Illustration by David Simonds

AND so Yahoo! survives. The internet company—which, at the age of 14, is one of the oldest—appears in the end to have rebuffed Microsoft, the software Goliath that wanted to buy it. It has done so, in part, by surrendering to Google, the younger internet company that is its main rival. In a vague deal apparently designed to confuse antitrust regulators, Yahoo! is letting Google, the biggest force in web-search advertising, place text ads next to some of Yahoo!'s own search results. Google thus controls some or all of the ads on all the big search engines except Microsoft's. Yahoo! lives, but on the web's equivalent of life support.

Yahoo!'s descent, first gradual then sudden, during this decade marks a surprising reversal of the fates of the only three big internet firms to have survived since the web's earliest days. Back in 1994 Jerry Yang and David Filo, truant PhD students at Stanford, started to publish a list, eventually named Yahoo!, of links to cool destinations on the nascent web. Around the same time, Jeff Bezos was writing his business plan for a website, soon to be called Amazon, for selling books online. The following year, Pierre Omidyar, a French-born Iranian-American, put an auction site on the web that would become eBay.

Even as hundreds of other dotcoms fell by the wayside at the turn of the century, these three made it through the great internet crisis and have since prospered, to varying degrees and at different times. Their fates have reflected the evolution of the web as a whole, and now suggest its future direction. For many years eBay and Yahoo! made more money than Amazon, which, as a capital-intensive retailer, struggled longer with losses and then made profits at lower margins (see chart). And yet, says Pip Coburn of Coburn Ventures, an investment adviser, Yahoo! is now drifting and eBay is a washed-up quasi-monopoly, whereas Amazon finds itself at the internet's cutting edge.

Yahoo! set out to be a new sort of media company. To that end, it hired a Hollywood mogul, Terry Semel, during the internet depression in 2001. He had a backward-looking idea of the media business. Yahoo!'s site became a tawdry strip mall, with big, flashing advertisements next to users' e-mail inboxes. The firm slipped into a mindset of product silos, with the teams for the home-page, e-mail, finance and sports pages competing with each other and for advertisers, and confusing users.

Yahoo!'s bigger mistake was not to see how the web was changing. Google, also founded by two truant Stanford PhD students, became the leader of a new generation with a vision that web search, rather than Yahoo!'s “portal” approach, would guide surfers around the internet. Google valued simplicity, interactivity and the collective intelligence gleaned from the web and its users. Yahoo! belatedly tried to keep up and bought sites such as flickr for photo-sharing and del.icio.us for bookmark-sharing, but it “put them in the curio cabinet” without transforming the company, says Jerry Michalski, a technology consultant. Yahoo! was “so bent on being the future”, he says, that it “missed the new”. Mr Yang replaced Mr Semel last year, but the crisis was so grave that he has now ended up surrendering to Google.

EBay took a different route, recognising that its business—in effect, online yard sales—had potential network effects: in short, that sellers and buyers would flock to whichever site already did the most trading. The firm became a de facto monopoly, but with that came a culture that left many of its users disenchanted, and growth slowed. Some measures, such as the number of new listings of items for sale, are even in decline. Buyers and sellers increasingly rely on Google's search model, or online social networks, to find things and one another. EBay's new boss, John Donahoe, is not facing a crisis like Yahoo!'s—but neither does he appear to have a big idea for the future.

Amazin'

Amazon, by contrast, has found exactly that. It is the only one of the three that has been led continuously by the same man, its founder Jeff Bezos. A caricaturist's dream, Mr Bezos has an outsized neck, striking pate and an infectious guffaw that spreads enthusiasm. And, unlike his peers at the other two firms, Mr Bezos has stuck to his original vision—while adding two new ideas as they presented themselves.

His original plan, in the 1990s, was to become “Earth's biggest river” of merchandise, from books and toys to electronics and almost anything else that can be shipped. He tried and failed to become a rival to eBay in auctions. But then Mr Bezos realised that the same online store-front and logistics system that worked for Amazon itself could also work for others. So he added an entirely new category of customers: third-party sellers, who account for 30% of all items sold through Amazon's site today. They range from one-man-bands to huge retailers, such as Target.

Then, about four years ago, another, and potentially bigger, idea struck Mr Bezos. “We had built this huge infrastructure internally for us,” says Mr Bezos. “We thought, surely others out there could use the same infrastructure services.” That infrastructure consists of Amazon's prodigious numbers of server computers and storage discs, rivalled in scale by only a few other firms in the world, including Google. So Mr Bezos again added an entire category of customers: firms that wanted to rent computing capacity—from processing to storage to database functionality—from Amazon over the internet, rather than build their own data centres in a warehouse. It has signed up over 370,000 customers, ranging from web start-ups to the New York Times, which used Amazon's infrastructure to digitise much of its archive.

Almost by accident, Amazon has thus “backed into cloud computing,” as Mr Michalski puts it, using the buzzword for today's next big thing: the trend among both consumers and companies to compute and store data on the internet, rather than on a local computer. If there is a leader in the cloud, it is Google. But Amazon is now right up there. Better yet, although Amazon overlaps with Google in the cloud, it does not rival it directly. Google mostly offers entire applications, such as word processing or spreadsheets, to consumers though their web browsers. Amazon offers services to programmers so they can build and run their own applications.

So there they are. Jerry Yang is still boss of Yahoo!, although angry, restive shareholders may oust him at their annual meeting on August 1st, and his top lieutenants are leaving in droves. John Donahoe is looking hard for a purpose that will enable eBay to survive another decade. And Mr Bezos is right where he wants to be.