Yahoo! Ten Years and CountingPublished: February 11, 2004 in Knowledge@Emory
Yahoo! entered the nascent Internet scene a decade ago as the web’s first navigational guide. Today, the company claims a 60% market share of all online users. Headquartered in Sunnyvale, CA Yahoo! is available in 25 countries in 13 different languages and draws nearly 240 million unique visitors monthly. The company holds the top spot among Internet portals. Two Yahoo! executives, Steve Linowes, Director of Corporate Development, and James Marlow, Director of Sales, Southeast Region, visited Benn Konsynski’s executive MBA class at Emory University’s Goizueta Business Schoolrecently to talk about Yahoo!’s prescription for staying on top, and their continuing search for revenue streams.
How has a company founded by two Stanford Ph.D. students blossomed into a billion dollar a year company? “Yahoo! has reshaped itself several times and is recasting itself to be an active leader in this market,” says Konsynski, a professor of decision and information analysis at Goizueta. “I liken it to dials—knowing what to turn up and what to turn down when they sense where the revenue streams are.”
Linowes and Marlow are veterans of online technology and marketing development, each with over 15 years of experience with a variety of companies, including Microsoft and IBM. While addressing Konsynski’s MBA class, they focused on Yahoo!’s marketing and consumer services: online advertising, beefed up search capabilities, and customization of the user experience.
According to eMarketer, an independent research firm, 2003 online advertising was up nearly 15% from the previous year and online advertisers spent just under $7 billion. This year, eMarketer expects spending to flirt with the $8 billion mark. Better yet, the firm projects online ad spending will close in on $10 billion by 2007.
The numbers are encouraging, but Yahoo!’s Linowes believes the online advertising market still isn’t where it could be. “Less than two percent of advertising budgets are online today,” he says. But there has been progress. “In 1995, it was less than a part of one percent,” adds Linowes.
“As ad budgets grow, companies are looking to add a portion of that to online,” notes Marlow.
As of the third quarter of 2003, online advertising accounted for 70% of Yahoo!’s revenue. Linowes discussed several ways the company is adapting its online advertising abilities to satisfy consumers and businesses in creative ways, including the re-launching of existing websites, product launches, re-branding, and interactive advertising.
For example, Yahoo! helped the home improvement giant Home Depot relaunch its site this past October. Creative ad placement, a dynamic ad, and a link to the new site contributed to a phenomenal response. “Just under Super Bowl reach,” says Linowes, although he points out that many corporations still view online advertising as risky. “They’re used to TV. They’re not online. They’re not doing what their customers are doing,” he says. “The Fortune 1000 companies still compare us to traditional media.”
The Yahoo! executives encourage companies to take a good look at online advertising—especially if their customers are teenagers and tweeners (ages 13-24). “If you’re marketing to this age group and you’re not marketing online, you’re being negligent,” says Marlow. Why? Market research shows that this age group spends more time surfing the web (16.7 hours a week, excluding email) than it does watching television (13.6 hours per week) [source: a survey conducted by Harris Interactive and Teenage Research Unlimited, July 2003].
Yahoo! believes these figures confirm a shift in the media landscape and the company expects this consumer group to influence the future of media spending. “Advertising is in transition,” notes Konsynski. “What’s happening in music and movies [which appeal to the 13-24 age group] is an indication that we’re going through another phase of doubt and conflict in terms of how advertising is viewed, perceived and leveraged.”
Yahoo!’s recent online campaigns wed a television-like experience with the interactive abilities of the Internet. Recently, the GAP allowed Yahoo! users to vote on a GAP ad campaign. The winner—featuring a man dancing in his boxers—proved highly successful for the clothing retailer.
Yahoo!’s capabilities also allow advertisers to tailor ads. An online spot for the wireless company Cingular included customized backgrounds and instant messaging. “We try to take a static campaign and make it playful—something that will connect with the audience. We’re taking the creative aspect of the medium and making it work for the advertisers,” observes Marlow. “We’re always looking for new ad units that are playful and engaging. But we also want them to make sense from an ROI standpoint.”
