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Sitting on Top of the WWWorld

Internet: Yahoo's lean, nimble approach has made it the richest of Web portals. Now the hard part--staying there.


SANTA CLARA, Calif. — With more than 26 million visitors a month and a market capitalization of nearly $10 billion--about twice the worth of rivals Netscape, Lycos, Infoseek, Excite and CNet combined--Yahoo can credibly lay claim to the throne as king of the World Wide Web.

Drawing nearly half of Web users, Yahoo represents the closest thing to a nexus for the new age of communications. How did a start-up do it in less than four years? And in the ephemeral realm of the Internet, can such a record possibly last?

Santa Clara-based Yahoo was founded on one big idea: A way to organize Web sites into coherent categories, called directories, that make the far-flung Internet navigable.

"Our first idea was not even so great," notes the understated Jerry Yang, a bluejean-clad 29-year-old who, with fellow Stanford graduate student David Filo, came up with Yahoo's directory scheme.

Such modesty derives from the simplicity of directories--so simple that by 1994 no one else had figured them out. Yang and Filo devised the Web's first table of contents. The simple idea was great enough to give each co-founder a net worth of nearly $1 billion.

Now all the Web portals--giant sites that offer search tools, e-mail, shopping, financial services, chat, and online interest groups known as "communities"--vie for supremacy with their own categorization schemes. But unlike Yahoo, which employs a team of professional surfers to find the Web's top sites, the others use only Web-scouring software "robots" to tirelessly view and catalog.

"It's difficult to substitute for human intelligence in search results," said Chris Charron, an analyst with Forrester Research in Boston. "Users find what they're looking for at Yahoo."

Human intelligence thrust Yahoo into the lead. A rapid roll-out of e-mail, comprehensive financial services and a marketing effort that made Yahoo the Internet's first household brand kept the young company on top.

Staying there on Internet time--where, as the saying goes, "if you break for lunch, you are lunch"--will be a greater challenge. Going forward, the key to success is a willingness to "obsolete yourself," Yang said. "Being nimble is the way to do it."

Analysts agree. They think Yahoo--a rapidly growing but still-small company with fewer than 700 employees--may stay more nimble than heavyweight competitors like Redmond, Wash.-based Microsoft and America Online in Dulles, Va. A demonstrated ability to respond to change and even to write the rules for success on the Web has made Yahoo a darling of users, pundits and Wall Street alike.

One key to staying responsive, says Chief Executive Tim Koogle: Never let a breathtaking stock valuation distract from Yahoo's business. As a result, Yahoo is profitable, unlike many overnight Internet sensations. It took in $53.6 million in the last quarter, earning a $16.7-million profit, handily beating analyst expectations, as it has every quarter since going public.

Company's Mantra: Stay Lean and Loose

This $11-billion company does not own a building and lacks a single closed-door office; some executives share cubicles.

"We've always worked to build a company that knows how to make money," said Koogle, at 47 the graybeard of a management team whose other members are in their 20s and early 30s. "If you don't build that desire into the culture of the company, it gets harder and harder to do it later."

Asceticism is part of the method behind the Yahoo mantra: Stay focused and make the tough decisions.

Part of that focus means Yang and Filo have not let fame and fortune go to their heads. Yahoo's employees laud the founders for "lifestyle leadership." Most people might not be inclined to idealize Filo's 100-hour weeks or his cubicle--piled high with paper, dirty clothes and shoes, and assorted tchotchkes.

But in fairness, "lifestyle leadership" seems to be shorthand for when twentysomething billionaires live and talk modestly and leave day-to-day management to the pros. Yahoo cubicles--cluttered with the toys and trinkets of the video game set--might put off conservative middle America, but they're commonplace at Silicon Valley start-ups, a culture that has served Yahoo well.

In one sign of focused frugality, Yahoo lacks a genuine R&D department. Instead it finds partners with the best ideas and integrates them to form a superior product.

But is that product better or just better known?

"Part of the beauty of Yahoo is its simplicity--a clear, uncluttered, fast home page," Charron said. Several competitors have copied that approach, in contrast to the prevalent trend of Web sites loaded with fancy graphics that cause navigational confusion and sluggish performance.

"Yahoo understands better than anyone what the average user wants from an online experience," said Paul Noglows, an analyst with the San Francisco-based investment bank Hambrecht & Quist, citing Yahoo Finance as a prime example. "There's not a lot you can't do there. This is why it's the most frequented business site on the Web today."

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