The Swyx Mixtape

The incredible origin story of Yahoo from start to $850m IPO in 2 years.

Source: https://greatness.floodgate.com/episodes/jerry-yang-how-yahoo-went-from-a-hobby-to-the-early-king-of-the-internet

Yahoo Origin Story

Jerry Yang: When the HTTP and the web and HTML came along, it was this moment of aha. All that information can be put together in a graphical way. That is point and click. You don't have to sit in and typing command line and hyperlink.

[00:00:15] So you just kept going. You could keep exploring as owns there's links to click on now. Moment for us to say, wow, this is going to be big because anybody can create a website and can link to other websites. So you don't need a lot of content to start. Right. You could just start and say, Hey, here's my Madonna website and here's five other ones.

[00:00:34] And it was totally decentral. There was no way of knowing who created what website, when and how was updated and things like that. So, so there were just websites out there. So there's websites that are popping up everywhere. And so we created a little, just the beginning when we called it hotlist and then David started writing the end to get it into more of a database format, more tagging or labeling more keywords and a more directory structure.

[00:01:00] And. Publish it onto a webpage in the front end. And so it was called Jerry's guide to the world wide web. And then. And I don't quite remember exactly when it was, has gotta be, early 94, mid 94. And then at some point I got sick of putting my name out there and David doing 80% of the work. So I put David and Jerry's guide to the world wide web, and then all hell broke loose.

[00:01:19] So we said, One night, let's not leave until we come up with a new name. Right. So I remember we were, at the office and God, it must've been midnight and we were getting tired and sick of this. And so, so we said fine, let's look up all the acronyms that had yet another Y There's all kinds of computer tools.

[00:01:37] I have Yia references and we looked in the dictionary and Yahoo stood out. Partly it was because if you look in the dictionary, it means people who are very uncivilized uncouth, rude, and were like cost. Great. We're just a couple of years. 

[00:01:50] Mike Maples Jr: And was David 

[00:01:51] Jerry Yang: from Louisiana. He was from Louisiana. Yeah, he claims his father called him a Yahoo or Yahoo growing up.

[00:01:57] So, and so we just thought it was funny. It was short because we were typing our thing. We could get a short Yahoo that, Stanford IDU, everybody thought we were the chocolate drink it's it was it was just a totally zany off the cuff decision. 

[00:02:11] Mike Maples Jr: And at the time, did you even really think it was that important of a decision or is this just still a hobby?

[00:02:16] Jerry Yang: It was absolutely a hobby. And so it was only important because, we had to go and tell people that this is what is now called. You don't have to type in David and Jerry's guide to the world wide web anymore. And it remained a hobby until. Until it wasn't. 

[00:02:29] Mike Maples Jr: And when you were designing the original Yahoo product, did you draw on any lessons from like library science or attempts pre prior attempts and just throughout history to classify 

[00:02:41] Jerry Yang: it?

[00:02:41] Thanks. Yeah, it was funny. I, as a college student, I, one of the jobs I had to take was working in the engineering library, working in the stocks too. To restack books. So I was very familiar with it, the Dewey decimal system, and a bunch of other ways of organizing information. And it just didn't seem right when we started Yahoo to go to any existing system.

[00:03:00]So we created our own sort of ontology our tagging system, our directory tree that I think lived on for quite a while but it was a bit ad hoc. And so we realized we needed somebody that understood organizing information at a grand scale. And that's when you know, , who was a symbolic systems major, Stanford joined us and she like.

[00:03:22] Put order into the chaos. 

[00:03:23]Mike Maples Jr: And I guess, with libraries, you've got some type of hierarchy, I suppose, right. Books are in a classification or sub classification and you're trying to put them back on shelf. Right. So, but the internet, I suppose, you discover pretty quickly, it's different. Right?

[00:03:38] You can cross link to 

[00:03:40] Jerry Yang: lots of different, right. You're exactly right. So it's more of a graph than a tree, in a it's more interconnected graph. It doesn't. We try to avoid circles. You don't want to get in the place where you just can't get self out, but the idea that you can interrelate, you can get to you can get to a music artist from Iceland, from starting with Iceland, countries, Iceland, or you can start with music artists, or you can start with pop.

[00:04:02]The idea was to get people where they want to go. If you think of a keyword, why would you. Not let that keyword get you where you want to go, rather than following some crazy hierarchical system that may or may not make sense to you. So, so it was again, this mental and mentality of really focusing on the user needs and creating a system that you will go, oh, okay.

[00:04:21] I see how you got here. So next time I know. I could start here. I would start there and making sure that's consistent. And that's, that was, that's why I ended up being a search metaphor too is whatever keywords you typed in allows you to get to the right place, not multiple places.

