Yahoo Under Repair

There are advantages to Yahoo's standalone approach, however. For instance, because it's not tied to any single access provider or cable system, it can strike deals with anyone. The company has secured an impressive array of distribution deals over wireless devices, and it is expected to have similar success with broadband providers. Moreover, Yahoo is also likely to pick up new business from the current crop of AOL partners, such as CBS Marketwatch, that compete with Time Warner and therefore might not want to pair with a rival's online parent.

"Once you tie up with a particular access provider, you tend to shut off your opportunities to partner with other access folks," says Jeffrey Housenbold, who was a vice president at AltaVista (dossier) until recently. He believes Yahoo, because of its size, will be perfectly fine on its own.

Still, Wall Street has been abuzz with rumors that the company is seeking an old-media company with which to partner. The precipitous decline in Yahoo's stock has only added to the speculation. The Walt Disney (DIS) Co. had been one favorite in the rumor mill, as have various European and Japanese telecoms given Yahoo's overall strength overseas. [See "Looking for Help From Abroad".] In mid-January, the word on the Street was that Viacom (VIA), the huge media conglomerate that owns CBS and MTV, was eyeing the portal. Wall Street liked the idea - Yahoo's stock spiked 24 percent in just two days - but Yahoo's management has consistently said the company is not looking to merge with another media company; it still believes in its standalone strategy. Yahoo, Mallett maintains, can still become "the world's largest interactive business and consumer services company," all by itself.

It's easy to overstate Yahoo's predicament. The company has amassed a $1.7 billion war chest and has filed paperwork seeking approval to sell another $1 billion in securities. Its brand has attained remarkable international reach for so relatively young a company: In only six years, Yahoo has expanded into 24 countries, reaching roughly 60 percent of Internet users worldwide. The company claims more than a 90 percent renewal rate among its advertisers and boasts 60 million registered users and 180 million visitors per month. That's a 66 percent increase over last year's registered user base, and a 50 percent spike in overall traffic in one year's time. But the cost of going public after only 13 months of existence is that Yahoo must endure its growing pains in the harsh light of public scrutiny. If the company is failing, it's a failure as measured against expectations.

Mallett says that nonadvertising revenues might account for as much as 20 percent of Yahoo's 2001 revenues. Many observers think it's dangerous for Yahoo to remain a one-trick pony. But Mallett dismisses speculation that Yahoo needs a certain balance between advertising and nonadvertising revenue, calling any nonadvertising revenue a "secondary concern."

Redpoint Venture partner Geoff Yang acknowledges that investors need to be concerned with Yahoo's overall reliance on advertising. But he has confidence that Yahoo will pull through these hard times just fine.

"They've proven time and time again they're the company to beat on the Web," Yang says. "They're smart. They're dedicated. They're focused. I'm confident they'll figure it out. They're going to be one of the survivors."

Still, for the time being, the exclamation point after Yahoo's name has been replaced by a question mark.