February 26, 2004 11:44 AM PST

Semel toys with an ad-free Yahoo

SANTA CLARA, Calif.--Yahoo, whose fortunes depend on selling online advertising, could someday offer versions without ads, CEO Terry Semel said Wednesday.

Speaking with Yahoo co-founder Jerry Yang at an event sponsored by the Commonwealth Club, Semel said its subscription-only businesses could offer versions without advertising as an additional perk.

"I think there's an opportunity in some time where there will be some businesses where (advertising) doesn't exist," Semel said during the event here.

Semel also said in separate remarks that Yahoo needs to explore selling music downloads, a business already taken up by Apple and RealNetworks, with Microsoft and Amazon waiting in the wings. As previously reported, Yahoo has held discussions with online music service Musicmatch that could be a first step toward an acquisition of the company. Still, Semel said he considered music downloads a difficult, but necessary, business to enter.

Semel declined to offer any specific details about how Yahoo might drop advertising and cautioned that Yahoo's subscription businesses have not amassed enough paid users to justify an ad-free environment. Semel also did not elaborate on whether Yahoo would offer an ad-free version of its entire site, but said individual businesses are under consideration.

"As those subscription members grow, we should consider some subscription businesses that can be ad-free," Semel added.

The prospect of Yahoo removing advertising would mark a departure from a presence synonymous with the site. Indeed, Yahoo has risen and fallen by the advertising market, earning $1.1 billion in 2000 in total revenue at the height of the dot-com boom, and then watching its revenues plummet to $717.4 million when online advertising crashed 2001.

Since then, the company has tried to diversify its business to include paid services and has amassed millions of subscribers since 2001. The company has also profited from paid search listings through its acquisition of Overture Services. Yahoo in 2003 generated $1.6 billion in revenue, its most ever, largely from the growth of commercial search through Overture.

While Yahoo currently offers a collection of Web sites that charge subscriptions for "premium" versions, the company has also toyed with removing ads in paid areas. For example, Yahoo Personals runs no ads, but tries to convince people to subscribe. It lets online singles search a face-book of prospective mates and then charges $19.95 a month to e-mail or instant message them.

Yahoo has also partnered with SBC Communications to offer broadband Internet access. SBC charges for digital subscriber line (DSL) service and Yahoo offers a customized browser. The companies share access, advertising and premium services revenues.

 

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