Yahoo Under Repair

Among the initiatives will be more fee-based premium services, possibly in the entertainment and finance fields. Since September 1998, Yahoo has hosted an auction site that enables users to list and sell items without a charge, but only since last month has the company imposed a listing fee. (Yahoo Auction's listing fee is still much cheaper than eBay's (EBAY).) Meanwhile Yahoo, which has long charged users for online bill payment and extra mail storage, added fee-based job listings in December 2000.

Yahoo is also more aggressively pursuing the corporate market. In June, the company started selling a Web-page customization service to corporations interested in creating individualized mix-and-match portals for employees, customers and partners. But only in the past month has Yahoo begun to push the service hard. Meanwhile, a number of software companies, including Microsoft, Oracle (ORCL) and SAP, entered the customized-portal market long before Yahoo. Plumtree Software (dossier), one privately held company established in 1997, unofficially sells itself as "the Yahoo of corporate portals."

Yahoo "has been noncompetitive in the corporate-portal space as far as I'm concerned," says David Yockelson, a Meta Group analyst who specializes in Internet business plays.

Shopping has been another disappointing area for Yahoo.

Since 1998, Yahoo has collected a transaction fee from retailers that sell goods through Yahoo Shopping. AOL, however, has done a far better job capturing dollars from this nonadvertising revenue stream. Yahoo enabled $3 billion in transactions during the first three quarters of 2000, according to Rob Solomon, director of Yahoo Shopping. But AOL facilitated nearly $5 billion in the third quarter of 2000 alone, according to the company. "Our goal is to be the largest enabler of online transactions," Solomon says. It's a noble goal - but quite a tall order given AOL's lead.

FinanceVision and ShoppingVision, a program launched in November that showcases new products for sale through the site, represent an initiative of a different type. Like many of the features Yahoo has added to its pages over the years, these two seem intended to draw more visitors to the site, and therefore add to the advertising revenue stream. What's new about the FinanceVision project in particular is that Yahoo is breaking from its agnostic middleman role as neither the creator of the content on its site nor the owner of the delivery mechanism.

Yahoo denies it, but FinanceVision clearly places the company in the news-gathering business. Rather than hiring financial journalists or those with television experience, the company selected two Yahoo employees to be among the show's anchors after holding a companywide audition. Not surprisingly, the show's production values are barely a cut above Wayne's World. Following the CNBC format, the anchors interview analysts, CEOs and financial journalists representing other outfits, and Yahoo reporters provide dispatches from Wall Street throughout the day.

FinanceVision is aimed at investors hipper than the run-of-the-mill Wall Street suits. But now that more people watch CNBC than CNN, competition for viewers seeking real-time news from the Street is fierce. About all that differentiates FinanceVision from its competition, however, is its low production quality, the funky glasses worn by one of its anchors and the Yahoo brand itself. Yahoo refuses to reveal viewership figures for FinanceVision, nor will it say how many advertisers it has. Perhaps as broadband becomes more widespread, FinanceVision will evolve, too, but for now it's hardly must-see Web TV.

That's about all that Yahoo has in the pipeline. The offering might sound thin, but Mallett claims he isn't worried. While no one is suggesting that Yahoo move away from its advertising model, Mallett is surprisingly unapologetic about continuing to rely heavily on so volatile and unpredictable a revenue source. "We fundamentally believe stronger than ever in the advertising business on the Internet. End of story," Mallett says. "The ad pie is still growing. We think we're going to take a bigger piece of that."

Yahoo's overdependence on advertising is even more problematic given the recent AOL Time Warner merger.

The new megacorporation, a media sprawl that includes Web sites, magazines, cable, film studios, music labels and the world's largest proprietary online community, provides a far more appealing one-stop destination for advertisers than Yahoo. America Online's sales force has a wide arsenal at its disposal, from the world's most popular portal to mass circulation publications such as Time and People to global news station CNN. It's too early to say for certain, but the speculation is that the Dulles, Va.-based giant might offer package deals from a smorgasbord of media outlets, a particularly compelling selling point to the largest mainstream advertisers already comfortable with print and TV and just now starting to look to the Web for exposure. Yahoo, furthermore, might have a tough time getting business from the many advertisers that already have an established relationship with Time Warner. Why would these companies shift their allegiance, especially now that AOL Time Warner can offer deals such as free product placement in a Warner Bros. movie for any company making a large online-advertising purchase?