SAN FRANCISCO — SAN FRANCISCO -- There they were, two Stanford Ph.D. students, lacking sleep, nutrition, money and clean clothes. By their own admission, they were sometimes a "little smelly." David Filo, 28, and Jerry Yang, 26, would spend hours, sometimes days, in Stanford's computer systems lab: clicking, thinking, staring, typing, clicking. Their girlfriends first thought of calling missing persons. Then they thought of calling it quits.
Mr. Yang and Mr. Filo explained that they were putting together their own on-line guide to the sites on the Internet, the worldwide computer network. They said it was fun.
They insisted it would be like "a Yellow Pages for the World Wide Web."
It began innocently enough. Procrastinating on their studies in computer-aided design for digital circuits, the two started surfing the Net. They compiled a few listings of things they found interesting, useful and useless on the Internet's World Wide Web.
But then their hobby turned into a habit. When it had legs, they gave it a name, Yahoo, for Yet Another Hierarchical Officious Oracle. Yahoo now lists 36,000 sites on the Web -- each tagged with a brief description and arranged by subject -- which are accessed free of charge by an estimated 200,000 people a day.
Recently Sequoia Capital, a Menlo Park, Calif.-based venture capital firm, invested a reported $1 million in Yahoo. The amateur Netheads are turning pro. They received offers from other telecommunications and media companies, but they wanted to retain complete control, something behemoths like CompuServe and America OnLine were not offering.
"We could've sold Yahoo to a large company," Mr. Yang says. "But we didn't sell out because we didn't want to work for a big company. We thought it would be satisfying to work for ourselves."
Sitting on a bench in front of the Student Union on the Stanford campus, Mr. Yang and Mr. Filo are signing the lease papers on office space in Mountain View, Calif., and making arrangements to drop out of Stanford.
Six months short of earning their doctorates, they justify their departure by saying they can always return to their studies if Yahoo flops. While their parents are supportive, they don't "quite get it."
Wearing blue jeans, a Hewlett-Packard T-shirt, and an olive-green coat, Mr. Yang says they started Yahoo because "anything was more interesting" than their Ph.D. theses. "We were so sick of research that we jumped at this."
Mr. Filo looks on, with a bemused expression. Everything he's wearing is baggy: faded blue jeans, white T-shirt, white sweat shirt. He even has bags under his blue eyes. And both partners sport stubble. "Oh, you're right, I forgot to shave," says Mr. Filo, smiling shyly and feeling his chin.
They insist that going into business won't change their laid-back, anti-corporate attitude.
Collectively, they don't own a suit. They do own one cellular phone, which Mr. Yang bought for the recent Internet World conference in San Jose, Calif., where they had a booth. They will hire people to work with them, but won't have secretaries.
Although it's hard to imagine these two getting overly serious about their careers, they are smart enough to realize that this is the opportunity of a lifetime. "Sure, we want to succeed," says Mr. Yang. "The Internet is here to stay, and there has to be a way to navigate it."
"We know that things are moving fast," adds Mr. Filo, "and that we can't afford to make mistakes. Microsoft, AT&T; and all these other companies will be competing with us. There's room for competition."
It's inevitable, they say, that they will have to commercialize Yahoo. To make money, they need to bring in advertisers.
Asked if they're worried about upsetting the Net's anarchistic cultureand getting flamed, Mr. Yang says, "If we could do it without ads, we certainly would. Because we don't want to charge users, advertising is a necessity. We are thinking of other ways to get revenue, such as licensing Yahoo to outside services.
"I think we'll have [the ads] placed in categories of interest. In a hiking or camping category, we might have North Face sponsor a campaign. In the basketball category, we might have Nike do a campaign. Hopefully, it will be advertising that people are interested in."
"For us, the commercial side is a necessity," Mr. Filo says. "It's to the point where it's no longer just two students doing it in their spare time."