Yahoo's Not Just For Consumers Anymore

Hosting and consulting are among the search engine's business offerings

InformationWeek Staff, Contributor

March 15, 2002

9 Min Read

Cigna Corp. and Clear Air Gardening L.C. are rarely mentioned in the same conversation. One is an $85 billion-a-year employee-benefits company; the other is a one-person shop that sells environmentally friendly lawn and garden tools online. They have few things in common, other than this: They're both satisfied business customers of Yahoo Inc.

That's right, Yahoo, the New Economy company best known as a consumer search engine and information portal. For the past year, Yahoo has been aggressively expanding into the business-services arena, supplying both small and large companies with software and services based on its technology. Yahoo says it can help modernize the workplace with offerings such as hosting and E-commerce technologies for small retailers, online meetings and Web-conferencing services, as well as business consulting and enterprise portals.

The push is spearheaded by the Yahoo Enterprise Solutions division, which includes Yahoo Broadcast Solutions, Yahoo Small Business, Yahoo Portals Solutions, and Yahoo Strategy Services, and is headed by senior VP Jim Fanella.

Yahoo faces tough challenges, because there's stiff competition in each of the market segments it's going after. Online meeting software provider WebEx Communications Inc. dominates the online meeting and streaming-media business, while smaller players such as Interwise and PlaceWare also are battling for customers in that market. AOL's Netbusiness and Bigstep offer hosting and E-commerce services to small businesses, while human-resources outsourcer Exult battles PeopleSoft and others in the enterprise portal services market. And no one is willing to concede anything to Yahoo.

Yahoo's depth of integrated consumer offerings and its experience serving 218 million users a month give it an edge in the business market, Fanella says. "The differentiating factor against our competitors is the synergy of Yahoo's multiple properties," he says.

Consumer-oriented Web companies have tried to capture the business market in the past with little success, analysts say. Steven Vonder Haar, Yankee Group's director of media and entertainment strategies, cites the example of AOL Enterprise, a division of AOL Time Warner that offered corporate intranets. Real-estate company Century 21 Inc. was its only significant customer; Bob Pittman, who was then the CEO of the real-estate company, was also a member of the AOL board. Pittman is now co-chief operating officer at AOL Time Warner.

Yahoo's depth of offerings gives it an advantage in the business market, senior VP Fanella says.

"It's always a long-held dream for consumer application developers to move into the lucrative world of the enterprise app," Vonder Haar says. "But the truth is, it's much easier to start with an enterprise base and expand into the consumer side than go the other way."

Still, Yahoo plans to use its well-known name and its experience serving millions of consumers each day as the foundation for its business-customer push. And it must succeed if it hopes to reduce its dependence on advertising revenue.

"Yahoo has assets and the technology to diversify nicely, but it faces an industry environment where IT spending is no longer robust," says Deutsche Banc Alex.Brown senior analyst Jeetil Patel.

The slowdown in IT spending may make it difficult for Yahoo to achieve its goals, but the company has little choice but to make the effort if it intends to remain a leader of the online economy. The dot-com bust combined with a major drop in online advertising resulted in a decline in revenue of 35% in 2001, to $717.4 million from $1.11 billion in 2000.

Competing search engines, facing the same hostile environment, are also scrambling to diversify or realign business models. Google recently launched a search tool designed for businesses that combines software and hardware for behind-the-firewall search technologies. Northern Light shut down its consumer portal in January to focus on business offerings. And Excite @home fared even worse, filing for bankruptcy last fall.

Yahoo's chairman and CEO, Terry Semel, came out of Hollywood, where he was co-chairman and co-CEO of Warner Bros. Named to the post last April, Semel has taken drastic steps in the past six months to focus on new sources of revenue. He's had some success: In 2000, about 13% of revenue came from non-advertising sources; last year, it was 25%. Semel's goal is for Yahoo to get half its revenue from sources other than advertising by 2004.

One step in that direction was the battle Yahoo waged--and won--in December for HotJobs.com, the No. 2 online job board. Yahoo fought another job board, TMP Worldwide's Monster.com, for control of HotJobs and ended up acquiring the company for $436 million in stock and cash. One month earlier, Yahoo partnered with Overture Services Inc. to give Web sites that pay extra fees more prominent placement in the results of consumer search-engine requests. Another area for growth is broadband: Yahoo is partnering with SBC Communications Inc. to provide businesses with broadband services and streaming commercials and films.

