Daniel Sorid and Reshma Kapadia
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 categorized Web sites
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 approved
Thursday -- 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 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 Ph.D 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 Web site.
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.
(C) Reuters Limited.