The rise and fall of an internet giant

Yahoo billboard in San Francisco

A couple of graduate students messing around in a campus trailer in 1994 didn't imagine they were on the brink of starting a global business for which Microsoft would eventually offer $44.6 billion. But they were.

Like many of us, David Filo and Jerry Yang, electrical engineering students at Stanford, kept a list of the websites they visited, so they could find them again. But they did a much better job than most of us, sorting their list into categories, and then subcategories. They also put Jerry and David's Guide to the World Wide Web onto the web, so other people could use it.

Visitors poured in, and after a year it was clear the students had a potential business. They turned their guide into a company in March 1995, and in April raised $2m in venture capital funding. Yahoo went public a year later and soon became one of the biggest names on the web.

Originally, the directory was assembled by human editors, and it dominated Yahoo's front page. Today it can be hard to find, unless you know it's at It became obsolete because the web grew too big too fast for editors to keep up. Users switched from directories to search engines, driven not by humans but by speedy software robots or "spiders".

Front door to the web

By then, of course, Yahoo had become much more than a directory. It offered dozens of services including email, messaging, shops, an auction site and photo albums. Its new aim was to be a portal, a front door to the web.

In the rush to expand, Yahoo bought more than 50 companies, sometimes for silly prices. For example, it paid $3.6bn for GeoCities, where users could create their own home pages, and $5.7bn for Other purchases included Hotjobs, MusicMatch, eGroups, Kelkoo (shopping search), Flickr, Konfabulator, and

In the "portal combat" wars against AOL and Microsoft's MSN, Yahoo mainly won. (The losers included Alta Vista, Excite, Go, Lycos and Netscape.) It is still the web's biggest portal, and one that users can customise via MyYahoo. Unlike Google, it puts lots of news and features on its front page, and on the left it sports a list that links users to more specialised areas. These include Finance (company information and stock quotes), Maps, Movies, Shopping and Travel.

Yahoo still has the web's biggest email service, and if you want your email, calendar and contact information in one coherent place, it's the best big service around. Yahoo's search is also better than it's given credit for, but some of its other services have fallen behind.

As the internal Peanut Butter Manifesto explained, Yahoo had spread itself too thin, failed to execute well enough, and wasn't capitalising on its strengths. The web just got too big, and the competition too tough. Yahoo still offers lots of worthwhile services, but right now it's a giant in decline. And in this business, the stragglers usually get picked off.

If Microsoft doesn't get Yahoo, someone else probably will - and for a lot less than $45bn.