Yahoo to Undergo Awaited Overhaul
Yahoo Inc. Chairman and Chief Executive Terry Semel unveiled his long-awaited strategy Thursday to turn around the struggling Internet bellwether, outlining a plan that will trim the company’s vaunted free services, reduce its work force by 9% and bolster its now-young sales force with a new group of seasoned veterans.
Semel unveiled his strategy in a daylong meeting with analysts at Yahoo’s Sunnyvale, Calif., headquarters. It was a coming-out party of sorts for the longtime Hollywood studio chief, who joined the venerable Silicon Valley firm seven months ago with the mandate of turning an adolescent dot-com into a grown-up media company.
Semel emphasized that despite the current advertising slump, ad income will continue to be Yahoo’s most important source of revenue over the next three years, even as the company collects more fees for online services and from e-commerce transactions.
“This is a company that does--and always will--believe in advertising revenue,” he said. “There’s nothing wrong with ad revenue. It’s supported many traditional media companies over the decades.”
To that end, Yahoo has bolstered its advertising sales team by hiring 40 senior salespeople with 10 to 25 years of experience, said Greg Coleman, executive vice president for North American operations. Previously, Yahoo relied on a sales force that included few people with even five years of experience.
“These are people who know their way into the corner office, who know their way around a marketing conversation,” Coleman told analysts. “That makes me sleep very well at night. We have taken the business seriously for the first time.”
Wall Street seemed to be reserving judgment on Semel’s plan, sending Yahoo shares down 38cents to close at $14.83 in Nasdaq trading Thursday. But John Corcoran, a new-media analyst with CIBC World Markets in Boston, said Semel has shown that he understands the challenges facing Yahoo.
“It’s no longer a 21-year-old who had been pumping gas and now he’s at a dot-com,” Corcoran told Associated Press. “There’s some gray hair coming in on the sales side.”
The most painful part of the transition will be the elimination of 400 jobs, or about 12% of Yahoo’s total work force, said Yahoo President and Chief Operating Officer Jeff Mallett.
The cuts will come from a combination of streamlining business units, discontinuing custom Internet broadcast services for business customers and reducing the number of employees focusing on international markets--currently one-third of the entire company.
Even as it cuts jobs, Yahoo is still looking to hire 100 employees in key positions, for a net loss of 300 positions, Mallett said. That represents a 9% work-force reduction.
While focusing on advertising, Yahoo also is aiming to bolster other sources of revenue by charging fees for services that have traditionally been offered for free, such as online photo storage and personal ads, Semel said.
This week, Yahoo said its World Wide Web search results would include listings from five Web sites that pay for prominent placement. The listings, offered through a partnership with Pasadena-based Overture Services Inc., bring Yahoo in line with other prominent search engines.
For the strategy to work, Yahoo will have to turn more of its 217million users into registered users, who are prime targets for advertising and fee-based services.
Yahoo’s 80 million registered users take advantage of an average of 51/2 services each--such as e-mail, games and instant messaging--and they currently account for 80% of total network usage. Semel said he expects to boost the number of registered users by at least 10 million “in a reasonable period of time.”
Semel also hinted at more deals like the one struck Wednesday with telecommunications giant SBC Communications Inc. to provide a co-branded high-speed Internet service. Yahoo expects to convert most of SBC’s 3.6 million Internet service customers to the new service, which would net Yahoo a portion of subscriber fees in exchange for giving SBC a cut of advertising and other revenue, Semel said. Partnering with other telecom and broadband companies could bring Yahoo several million more registered users.
A year ago, Yahoo relied on advertising for 90% of its revenue, with service and transaction fees accounting for only 10%. This year, service and transaction fees amount to 24% of revenue, compared with 76% for advertising. During the next three years, the split could move closer to 50-50, Semel said.
Yahoo also is seeking to cut costs by eliminating and consolidating 44 business units down to a mere six.
Each of the six units--listings, access, commerce, communications, media and information, and enterprise business--is or will become a $100-million market that dovetails with Yahoo’s core strengths, Mallett said.
That means abandoning the company’s traditional strategy of trying to be all things to all people. For example, Yahoo will no longer make its service available on every type of hand-held computing device. Instead, the company will work with just the handful of partners that serve 75% to 80% of each market, Mallett said.
