In search of growth

Yahoo! may play second fiddle to Google in search, but its branded services and content give it a strong base to develop media sales. By Martin Croft

Yahoo once meant two things in the UK: it was either a loud shout or an uncouth person – one of Jonathan Swift’s Yahoos. Now, of course, it is synonymous with one of the biggest online media companies in the world.

Much of Yahoo!’s recent UK growth can be attributed to its acquisition of Kelkoo, the European shopping search and price comparison service. Yahoo! UK’s shopping pages attracted 3.6 million visitors in July 2005, a 505 per cent increase on July 2004.

In the UK, Yahoo! has also benefited from the growth of broadband, thanks to a solid marketing alliance with BT, under the BT Yahoo! banner.

Today, Yahoo! offers branded services to more than 345 million people a month globally. At the end of June 2005, Yahoo! had about 8,780 full-time employees and global sales of $1.25bn (&£690m). Profit was $291m (&£161m) for the US and $77m (&£42.6m) for the rest of the world.

Jon Gisby, managing director of Yahoo! UK & Ireland and vice-president of media for Europe, says that with online media consumption growing while that of other media is falling, at certain times of the day and for certain demographic groups, online is “the dominant medium”. He argues that Yahoo!, with its tailored content, shopping channels and search engine, is in prime position to grab a significant chunk of that market.

While Yahoo! is showing significant growth in the UK and Europe, so too are major rivals such as Google – the best-known brand name in online – and Ebay.

In some ways, Yahoo! is in Google’s shadow – ask most consumers to name a search engine, for instance, and they are far more likely to say Google than Yahoo! But in other ways, Yahoo! has the advantage: it has been a public company for nearly ten years, while Google only made the transition last year and, some industry insiders say, still has problems remembering that it is now a commercial business. Arguably, Yahoo! has also gone further down the line of developing its own content to attract users, while Google has largely depended on its pre-eminent position as the world’s number-one search engine.

Gisby points out that Yahoo! has three pillars to its business. It has its paid-for search and contextual search; it has Kelkoo, the shopping site; and it has the Yahoo! consumer content side. Gisby says the real future for Yahoo! lies in developing services that enable users to customise their online experience and to share their interests with others. Hence the recent purchase of, which offers users an easy way to upload pictures from their mobile phones and then share them with friends.

Yahoo! is also looking at how it sells its services as a media company – hence the appointment of former Sky Media sales head Mark Chippendale to the new role of regional vice-president of media sales for Europe. Chippendale has been put in charge of developing a strategy for building Yahoo!’s European ad sales and forging relationships with the bigger ad agency networks and with major cross-border clients.

The truth is that all the big online companies are gearing up to take advantage of the accelerating fragmentation of traditional media consumption and the increasing popularity of online, which now accounts for an estimated 20 per cent of media consumption across Europe. Even the most die-hard traditional marketers and agency people have had to recognise that the media landscape has changed fundamentally.

Indeed, it is estimated that of this year’s $97bn (&£53.7bn) European total advertising expenditure, online ad spend is expected to be about $2.5bn (&£1.38bn). In the UK, online ad spend is about five per cent of total expenditure, suggesting that online ad budgets have nowhere to go but up, in the short term at least, and Yahoo!

Facts and Figures

Yahoo! was set up in February 1994 by David Filo and Jerry Yang, PhD students in electrical engineering at Stanford University, and soon became “Jerry and David’s Guide to the World Wide Web”. By the autumn, the website was getting 1 million hits a day.

When they realised the site’s potential, they decided a shorter brand name was needed. With the help of a dictionary they hit upon Yahoo! Officially, it is an acronym for “Yet Another Hierarchical Officious Oracle” – but Filo and Yang admit they chose it because they liked the definition of a Yahoo: “rude, unsophisticated, uncouth”.

In March 1995, Yahoo! was incorporated as a business with a $2m (&£1.1m) investment from venture capital firm Sequoia, which backed Apple Computer, Atari, Oracle and Cisco Systems. Reuters and Softbank came on board as investors in autumn 1995. Yahoo! went public in April 1996 with 49 employees.

In July 2005, Yahoo! was the fourth most-popular online destination for UK visitors (Nielsen/NetRatings), with 12.4 million people accessing it, a 25 per cent year-on-year increase. Google had 16.2 million users (27 per cent up), Microsoft 16 million (four per cent up) and MSN 15.5 million (0.01 per cent down).

In the annual Business Week/Interbrand survey of global brand values, published July, Yahoo! was the world’s 58th most valuable brand, worth $5.25bn (&£2.9bn), 16 per cent up on 2004. Google ranked 38th with a value of $8.46bn (&£4.7bn). It was not included last year as it was not a public company.

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