August 23, 1999

Fiercely Independent, Yahoo Is the Web's Switzerland

By SAUL HANSELL

ANTA CLARA, Calif. -- For years, Timothy Koogle built high-performance cars and raced them.

"I just love speed," he says. "And I love well-built, highly engineered machines."

These days, Koogle is the chief executive of Yahoo, and his board won't let him take the risk. But the same impulses that inspire his passion for fast cars have helped build Yahoo into the well-tuned machine that paces the Internet pack.

	Monica Almeida/The New York Times
	Despite different styles, Jerry Yang, Yahoo's co-founder; Timothy A. Koogle, center, its chief executive, and Jeff Mallett, chief operating officer, are said to have developed an easy working relationship, forging strategy in spirited debates.

Some 80 million people visit Yahoo worldwide each month -- traffic that will help it sell about $500 million in advertising this year, up from $208 million in 1998. And even after a 40 percent drop in its stock price since April, Yahoo has a market value of $37 billion.

There are many reasons for Yahoo's success. In the early days of the Web, in 1994, its founders, Jerry Yang and David Filo, came up with a good idea while avoiding writing their computer science dissertations at Stanford University -- a handmade directory of Web sites. And they picked a great name.

But it was Koogle, 48, whose predilection for speed belies an understated and analytical demeanor, who figured out how to make Yahoo a business. Like the top executives of most companies that operate on Internet time, he insists on running flat out. Unlike most, he has also steered a straight course, never allowing Yahoo to drift from its ambitious but simple business model, even as other Web start-ups bounced from fad to fad.

"On the outside, Yahoo is a fun and irreverent place," Yang said, "but on the inside we are extremely competitive people who are very disciplined and serious about growing." Referring to Koogle by his nickname, he added, "T.K. has ingrained in all of us that whatever we do, it should speed us up, not slow us down."

An engineer with no background in media companies, Koogle concluded soon after he was hired in 1995 that Yahoo's biggest opportunity lay in offering a free advertising-supported service. That model is almost universal today, but at the time, creators of other search sites thought they could charge money for software or even for searches.

And he was the first to map a strategy for expanding a search engine from a simple way to find things on the Internet to the kind of broader service that has come to be known as a portal, mixing products like free e-mail with specialized information areas like the popular Yahoo finance site. What is more, he planned not only to do this in dozens of countries but to do it while earning a profit -- a distinct rarity among Internet businesses.

The most fundamental difference, however, is that Koogle insisted that Yahoo stay obsessively independent, essentially the Switzerland of the Internet. In its early, cash-starved days, that meant turning down eager suitors willing to pay for the right to be the exclusive provider of one thing or another. Recently, it has also rebuffed overtures from huge conglomerates interested in marrying Yahoo to their broadcasting or publishing properties.

"I'm a big fan of the long term and a big fan of discipline," Koogle said recently. "If you are short term in your thinking, people will wave checks at you and you will take them. We've seen our competition do that. Our users value us because we are a trusted, independent, comprehensive source."

Still, some wonder whether Koogle's stubborn independence can survive the cutthroat market battles that lie ahead, especially redoubled competition from Microsoft Corp.'s MSN and America Online, both of which offer Internet access and browser software as well as a broad range of online services.

"Yahoo's problem is that it needs to be bought," insists Barry Schuler, who runs most of the online services for America Online. "Yahoo's management is great, but the portal model has failed. It's just a feature of something bigger."

Indeed, all the other search engines have rushed to align with larger partners. Excite was bought by At Home Corp., which is largely owned in turn by AT&T and other cable companies. Infoseek is being acquired by Walt Disney Co. Snap is controlled by General Electric Co.'s NBC subsidiary. And in the spring, Lycos agreed to a complex marriage with USA Networks.

So far, however, these deals have created nothing but drag. Lycos was forced to cancel its merger after investors complained. Disney has had to revamp its deal with Infoseek after a slow start for the partners' new Go Network service. And Excite, long Yahoo's most vigorous competitor, is now caught in a family feud between AT&T and the other owners of Excite@Home.

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Koogle has preferred to play the role of acquirer. He courted Excite earlier this year until At Home snatched it away from him, and then immediately bought Geocities, the big community-based Web service, and Broadcast.com, an Internet audio and video service. Those deals have expanded Yahoo's offerings, audience and market value while preserving its cherished neutrality.

"I don't think anyone could own them and have them still be as successful," said James Murdoch, the president of News America Digital, the arm of News Corp. that runs Internet services for Fox News and Fox Sports and has a number of nonexclusive promotional deals with Yahoo. "People don't want to go to a portal and only see Fox properties or NBC properties. The reason Yahoo has done so well is that they are independent -- and they have been religious about it."

Koogle says his ideas about management were inspired by the self-reliant work ethic of his father, a fireman and machinist for the Navy.

