Yang's $2 Blackjack Limit, EBay Failure Leave Yahoo Unprepared

(Bloomberg) -- Fourteen years after publishing his first guide to the Internet from a Stanford University trailer, Jerry Yang isn't ready to see his creation absorbed by the world's largest software company.

Yahoo! Inc.'s 39-year-old co-founder survived the dot-com bust and weathered failed efforts to challenge EBay Inc. in online auctions and Google Inc. in Web searches. He and the board plan to reject Microsoft Corp.'s $44.6 billion bid today, a person familiar with the decision said, leaving Yang to battle to keep his Sunnyvale, California-based company independent.

While the offer lifted Yang's net worth by more than a half-billion dollars, money means little to Yang, former executives say. He spent his career building the most-visited U.S. Web site. Yang took his first crack at being chief executive officer in June, aiming to reclaim the company's dominance on the Internet.

``It's his baby,'' said Steve Mitgang, a Yahoo senior vice president who left last year to run Web TV company Veoh Networks Inc. in San Diego. ``He wants to win, and he wants to fight to win.''

The board spent a week reviewing the $31-per-share offer before deciding it was too low, said the person, who declined to be identified because the discussions aren't public. Yahoo wants at least $40, the Wall Street Journal reported this weekend.

Yahoo spokeswoman Diana Wong said over the weekend the company doesn't comment on rumors or speculation. Microsoft spokesman Bill Cox declined to comment.

In rejecting the offer, Yang confronts Microsoft CEO Steve Ballmer and Yahoo investors whose stock tumbled by half in the past two years. Redmond, Washington-based Microsoft's $31-a- share offer on Feb. 1 was 62 percent higher than Yahoo's price before.

`Uncouth' Name

In an e-mail to his 14,000 employees last week, Yang said Yahoo was weighing its options. Analysts including Gartner Inc.'s Andrew Frank in New York said alternatives like linking up with Google or News Corp. won't work. Investors like Firsthand Capital Management's Kevin Landis said Microsoft made a ``fair offer.''

Born in Taiwan, Yang was brought to the U.S. when he was 10. He worked in the Stanford library to help fund his undergraduate education.

Yang and David Filo cooked up what became Yahoo in 1994 as graduate students. ``Jerry and David's Guide to the World Wide Web,'' used to keep track of their interests on the Internet, became a popular Web page in Silicon Valley. By the end of 1994, the site got more than 1 million hits a day.

Venture capital firm Sequoia Capital invested $2 million to help the duo build Yahoo, a name they picked because of its definition: ``rude, unsophisticated, uncouth.''

``He cares deeply about the thing he created in that trailer with Filo,'' said Rob Solomon, who worked at Yahoo for six years and is now CEO of the travel site SideStep Inc. in Santa Clara, California. ``They thought they could build a really big, new type of company, and they did.''

Too Rich

Yang wasn't available to comment, said spokeswoman Tracy Schmaler. Filo, responsible for the technical aspects of Yahoo's biggest sites, also wasn't available.

After Yahoo's initial public offering in 1996, sales jumped from $20 million to more than $1 billion in 2000 as advertisers rushed to tap the Internet's popularity. Yang and Filo were each worth more than $4 billion, according to Forbes magazine.

Wealth didn't turn Yang into a big spender, said John Cecil, a former Yahoo salesman. At a Las Vegas conference in 1998, the two were playing blackjack with Yahoo employees. Yang refused to bet more than $2 a hand, Cecil said.

``He said, `It's too rich for my blood,''' said Cecil, now president of the online ad company Innovate Media in Costa Mesa, California.

EBay Wins

Three years of surging sales lifted Yahoo's value past $100 billion, then the technology market crashed, wiping out 97 percent of Yahoo's worth. While the collapse sent Pets.com Inc. and Webvan Group Inc. into bankruptcy, Yahoo survived and began growing again in 2002.

Bigger competitors were emerging, crimping Yahoo's ability to expand beyond selling banner ads on Web pages. San Jose, California-based EBay became the dominant auction site. Google's search engine was pulling ad spending to a business that Yahoo lacked.

Solomon, 41, who ran the auction business, told Yang that Yahoo would be better suited investing elsewhere.

``The auction wars were won, and he didn't want to give up,'' Solomon said. ``That's not him being obstinate. It's him pushing us to come back with creative solutions and being tough.'' Yahoo closed the auction site last year.

 

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