A Leap From Cyber Cool to Corporate Conformity
Henry Sohn joined Yahoo Inc. in 1996, when Nerf-gun fights were frequent and the long hours spent at the online portal constituted a labor of love.
Vast fortunes from stock options were not far off. Everyone shared a tireless dedication to enhancing the user experience, and, yes, to changing the world. At least it seemed that way.
“We were deluged with requests from companies who wanted to understand what we were doing and how we were doing it,” said Sohn, Yahoo’s 50th employee and now vice president of network services. “We were having an impact everywhere.”
Yahoo still thinks big. But in today’s depressed online market, talk about changing the world has been overtaken by a feverish dedication to something more basic--turning a profit.
Now that the new economy is not so new, Yahoo’s leaders are trying to craft a sustainable business model in a business that is still making itself up as it goes along.
“In the early days, there was not a real strong need to prioritize growth,” said Susan Decker, Yahoo’s chief financial officer. Now services are carefully vetted for their potential to generate revenue.
“We [want] to get deeper into those users’ hearts, minds and hopefully their pocketbooks,” she said.
Yahoo’s transformation from geek hobby to corporate conformist symbolizes the life cycle of the Internet economy. Although it has managed to eke out profits while other sites went belly up, the freewheeling Yahoo that Sohn and other early employees joined exists largely as a memory.
The company’s revamped home page, launched July 1, symbolizes that shift. The changes seem subtle at first, but on close examination they are substantial: Fee-based personal ad listings, shopping and music downloads are front and center; free news and search services that form the core of the Yahoo experience for most users are pushed down the page.
The new pragmatism was inevitable.
“The Web used to be a cool, alternative media source--now the Internet is mainstream,” said Patrick Keane, an Internet analyst with Jupiter Media Metrix. “We’re talking about a medium that has 60% penetration of the U.S. audience. It’s closer to cable [TV] every day.”
And Yahoo has become more like a typical TV network.
“In the past, Yahoo was seen as this Stanford-computer-science-altruist company,” Keane said. “Now they are clearly out to exploit consumers.”
For investors, at least, that may be great news.
After six consecutive quarterly losses amid the carnage of the Internet advertising market, Yahoo announced a modest profit for its second quarter: $21.4 million, or 3 cents a share, contrasted with a loss of $48.5 million, or 9 cents a share, in the period a year before. Revenue rose to $225.8 million from $182.2 million.
Some wonder whether the online pioneer--despite on-again, off-again rumors that it will be acquired by a larger media company--might be finding a model for stability.
New Business Plan
That was precisely the goal when former Warner Bros. Co-Chief Executive Terry Semel was hired as Yahoo’s CEO a little more than a year ago amid the steep decline of the Internet economy. He was charged with developing a new business plan for the ad-dependent site--based largely on selling services to consumers and corporations.
The company’s Sunnyvale, Calif., campus, which it moved into shortly before Semel arrived, is dotted with volleyball nets, espresso bars and park-like courtyards--all purchased during the heady days when Yahoo’s market value exceeded $100 billion. At its Friday closing stock price of $13.37 per share, Yahoo is worth $8 billion.
In the old days, people would work until 10 p.m., then go to an adjacent field for a pick-up soccer game to blow off steam. Those days are gone.
“It’s part of growing up,” Sohn said, but Nerf-gun skirmishes, such as a recent battle involving 50 engineers, still erupt on occasion.
But even as Semel tolerated Yahoo’s youthful exuberance, he reined in the company’s occasional excesses--such as its Christmas party. The 2000 holiday bash, at the height of the dot-com boom, featured four live bands and unlimited oysters on the half shell. Employees drank their martinis extra cold--they were poured through holes in bars carved from ice.
Last year, Semel’s first at the company, layoffs hit a few days before Christmas. Many employees decided to skip the scaled-back and decidedly somber holiday affair.
Semel also curtailed the company’s freewheeling tendency to finance any new project that sounded cool. And he adopted a hard-nosed approach to Yahoo’s business and image:
* Last fall, a pay-for-position policy was instituted at Yahoo’s search service--long touted as the company’s pristine, noncommercial core and its raison d’etre as an honest broker of information. Now advertisers rise to the top of Yahoo’s search results.
* In March, Yahoo changed its privacy policy, giving itself permission to deluge tens of millions of registered users with marketing pitches.
* 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.”
