Inside Yahoo!

The first sign that the game had changed for Yahoo! Inc. (YHOO ) came just days after its stock hit an all-time high--of $237.50. On Friday, Jan. 7, 2000, when Yahoo's staff was winding down for the weekend, a phone call came in to the third-floor executive cubicles. On the other line: an investment banker with a juicy tip that chief rival America Online Inc. (AOL ) was about to buy old-media giant Time Warner Inc., a deal that ultimately went through for $85 billion in stock. The move would rearrange the planets in the media universe--and rock Yahoo's world.

The next morning, CEO Timothy A. Koogle, President Jeffrey Mallett, and co-founder Jerry Yang held a council of war in a purple-and-yellow conference room at the company's Santa Clara (Calif.) headquarters. Should Yahoo stick to its guns and remain an independent assembler of news and entertainment supplied by others? Or should it take advantage of its $110 billion market cap to make an old-media purchase of its own? Koogle favored staying the course, saying Yahoo had a better chance of lining up quality content if it teamed with all comers instead of buying one big media company. Mallett said later that he was "torn." After four hours, a pot of Koogle's bitter coffee, and umpteen squiggles on the white board, the trio reached consensus: They would not follow AOL's lead. All of Yahoo's chips would remain on the Net.