[00:04:36] Mike Maples Jr: When did it start to occur to you? Whoa, like this is starting to 

[00:04:39] Jerry Yang: take off. Once we became the place known for having a pretty well organized, pretty comprehensive in a very fast site. I mean, David really emphasize making sure that, we had a really quick loading site and that was really important because.

[00:04:54] Back then, most computers were dial ups. Most people viewing our stuff wasn't on a fast connection. So yes, you want to put all these fancy images out there, but if it takes forever to load, so he always really emphasized that user benefit. I can't quite remember it, but probably by the end of, mid 94, towards the end of 94, we had IP addresses from over a hundred different countries, hitting our service.

[00:05:17]We have millions of unique IPS that were hitting us. We didn't know about users back then. And people started, we started to become this network effect where if you were putting up a website, you have to register it in different places. And we became one of the places you had to.

[00:05:29] People know, you have to let Yahoo know that you have this website, or I have this change, or can I get reclassified because I did this. And so we ended up being in this constant communication with a web community that was very human. That was very there's two guys behind it. And that was an important element because I.

[00:05:46] You could have easily written algorithms to do all that, but back then, it wasn't, it was a little too chaotic and it was a little, the quality really varied and websites went up and down all the time. And there's nothing worse than hitting a 4 0 4. Right. So it was just, it was, you could feel the energy of the web growing through.

[00:06:03] The work we were doing. And that was really compelling. And, we stayed up all night and barely slept. And then, you had to come back, otherwise the list just gets long. 

[00:06:10]And then I remember finally, one day our system administrator came to us and says, we can't hide you guys anymore.

[00:06:15] There's so much bandwidth being sucked up by these two servers over here. You guys got to, got to go find a home. And that's when I think we became more visible and aware of the opportunities out there. And once people realize Yahoo is finding home, that's right. That's when the opportunities avail themselves, whether it's corporate partners or venture capitalists.

[00:06:36]So we, we said to ourselves, well, we might as well explore those. We, we don't know what it's going to become of it, but why not? Why not check it out. And so 

[00:06:43] Mike Maples Jr: how many venture capitalists did you talk 

[00:06:45] Jerry Yang: to? I would say probably a handful. So consumed and busy trying to keep the service going that we couldn't spend a lot of time fundraising, if you want to call it that we didn't know that was the process.

[00:06:55] And I think we pretty quickly settled on. On who we thought understood what we wanted to do the best. And that was Mike Morrison. 

[00:07:04]Mike Maples Jr: And what was your pitch like? Did you have a slide deck? Did you, or did you say here's 

[00:07:09] Jerry Yang: Yahoo to the, well, when you, I think someday, if you talk to Mike on the podcast, you have to ask him his version.

[00:07:15] But I, to this day, I remember. Who were in that general partner's meeting saying, oh yeah, I remember when you guys come in and present it. And I don't remember a presentation. I remember sitting in a corner of a room, a large table, a bunch of Sequoia partners and talking, and so, maybe I think we show the service or something.

[00:07:31] So, so I don't know, maybe there was a pitch deck who knows, but no, it wasn't. In retrospect, I don't think it was a lot of capital for Sequoia. Yeah. But it was also probably an Unconvention. Investment, right? I mean, you got two PhD students that no experience, no business model, no business plan. We had a great service that had a lot of users, but but there were tons of competitors.

[00:07:53] Everybody says, look, These two guys put together by hand that 

[00:07:56] Mike Maples Jr: it's hard to remember now, but I remember in those days, people didn't even think Netscape was going to have a business model, right? Like no, nobody could figure out what the business model of the internet would be. 

[00:08:06] Jerry Yang: Right. And it was a research and an academic medium that was staunchly believed in non-commercial activities.

[00:08:14] And so it was this very tender. Time where, whether you could charge for software, like Netscape ended up doing or charge for advertising. Like we ended up doing those are very non-obvious speculative kind of ideas because the internet community could have easily rejected that. Okay. So 

[00:08:32] Mike Maples Jr: then Mike just decides to take the risk and he invests.

[00:08:35]How much did Sequoyah invest 

[00:08:36] Jerry Yang: in you? Yeah. They did a million dollars of the $4 million post, not bad. And then I 

[00:08:42] Mike Maples Jr: think they did all right. I think they did. Okay.

[00:08:43] So from the time you raise money to IPO, how long was it? 

[00:08:47] Jerry Yang: We were incorporated like on March 1st, 1995. And then we went public on April in 1996, right? Yeah. I remember driving down one, went to, we went to Montgomery securities on the day of the IPO.

[00:09:00] I was driving back down, one-on-one going to work and it hits you, it's like, oh my God, we're a public company. But because the internet was. He was so competitive and was a land grab and we had to at least, get enough cash so that we're not. So the cash wasn't, that then will be the reason that we didn't succeed.