1. © 2005 UMFK. 1-1 YAHOO! internet business models text and cases Donatas Sumyla

2. © 2005 UMFK. 1-2 YAHOO! BUSINESS ON INTERNET TIME

3. © 2005 UMFK. 1-3 Overview Introduction Company History Goals and Strategies GBF 20-20 Hindsight

4. © 2005 UMFK. 1-4 Introduction In 1999 Tim Koogle, CEO of Yahoo!, Jerry Yang, co-founder of the company, and Jeff Mallett, the president, gathered to discuss the unusually hectic beginning of the year. Reasons for that being Yahoo!’s competitors’ partnering with major media companies, telecom providers, etc. Ongoing partnerships: @Home with Excite; AOL with Netscape; Disney with Infoseek;

5. © 2005 UMFK. 1-5 Mission and vision The company aimed to be “the one place in the world that anyone would need to go to find anything, locate anybody, or buy anything.”

6. © 2005 UMFK. 1-6 History & Facts April, 1994: Started as a hobby of David Filo and Jerry Yang (Ph.D. candidates in Stanford’s Electrical Engineering Department) as a way to keep track of the addresses of interesting web sites being sent to them by friends. During 1994 it was converted into customized database designed to serve the needs of thousands of users throughout the close-knit web community. March 5, 1995: Incorporated Yahoo! as a business and hired new CEO Tim Koogle (the 6 th employee).

7. © 2005 UMFK. 1-7 History & Facts (cont.) The new CEO and the rest of the team saw Yahoo! not as a search engine, but as a modern media company, comparable to a television network or film studio. By August, 1995, Yahoo!’s managers developed: 1.a team of engineers building backend databases; 2.a distributed sales force attacking the important media markets; 3.a small group of corporate marketers establishing the Yahoo! brand name;

8. © 2005 UMFK. 1-8 History & Facts (cont.) During 1996 and 1997 Yahoo! added more: –Content; Classifieds, chat rooms, news wires; –Commerce; Popular shopping categories; –Communication; Free email; –Community offerings; Country-specific and city-specific sites;

9. © 2005 UMFK. 1-9 History & Facts (cont.) Yahoo!’s site traffic grew from approx. 23million page views per day to over 167million page views in 1998; The number of companies buying ads rose from 550 to 2,225; The company’s market value stood at $30billion, up 2,600% since its IPO in April, 1996; Revenue in 1998 was $203million and had projected growth to $362million in 1999;

10. © 2005 UMFK. 1-10 Yahoo!’s Properties Navigation properties: –Helped consumers find relevant info more easily by distinguishing between so-called “search-and-browse” areas and properties that Yahoo! programmed itself. Community properties: –Helped consumers connect and communicate by providing free e-mail or usage of a personal address book from any Internet-connected computer. Personalization properties: –Could be customized by a consumer to satisfy his or her personal interests.

11. © 2005 UMFK. 1-11 Yahoo!’s Properties E-Commerce properties: –Properties like shopping, travel, and real estate were organized and coordinated by Yahoo!, but partners actually carried out the sales. International properties: –Targeted users and advertisers in different countries outside the US.

12. © 2005 UMFK. 1-12 Competitors Companies combining Internet access and content; –AOL/Netscape, MSN, @Home/Excite. Portals with traditional media partners; –Disney/Infoseek, NBC/Snap. Independent portals; –Lycos Network, AltaVista. Vertical sites; –Websites that featured in-depth information and electronic commerce tailored to special interests (CNET, ZDNET, ESPN SportsZone, etc.)

13. © 2005 UMFK. 1-13 Key Stakeholders Customers: –Non-paying web users who come to portal’s website to use its services; –Paying companies that market products or services to the users; Employees: –Yahoo! consisted of enthusiastic Stanford graduates under the age of 30 and most of them had stock options as well as a base salary. Partnerships: –Yahoo! received much of its information content for free but sometimes the providers would receive a share of the advertising revenue generated by the information which varied from 7.5%- 15%.

14. © 2005 UMFK. 1-14 Operations 3 groups: 1.Property development; 2.Marketing and sales; 3.International;

15. © 2005 UMFK. 1-15 1. Property development 1.Production; Yahoo!’s properties; 2.Engineering; Technical tasks, data feeds, content delivery; 3.Surfing; New web sites’ surfing, directories updates in Yahoo!’s search;

16. © 2005 UMFK. 1-16 2. Marketing and sales Corporate marketing; –Developing the Yahoo! brand name by mainly focusing on spot television advertisements; Sales; –Sold advertising inventory on Yahoo!’s 167million page views per month. Business development; –Arranged Yahoo!’s numerous partnerships with other firms and dealt with the incoming partnership offers.

17. © 2005 UMFK. 1-17 GBF Yahoo! followed a “get big fast” strategy; Network effects fairly strong; –None with search or content aggregation (which together represent 2/3 of users’ time with portals); –Strong with chat, instant messaging, auctions, games, communities of interest;

18. © 2005 UMFK. 1-18 GBF Scale economies are very strong; –CPM (cost per thousand) premium for reach; –Variable costs are only about 15% of revenue; Customer retention rates are not very strong; –Some retention via network effects; –Modest opportunities for differentiation, since most content and features are provided by third-parties; –Modest switching costs related to investment in data entry (e.g., customization of home page; calendars; bill payment service; etc.)

19. © 2005 UMFK. 1-19 GBF Lifetime Value of a Yahoo! Customer: –Revenue = $8 per user per year; –Variable contribution margin 85%; –Average life of customer relationship = 5 years; –Average advertising expense per new user = $3;

20. © 2005 UMFK. 1-20 Issues Facing Portals Payoff from vertical integration; Viability of competing models: –Free access (NetZero; AltaVista); –Better navigation (GoTo.com; Google; AskJeeves; About.com); –Destination sites usurping portal functionality; Maturation of the user and advertiser bases; Portal disintermediation of commerce sites; Broadband discontinuity;

21. © 2005 UMFK. 1-21 Taking the next step Development of recent mergers and partnerships; Yahoo! Team had to decide whether and how to adjust their own stake; Yahoo! needed balanced adjustment and continuity in its new business plan; Number of suitors were interested in a partnership or merger; Yahoo! was already in acquisition discussions with the management of GeoCities;

22. © 2005 UMFK. 1-22 Taking the next step Despite the many changes and opportunities in their business, Yahoo!’s senior managers remained focused on a handful of priorities; “As a company, we’re heavily externally focused. We maintain a level of paranoia about the environment that is pretty healthy, and we seldom actually get surprised. If anything tectonic is going on, Jerry, Jeff, or I get word of it before it occurs. When that happens, we come back to fairly basic fundamentals. Are we still doing the right things?” Tim Koogle, CEO

23. © 2005 UMFK. 1-23 Summary The future of the company is promising; Reasons: –Smart and enthusiastic management team always aware what is going on and focused on doing only the right things; –Interest of large media and telecommunication companies willing to merge with Yahoo!. –GBF strategy;

24. © 2005 UMFK. 1-24 Questions???