Yahoo needs to sign business customers for services that take advantage of the expertise the company has gained in the consumer market. The most successful accomplishment on that front is the multiyear, multimillion-dollar partnership signed in January with Cigna, Patel says.

Yahoo will provide the infrastructure to offer personalized portals that will let the Philadelphia employee-benefits company's 16 million customers better track claim status, benefit services, and other aspects of their health and retirement plans. The rollout, to be completed by year's end, will provide members greater access to health-care and retirement-savings plan options, says Dave Gordon, head of Cigna's E-commerce division.

Yahoo's Enterprise Portal unit provides portal infrastructure for more than 42 companies, ranging from pharmaceutical manufacturer Bayer Corp. to storage-drive maker Seagate Technologies Inc. "Portals are an interesting feature of a product, but they aren't a product," David Gee, VP of Yahoo's Enterprise Portal division says. "What makes portals telling is the content along with excellent delivery and personalization."

It was that combination of vast quantities of content, expertise in content delivery, and technology platform that spurred Cigna to partner with Yahoo instead of other enterprise portal software vendors, Gordon says. "Yahoo's understanding of the nuances that come with providing personalized sites at such a scale will enable us to build these portals quickly," he says.

That experience can easily transfer to a business setting, says Delphi Group research director Hadley Reynolds. "The underlying knowledge of running a consumer portal gives Yahoo the depth and confidence to run a corporate portal," he says. "A sweet spot for Yahoo is in large audience-customer interaction. The scale of its own operations gives Yahoo a leg up over more established enterprise-portal players."

Webcasting and streaming media is another area where Yahoo says its experience will give it an edge in capturing new business clients. Yahoo's Broadcast Solutions unit is leading that effort. The company acquired streaming-media provider Broadcast.com in 1999 for $5.7 billion to expand its online offerings from text and graphics to streaming-media and online meetings.

Many companies also hire Yahoo because of its expertise in online marketing and advertising. Yahoo streamed 3 million feeds of PepsiCo's Super Bowl commercial last month, for example.

"This type of medium has productive purposes, which always drive high return on investments," Yankee Group's Vonder Haar says.

Datek Online Financial Services, the discount brokerage unit of Datek Online Holding Corp. in Jersey City, N.J., also uses Yahoo Broadcast Solutions to stream Webcasts of free interactive investment lessons for its consumer customers. "There's ample evidence from J.D. Power and other surveys that individuals want education," says Dave Whitmore, Datek's VP of customer development. "Working with Yahoo Broadcast, which understands the hurdles and the challenges of streaming media, has made our own attempts have a successful turnout, so far."

Yahoo also provides the user interface infrastructure, which includes a window for the streaming media and step-by-step lessons, as well as the studio production and content editing. The Datek Learning Center has been so successful that the brokerage is working with Yahoo to develop additional lesson modules, Whitmore says.

Yahoo's most popular business offerings may be those aimed at small and midsize companies. Yahoo Small Business provides small companies with the technology to build an online presence. Those services range from basic hosting to E-payment services to integration to Yahoo's auction site. All are available by subscription.

The full-service, fully integrated approach has attracted more than 35,000 customers, says Bud Rosenthal, general manager of Yahoo's Small Business unit. "Our competitors don't have a network to funnel traffic to your E-commerce Web site."

To tie all of its business services together, Yahoo created a consulting division in December. Led by Joseph Cha, a veteran of major consulting firms such as PricewaterhouseCoopers and Accenture, the consulting division will help companies with small-business, portal, and broadcast strategies. For business customers, "our consulting division will help develop the right portal strategy, deliver on it, and helps us cross-sell other products while becoming the trusted adviser," he says.

One retailer that's enjoying the profits of a Yahoo storefront is Clean Air Gardening, in Dallas. Owner Lars Hundley switched his Web site to Yahoo in 1999, when it became too much of a hassle to host and keep the site up-to-date with the latest technology. "Yahoo adds new features to the site, such as gift-certificate programs, without additional costs," he says. "Reliability has never been a problem, and with Yahoo offering the world's largest storefront,

I see a lot of sales channeled through the portal."

For Clean Air Gardening and other small online retailers, Yahoo's massive consumer portal is an asset to their sales. However, that may not be the case for its other business services, Vonder Haar says. "You have to ask yourself if Yahoo's consumer name is an asset or liability to business," he says. "To a corporate IS department, the brand may be so powerful that it detracts from the corporate image or seriousness of the enterprise application. Would you want to go to a human-resources portal branded by Yahoo?"

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