How Masayoshi Son Turned Yahoo! into His First Internet Empire
The wild, overlooked story of how a one-day deal, a bold demand, and a Japanese spin-off launched SoftBank’s global tech playbook.
The Yahoo! story in relation to SoftBank begins with Masa's investment in the company, which was a significant step in SoftBank's expansion into the US. Masa inherited a stake in Yahoo!, which was described as having "one of the goofiest names in Silicon Valley". Yahoo!, standing for "Yet Another Hierarchical Officious Oracle," was an online portal linking users to other searchable websites. Its cofounders were Jerry Yang, a Taiwan-born Stanford graduate, and David Filo, a slightly zany Midwesterner.
Eric Hippeau, a SoftBank executive, identified "search" as the best route into the internet. He noted that Yahoo! cofounders Yang and Filo had grasped the importance of the "Netscape Moment," referring to the birth of the web browser that made internet access easier. Before this, consumers had to use cumbersome dial-up services.
Other investors were also interested in Silicon Valley opportunities, including Michael Moritz, a venture capitalist at Sequoia. Moritz visited Filo and Yang at Stanford and understood their business model. While others saw risk in backing a seemingly free search service, Moritz realized Yahoo! could become a go-to directory for digital information with a mass audience, attracting online advertising. In the spring of 1995, Moritz convinced Sequoia to invest $975,000 in Yahoo! for a 32 percent stake.
The following day, Masa flew to San Jose to meet with Yang and Filo, with Moritz also present. Masa was focused on the deal. After hearing Yang's pitch, Masa expressed strong interest in investing and owning a lot of the company. Moritz stated they weren't selling a large stake. Masa then presented himself as "the gateway to Japan," the natural partner for Yahoo!. Yang suggested a valuation of $40 million, significantly higher than Sequoia's earlier calculation. Masa immediately accepted, saying, "It's a deal". This investment gate-crashed the party for Moritz and secured SoftBank a minority stake. Yang reportedly thought he should have asked for a higher valuation.
Three months later, at a meeting during a golf tournament, Masa offered to invest $100 million into Yahoo!, raising its implied valuation significantly. In return, he demanded one-third of the company, in addition to his existing 7 percent holding. This was an unprecedented large wager on a single startup for a minority shareholding. Masa argued that Yahoo! needed millions to become a top consumer brand. When Yang and Filo hesitated, Masa asked Gary Rieschel, SoftBank's new venture capital recruit, to name Yahoo!'s top competitors. When Rieschel identified Excite as the strongest, Masa issued a veiled threat, stating that if he didn't invest in Yahoo!, he would invest in Excite and "kill you". Don Valentine, Sequoia's founder, advised Yang to take the offer, suggesting Masa "might just be crazy enough to give the money to someone else".
Yang agreed to take the money but also proceed with an IPO. As paperwork for the $100 million investment was being done, Masa added a last-minute demand: Yahoo! had to set up Yahoo! Japan, or the deal was off. Yang was skeptical due to Yahoo!'s small size and the commitment needed for Japan. Masa countered that he would provide the $2 million startup costs and engineers, and SoftBank would hold 60 percent of the equity in Yahoo! Japan. Eric Hippeau would join the board. Yang accepted this condition. Moritz later expressed regret, saying, "Shame on us. We blinked".
The launch date for Yahoo! Japan was set for April 1st, 1996. SoftBank had to develop a Japanese search engine and list relevant consumer sites. The US Yahoo! team was supposed to translate their "hot list" of categories, but the data didn't arrive, so the Japanese team had to start from scratch. Takumi Kageyama led the effort, working long hours, and Masa's younger brother Taizo helped find students to find and categorize websites. They hired about a hundred students a day and managed to meet the deadline.
On April 12, 1996, Yahoo! US went public. The shares closed at two and a half times what Masa had paid, resulting in an instant paper profit of $150 million on his 41 percent stake. This was seen as a "breathtaking coup" and marked Masa's arrival as a major tech investor. For Masa, this investment provided an appreciating asset to leverage for other internet bets and, crucially, a partnership in Japan where internet usage was growing. Yahoo! Japan proved to be a "fabulous consumer business" with a strong brand and profits. From then on, Masa aimed to replicate the Yahoo! formula: find a cutting-edge internet business in the US and import the idea to Japan on his terms.