"He said nobody owes you anything, so go out and earn what you want," Koogle said, "so I've been making money since I was 7 years old." In high school, he worked fixing machines at McDonald's and repairing cars with his father.

As an engineering student at Stanford, he rebuilt the engines of other students' cars -- "rich kids with plenty of money to pay to have them fixed correctly," he recalled.

His other passion is music. During less hectic periods in his life, he played in several rock bands. And now, divorced with no children, Koogle will pick up one of the several guitars strewn around his office or his bedroom to relieve the stress of a round-the-clock work schedule.

Koogle's love of machines spurred him to start a business while he was a graduate student in 1978 making controllers for electronics manufacturing. He eventually sold the business to Motorola. He next moved to Intermec -- then an ailing subsidiary of Raytheon -- which makes bar-code scanners, as chief engineer and, later, president.

Abandoning Intermec to take the helm of Yahoo was a significant gamble. In 1995, the Internet was largely a curiosity, a blank slate with no successful business models. He set out to create a corporate culture that tempered big-company ambitions with an entrepreneur's focus on financial discipline.

"I still have conversations with people asking, 'Why do you bother with profits?"' Koogle said. "But I've had enough experience to know at a gut level that if you don't build a company from the start to be profitable, you're never going to be able to get profitable later."

Yahoo achieved its first profitable quarter in September 1997, and reported an operating profit of $28 million in the most recent quarter, excluding the charges associated with its acquisitions.

Despite its success, the company still prides itself on penny-pinching. Executives will cut out of meetings early to catch the last flight home and save the cost of a hotel room. Salaries, from top to bottom, are low by Silicon Valley standards. The payback, of course, is stock options; Koogle's are worth nearly half a billion dollars.

For a workaholic, guitar-playing, race-car-driving, demi-billionaire, Koogle comes off as surprisingly serene. He speaks slowly, methodically, with quiet, self-effacing humor. On a bright morning a few months ago, smoking a cigarette outside Yahoo's headquarters, sporting black jeans, a denim shirt and a mane of gray hair, he looked more like an aging rock 'n' roller, which of course, he is.

"He's not one of those ego-CEOs who try to micromanage everything," said Karen Edwards, Yahoo's marketing head. "He is easy to talk to, but it always seems like he's pondering life's true meaning."

Indeed, operating details are delegated to the staff of young producers, while strategy is still forged in spirited late-night debates among Koogle, Yang and Jeff Mallett, the company's chief operating officer. Despite their different styles, the three men have, by all accounts, developed an easy working relationship.

As intense as Koogle is laid back, Mallett, 34, oversees the company's operations. Yang is often Yahoo's face to the outside world and its designated worrywart, pondering the next wave on the Web. His very private cofounder, Filo, helps manage the company's vast computer network.

Yahoo's management has anticipated -- or invented -- most of the major shifts in the short but chaotic history of the Internet. Last year the company's big push was to develop services like e-mail, customized news pages and chat rooms, all of which force users to register their names and other valuable demographic information.

Now it is developing a suite of services for businesses, including advertising, e-mail and online store software, built on its vast store of data about users.

But Yahoo's penny-pinching ways caused it to fumble the attempted acquisition of its archrival, Excite, according to executives involved in the negotiations. At a pivotal bargaining session, Yahoo appeared to back off from some of its earlier terms. This prompted Excite to open parallel talks with At Home, which quickly raised the bid, with one condition: Excite could not give Yahoo a chance to counter.

Learning its lesson perhaps too well, Yahoo swung the other way in its next deal, offering a big premium over Geocities' existing share price on the condition that the company agree within a day. Only six weeks later, it made a similar pre-emptive bid for Broadcast.com.

Those deals have not been universally popular among investors. So far, advertisers have shown little interest in Geocities pages, which are all created by amateurs. And most of Broadcast.com's revenue has come from running Internet conference calls for businesses.

Koogle argues that Yahoo can tap its large sales force and database marketing prowess to increase the advertising revenue from both services.

Perhaps the biggest question, though, is whether the company is positioned to thrive in a world of high-speed Internet access provided by cable, telephone and satellite companies, which are forming alliances with programming providers.

"It's important for Yahoo to keep its brand front and center," said Shaun Andrikopoulos, an analyst with Deutsche Bank Alex. Brown. "That will be difficult to do, because they don't control the front screen."

Koogle asserts that even high-speed customers will bypass the front door provided by their cable or phone company and seek out Yahoo because of its broader offerings and, more important, because fast connections play to the strengths of multimedia programming from Broadcast.com.

"There are multiple technologies, multiple providers," he said, "and we think that there is a great benefit for us to remain independent."

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Related Sites
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• Yahoo

• MSN

• America Online

• Excite

• Infoseek

• Lycos

• Go Network

• Geocities

• Broadcast.com