March 2, 2005 4:00 AM PST

After 10 years, Yahoo still searching

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as a bottom-up approach to growing it business. Employees were expected to foster new ideas, test them and then launch them.

"People had a lot more rope to go out and do more innovative things," said one former Yahoo executive who requested anonymity. "The downside was you didn't coordinate with the rest of the company, and nobody was holding a central road map."

Jerry Yang (left) and
David Filo, co-founders

Yahoo grew quickly, rushing toward an IPO in 1996 that accelerated the dot-com boom when its stock exploded on the first day and soared straight up from there. Revenues also began pouring in, jumping from $19 million to $1.1 billion by 2000.

But by 2001, there were signs that the age of innocence was coming to a dramatic end. The dot-com stock market crash in 2000 resulted in an overall drying up of venture capital money, the main source of funding for the swarm of Internet start-ups trying to go public. The ripple effect eventually hit Yahoo, which attributed most of its advertising revenues to exclusive deals with venture-capital-flush dot-coms.

Changing faces
Facing disenchanted Wall Street analysts, skeptical reporters and a stock price heading toward an all-time, single-digit low, Yahoo CEO Tim Koogle resigned. The board brought in a controversial replacement--Semel, a former studio head for Warner Bros. who had never served as CEO of a publicly traded company and had no high-tech experience.

Terry Semel, CEO (left),
and Dan Rosensweig, COO
While Yahoo's success was built off the backs of Yang and Filo's search directory, search eventually would come back to haunt the company. In June 2000, Yahoo agreed to use Google's Web search technology in its own search engine. Five years later, Yahoo has paid a heavy price for Google's ascension. Google has entered into many of Yahoo's businesses, such as free e-mail, and Google remains Overture's biggest competitor in paid search.

Last quarter, Google reported $1.032 billion in revenue, just shy of Yahoo's $1.078 billion.

"Search was a focus of the company, but we white-labeled Google and called it a day," recalled one former Yahoo executive who spoke on condition of anonymity.

Semel's seminal move, many analysts believe, came in 2003, when Yahoo acquired Overture for $1.7 billion. Since acquiring the company, Yahoo watched its revenue soar from $1.6 billion in 2003 to $3.6 billion in 2004.

"The question for Semel's first year and a half was how to fix it," said NetcableTV CEO Graves. "Paid search fixed it."

Yahoo's future could reside in new areas of growth that are harder to break into for competitors but which are much closer to Semel's expertise. Earlier this year, Yahoo signed a lease to take over a sprawling office park in downtown Santa Monica, Calif., in anticipation of moving most of its content and entertainment operations into the area.

The company has struck deals with major entertainment producers such as Mark Burnett of "The Apprentice" and "Survivor" fame, along with exclusive rights to distribute two animated films from JibJab. Both deals were lead by Jim Moloshok, a former Warner Bros. executive brought in by Semel to strike deals with Hollywood studios.

The company also hired former ABC executive Lloyd Braun to head all of Yahoo's media and entertainment properties. The hiring was considered by observers as another step for Yahoo to become an online entertainment player, opening up the possibility of creating their own content one day.

Despite all of these changes, despite all the ups and downs of the stock and its revenue, Yahoo believes its roots remain the same.

"We never lost sight that what we knew from our media background is that advertisers ultimately follow the eyeballs," Dan Rosensweig, Yahoo's chief operating officer, said in an interview.

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A promising new powerhouse winking through!
It's amazing to think how over such a short time these powerhouses have established themselves as some of the best known and loved companies in the world.

The benefit they provide the world in structuring information and providing it as a free service, has and will enrich peoples lives for many years to come.

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