do. For the last three years pretty much I haven't done a whole lot outside of Yahoo. Just going outside and playing tennis or golf or going skiing or even watching TV just doesn't happen anymore. I keep thinking that over time that will change. It will as the industry matures. I'm sure we'll be spending less time devoted to working on this, but for right now it's still, it pretty much consumes all my time.

What's rewarding to you?
Filo: I think that from day one we started this strictly for something that was for ourselves. And it wasn't really intended for anyone else to use. But when we put it on the Web, people started using it. And the rewarding thing was, we put this out and two months later we had people from 40 countries that were using it. The great thing about the Web is you get this instant feedback. So we started this thing as just the sites we were interested in, but when people started using it people would send us email saying this is great but could you add something about this particular subject or could you add my site.

So we started doing that and more people started using it. So the rewarding part is number one, people using it and coming back and finding it useful and then just letting us know about that. The number of emails we've gotten over the last three years is just unbelievable. And obviously not all of it is positive, but there's a lot of positive stuff in there. People have used it to do whatever. And there's some great email that people have sent us of how they've used Yahoo in various ways and probably ways we never even imagined people would use it.

What happens a lot is people finding either long-lost relatives or friends from a long time ago. And they do that in various ways. A lot of times it's not necessarily even things that we provide directly. If they find someone, it may have been they started at Yahoo, but then ended up finding some database out there where they were able to find their relative. A lot of people out there don't really draw distinctions between where Yahoo starts and where it ends, so a lot of times you aren't even sure if we really did help this person, or how did they actually find this out.

We also list people's Web sites, a lot of smaller mom-and-pop shops. You hear how grateful they are because now their business has tripled. A lot of times they'll send stuff to us. So if they're in the candy business, they'll send us a box of candy or send us T-shirts or whatever they're doing. People have offered to send us money for whatever reason. That's the power of the Web.