Over the years, Yahoo! has become more sophisticated in the way it targets consumers. In 2003, Yahoo! acquired Overture, a leader in commercial search services on the Internet, for $1.63 billion. Linowes believes the acquisition will improve the company’s search related advertising and differentiate Yahoo! from competitors like AOL.
Overture provides Yahoo! access to software that evaluates web page content so that businesses can place links on web pages related to their products or services. In fall 2003, Yahoo! launched SmartSort and Yahoo! Product Search in an attempt to improve users’ online shopping experience by personalizing it, making it faster and also more comprehensive.
To support the new functionality of Yahoo! Product Search, Yahoo! shopping retailers can participate in a cost-per-click lead generation-based model as well as purchase targeted media-based advertising. Additionally, businesses can sponsor links and buy keywords in the Yahoo! distribution network. The new model also provides merchants with more flexibility and control over their online campaigns.
Other search related advertising programs, like Yahoo!’s Bank of America “clickers” program, target users who click on certain ads or keywords, such as the word “banking.” Yahoo! then serves up relevant offers to users who clicked on those ads or entered those keywords. “You type in the word, ‘hotel,’ and later that day, we’ll send you a Holiday Inn ad,” explains Marlow.
Linowes and Marlow believe that bringing Overture on board cements Yahoo!’s position as an online advertising network. “What we’re doing now is heading toward being paid for performance,” says Linowes. “If we have a hot lead, we’ll give it to you and you pay for that…. The Overture acquisition allows us to monetize the relationships we have and gives us huge access to small and medium-sized businesses.”
There is a drawback: providing businesses with leads generated from Yahoo!’s user database does bring privacy issues into question. “We’re always going to have privacy issues and there’s always going to be a natural tension between the willingness to share information and the benefits of sharing,” says Konsynski. “You’re always exposing and offering risk by sharing, but at the same time, you’re seeing the benefits from that sharing.”
“We’re constantly walking that fine line on giving you good information and protecting your privacy,” says Marlow.
While Yahoo! beefed up its online advertising capabilities and saw its advertising revenue climb 44% from third quarter 2002 through third quarter 2003, AOL’s online advertising revenue fell 33% for the same period. Lured to lower cost dial-up providers and a bevy of high-speed broadband providers, two million members left the AOL fold between September 2002 and September 2003, and the company’s subscription base fell below 25 million members.
“AOL has had erosion and they’re concerned about keeping people,” notes Konsynski. “If they ever end up back in an absolutely positive growth area, then they’ll shift more attention to revenue content. What you’re seeing is an investment in a publicity campaign as a response to prevent attrition and erosion of their share…. they’ve abandoned the issue of content.”
Yahoo!’s attempt to provide users with premium content at a cost via MyYahoo! has not faired as well as hoped. Although Yahoo! has four million premium service subscribers, the company is investing heavily in MyYahoo! and this past December, introduced Yahoo! Plus, a premium Web experience aimed at consumers and households transitioning from dial-up to broadband.
Konsynski notes that content—and how that content is provided—is where companies like Yahoo! and AOL will find value. “There’s very little content that is so solely unique that it retains an intrinsic value itself. The value lies in bringing whatever content is relevant to you in the proper time, in the proper fashion and in the proper form,” says Konsynski. “That’s the context provision.”
By paying attention to the market, a company that began as a search engine a decade ago has morphed into a leading global consumer and business Internet services company. “Yahoo! has been willing to adapt and modify its (business) models as the market has adjusted,” Konsynski says. “In 1995, advertising departments said they wouldn’t spend money on the Internet. Yahoo! bet against that and won because advertisers did start spending money there.” The company has been able to achieve impressive growth in a challenging economic environment, and though Internet advertising budgets are not as large as Linowes and Marlow would like for them to be, the latest projections for online advertising are certainly cause for optimism.