For Yahoo, Web a portal to new businesses

New York: Since its inception in 1994 as “Jerry’s Guide to the World Wide Web,” Yahoo has made a name for itself, and attracted millions of Internet users all over the world, with a massive list of categorised Websites and free services.

But after scooping up much of the available traffic on the Web using that strategy, it is struggling to make money.

Now, with more than $1 billion in cash, it’s launched an aggressive strategy to acquire surviving dot-coms at bargain prices in businesses from job postings to music.

The Internet media giant is reinventing itself into a diversified business whose fortune is tied less to advertising, signing several deals in two months, and muscling its way through the Internet sector in search of more opportunities.

Indeed, the company has grown so quickly that some worry it might run into problems. They say Yahoo now faces the challenge of converting the new partnerships and acquisitions into profits.

“They have their plate relatively full,” CIBC Internet analyst John Corcoran said. “I think it’s fair to state they have a lot of execution risk right now.”

In its latest move—it snatched up HotJobs.com Inc away from its original suitor TMP Worldwide Inc with a $436 million offer—Yahoo is showing that it will flex its wide-ranging assets and cash to grasp onto Web businesses it believes can thrive in the post-meltdown Internet era.

In two months, Yahoo has linked up with US No. 2 local telephone company SBC Communications Inc in a joint venture in high-speed Internet access, and Internet search engine company Overture Services Inc to include paid advertisers in its search results.

Yahoo also has picked up Launch Media Inc, which has led to a new Yahoo music site that will help it compete with AOL Time Warner Inc and Microsoft Corp. in the increasingly hot online music business.

Opening up the door to partnerships or mergers with other companies that want to maintain their own brand names, Yahoo did not impose its own name on Launch as it did after its acquisition of GeoCities, an online communities service, and Broadcast.com, which streams audio and video over the Web.

Yahoo is also participating in the fee-based digital music offering Pressplay, which is jointly owned by Vivendi’s VN Universal Music Group and Sony Music Entertainment.

The moves are all part of Chief Executive Terry Semel’s plan laid out at a November analysts’ meeting, which called for an equal balance of revenues from advertising and services.

From ‘Jerry’s Guide’ to global presence
In its earlier days, Yahoo was all about traffic and stickiness, adding a host of free services, including online yellow pages, news, e-mail and chats.

Founded by Stanford University PhD students David Filo and Jerry Yang, Yahoo ripped through corporate conventions with a young management team that took the company public in 1996.

Showing their contempt for traditional business, the founders have given the definition of a “yahoo” as “rude, unsophisticated” and “uncouth”, according to Yahoo’s Website.

With the bursting of the dot-com bubble and the onset of the worst advertising slump in recent history, Yahoo’s popularity could no longer guarantee continued and growing profits. On a split-adjusted basis, the stock fell from as high as $250 to as low as $25 over last year.

A weakened ad market led Yahoo to alter its strategy from a be-all free online services company to one that survives on a combination of ads and paid services.

“I represent a company that’s basically a free company supported by advertising,” Greg Coleman, Yahoo’s executive vice president of North American operations, said at an ad industry conference earlier this month. “We are trying to get more money from premium operations.”

As it seeks new partners, Yahoo brings with it a massive following with sites in a dozen languages and cash holdings that, as of September 30, reached $1.7 billion.

Henry Blodget, the outgoing Internet analyst at Merrill Lynch, said Yahoo may now go after the real estate listings business by picking up Homestore.com Inc, which has been bleeding money, along with smaller dot-com companies.

Blodget—one of the biggest cheerleaders of the Internet sector during the dot-com boom—said Yahoo and the dot-com companies overall could start to see renewed growth following a brutal phase that saw the demise of many Internet companies.

“Darwin did his thing, and now the industry can move on to a more mature phase,” Blodget said. “Growth from here, at Yahoo and other companies, will likely be more gradual but steady for the next several years.”

Acquisition target, as well
Yahoo has also been seen as a potential acquisition target for other media and technology companies including the likes of Walt Disney Co, Microsoft Corp, Terra Lycos and USA Interactive.

The appointment of former Hollywood studio executive Terry Semel to head up Yahoo earlier this year has only sparked more speculation that he may be preparing the Internet media giant for a partnership with a media company.

Some industry consultants have suggested that Yahoo may sell off pieces of its business to interested parties.

Barry Diller, trying to build his interactive commerce platform at USA Interactive, may be a possible partner to Yahoo, or one of its rivals.
Diller may focus on local services, expanding on his CitySearch and Ticketmaster assets, analysts said. Yahoo, with its win over TMP Worldwide to buy HotJobs.com, will also look to build that area—one that many, including large newspapers, have characterized as a strong growth opportunity.

— Reuters