YAHOO!

Yahoo! grew from a tiny upstart surrounded by Silicon Valley heavyweights to a major contender in Internet media. David Filo and Jerry Yang, two computer science Ph.D. students at Stanford University, created a simple search engine in 1994. Using a homemade filing system, the pair cataloged sites on the newly created World Wide Web and published the directory on the Internet. The original version was called Jerry and David's Guide to the World Wide Web. Filo and Yang named their effort Yahoo! after they left school to devote their full attention to the business.

At the time, the company's search engine was unique because in addition to the standard word search features, Yahoo! offered its users a massive searchable index. Surfers could search for sites in broad categories like Business and Economy or Arts and Humanities. They could organize the results by country or region and look at results from within just one category. Since Yahoo! was among the first such Internet guides, the site attracted hundreds of thousands of surfers within a year of its introduction. This early attention attracted investors, and in April 1995, founders Filo and Yang raised $1 million in first-round venture capital. From its start, Yahoo! conveyed an irreverent attitude. The Yahoo! attitude came from the top of the corporate ladder, in the personalities of founders Filo and Yang.

The two had conceived of Yahoo! while housed "in trailers full of pizza boxes," and each of their business cards bore the title "Chief Yahoo!" Even the name contains a hidden joke-Yahoo is a self-deprecating acronym meaning "Yet Another Hierarchical Officious Oracle." Yahool's marketing reflected the company's style as well: In one ad, Eskimos ordered a hot tub online. Each ad closed with the tagline "Do You Yahoo!?" and the signature "Yahoo! yodel," an audio cue designed to reinforce customer recall of the brand. Yahool's most recent step into interactive marketing is to offer contextual advertising on its site. Contextual advertising means that the commercial links on a Yahoo! page are tied to the particular content on that page. For example, a visitor at caranddriver.com reading a review of the Acura MDX will see paid text links advertising the Acura Web site and the Edmunds auto comparison site, rather than unrelated cellphone ads. Contextual advertising shows the same links users would see if they typed "Acura MDX" into the Yahoo! search engine. Contextual advertising appeals to advertisers who are moving away from mass marketing toward more targeted approaches. Yahool's new ad server creates contextual relevance, catching a consumer or decision maker reading material directly related to the advertised topic. Although most users consider Yahoo! to be a search engine, it sees itself as a place that packages experiences for consumers.

A large percentage of revenues comes from advertising, but the company continues to supplement its revenues through subscription sources such as online personal ads, premium e-mail products, and services for small businesses. For example, Yahoo! teamed with telecom company SBC to sell branded high-speed Internet service bundled with Yahoo! services and premium e-mail. SBC Communications pays Yahoo! an estimated $2.10 per month for every customer on the service. This lets Yahoo! increase its revenues without having to sell premium services one customer at a time. Yahool's nonsearch advertising grew by 31 percent in the fourth quarter of 2003, twice the rate of other specialized content sites. Yahool's two main advantages over search engine rival Google are its vast array of original content and a database with information about its 133 million registered users. By knowing where searchers live and what their interests are, Yahoo! believes it can present them with both more relevant search results and more focused advertising. Yahoo! is also attracting traditional advertisers like Pepsi and Ford. Yahool's ad for the Ford Explorer, for example, featured sound effects simulating an engine with animation that made the Web browser appear to shake. To announce its new Ford F-150 truck, Ford created an interactive 3-D ad and purchased roadblocks (ads that browsers must click through to reach other content) on the first day of its launch at Yahoo! as well as MSN and AOL.

Discussion Questions

1. What have been the key success factors for Yahoo!?

2. Where is Yahoo! vulnerable? What should it watch out for?

3. What recommendations would you make to senior marketing executives going forward? What should the company be sure to do with its marketing?