SoftBank's investment in Yahoo! became a key asset. By February 16, 1999, Masa sold 1.5 percent of SoftBank's Yahoo! stake, raising $410 million to offset SoftBank Group's negative operating income. Investors viewed the Yahoo! shareholding as more important than SoftBank's core business profitability. Yahoo! was the hottest internet stock and a symbol of the online world. The Yahoo! stake could be used to raise cash or as collateral for loans, making it "Masa's ultimate insurance policy".
In November 1997, Yahoo! Japan made a "stunning debut" on the JASDAQ over-the-counter market. Its opening price was significantly higher than the initial offering price. Masa's insistence on creating the Yahoo! Japan affiliate alongside the Yahoo! US investment was fully vindicated. Yahoo! Japan was rapidly scaling up by the time SoftBank listed on the Tokyo Stock Exchange in January 1998.
In 2002-2005, SoftBank controlled Yahoo! Japan, using Google as the search engine.
In May 2005, sensing an opportunity due to eBay's presence in China, Masa devised a deal involving his positions in Yahoo! and Alibaba to create "The Golden Triangle". In this deal, Yahoo! invested $1 billion in Alibaba shares and transferred Yahoo! China to Alibaba, resulting in Yahoo! holding a 40 percent economic interest in Alibaba. Although Joe Tsai felt Masa "made out like a bandit," and Jerry Yang felt like Masa's "ATM machine", Yahoo! did gain a significant stake in Alibaba.
Yahoo! BB was a key SoftBank initiative. Masa chose Yahoo! BB as a new brand to create a market for broadband services in Japan. Financing this required selling assets, including selling down more of SoftBank's stake in Yahoo! in the US. Masa needed access to financial markets, and maintaining market confidence was critical for Yahoo! BB's success. Yahoo! BB offered cheaper, faster internet than rivals through a "price shock" strategy. It aimed for a million subscribers by year-end and offered free modems and usage for two months. It also offered voice-over-IP calls at much lower rates than NTT. The service was the world's fastest-growing broadband service at the time. By 2007, Yahoo! BB subscribers numbered five million.
In late 2001, SoftBank faced financial pressure, including potential margin calls related to its Yahoo! stake. Jerry Yang recalled Yahoo! CEO Terry Semel informing him that Masa had to sell SoftBank's stake in Yahoo! because of a margin call. While SoftBank today denies a margin call on the group itself, describing it as a fundraising exercise, Yang maintains Masa was "in distress" and "had to dump his Yahoo! stake". SoftBank America Inc. sold seventeen million Yahoo! shares to SBC (forerunner of AT&T) for $300 million, reducing SoftBank's stake in Yahoo! US from 20 to 17 percent. Yang called this a "fire sale".
By 2010, Yahoo! Japan had a partnership with Google for its search technology, paying Google an undisclosed sum and capturing nearly 90 percent of web searches in Japan. This occurred as Yahoo! US, under Carol Bartz, was switching to Microsoft's Bing.
Yahoo!, at its peak, was worth $125 billion. While Yahoo! US was the "glamour stock" in 1995, ten years later, Google was the "new cool thing" with its superior search engine.
Ultimately, the Yahoo! investment, along with Alibaba, was a standout success for SoftBank. By 2013, after SoftBank's acquisition of Vodafone Japan and eAccess, Masa stated that by adding Yahoo! BB subscribers (five million) and fixed-line customers (six million) to Vodafone's nine million mobile customers, the total reached twenty-six million, or "0.27 hundred million people," measuring things in "hundreds of millions".
Jerry Yang reflected that "In many ways, Alibaba made SoftBank", which suggests the outcome of the Alibaba deal (facilitated by Masa's Yahoo! stake) was more impactful than the Yahoo! investment itself, although the Yahoo! investment was undoubtedly foundational.
