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A Leap From Cyber Cool to Corporate Conformity

Freewheeling Yahoo has grown up, trading youthful exuberance for the stability of profitability

July 21, 2002|CHARLES PILLER | TIMES STAFF WRITER

* In April, the company began charging for e-mail--the staple of the bygone "information wants to be free" era. Now frequent users of Yahoo e-mail pay $29.99 a year.

* In June, Yahoo suspended its Internet radio service and in-house financial news production--pioneering services that never paid their way.

Semel, who declined to be interviewed for this report, gradually has replaced Yahoo's youthful executive corps with business graybeards--such as former Warner Bros. executive Jim Moloshok, a Semel confidant who heads Yahoo's media and information division.

He also has pushed edgy advertising initiatives that began before his arrival. Yahoo users have seen animated Ford Explorer SUVs and Pizza Hut pizza slices traversing the once sacrosanct home page.

Perhaps the clearest sign of the graying of Yahoo's purple and yellow logo is the demise of Yahoo Internet Life--a print magazine published by Ziff Davis Media Inc. that was devoted to the fun, fantasy and novelty of the Yahoo experience. The magazine folded this month despite a circulation of 1.1 million, a victim of the declining ad market.

Attracting 'Eyeballs'

Yahoo began as the classic Silicon Valley grad-student experiment and rapidly became an overnight media titan during the Internet land grab. During the late '90s, everything revolved around quickly building an audience. Success was measured in "eyeballs"--the number of people looking at the site.

Sohn was brought into the company to help launch Yahoo's Japanese site. On his first day, March 4, 1996, he was told "By way, you have until April 1 to launch it," Sohn said. "That was pretty typical of the time frame we were looking at ....There was a lot of low-hanging fruit."

But sites had to grab it before someone else did.

"That game is over. And Yahoo would probably accurately claim that they won, with something like 200 million worldwide users," said Safa Raschtchy, an analyst with US Bancorp Piper Jaffray.

Yahoo survived the devastating dot-com bust--while once-gigantic competitors such as Excite.com and Go.com failed--with its momentum and sheer scale, said Stanford business school professor Joel Hyatt.

"As one of the few icons of the Internet age," Yahoo survived "long enough to reinvent themselves--or at least adjust," he said.

The company has entered a long-predicted but uncharted challenge of the new-economy life cycle--how to become an Internet-based business that can last for the long run.

This means adding services that users will pay for.

In February Yahoo purchased HotJobs.com, a major source of online classified revenue, and has partnered with SBC Communications Inc. to sell access services, an effort to cash in on the potentially lucrative market for high-speed Internet links.

Fees and services account for about 40% of Yahoo's revenue base, up from about 10% only two years ago, though a big part of the change is from a precipitous drop-off in ads.

A Model for the Future

Analysts say it's too soon to tell whether Yahoo is developing genuine stability, or whether it can survive at all as an Internet-only player in a world of diversified media giants.

"Traditional media companies should not take satisfaction in the difficulties of a Yahoo or even an AOL. The same challenges await them as more mainstream consumers increasingly use digital technology," said Chris Charron, an analyst with Forrester Research. "They are laying the groundwork of a new-media model for the future."

Even so, some who experienced the full bloom of boundless expectations feel bitter about what might have been.

"Wall Street put pressure on companies to do dumb stuff, like giving things away all the time," said a former Yahoo executive who left before the steep downturn had run its course, and declined to be named. "Then Wall Street demanded both predicable business models and increasing revenues and profits.

"So rather than exploring their businesses, companies quickly moved into what may have been the wrong business."

Yahoo weathered that irrational storm, said the former executive, but at great cost.

"Yahoo could have built one of the great brands of all time. Now they are just another little company," he said. "What a waste."

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