November 15, 2001 1:05 PM PST

Yahoo to clip divisions, lay off 400

Yahoo offered details of its long-awaited turnaround strategy Thursday, hinging its future on advertising, exclusive paid content and revenue-sharing deals with Internet access providers.

Yahoo executives gave some specifics regarding a long-expected corporate restructuring, saying that they will whittle down Yahoo's 44 business units to six: listings, commerce, communications, media, access and enterprise. In addition, the company will lay off 400 employees, or 13 percent of its work force. The layoffs were announced at Yahoo's third-quarter earnings call last month, but the exact number has not been made public until now.

Three quarters of the staff cuts will come from international, broadcast services and management, with the remainder from sales, marketing and support staff. The company also announced plans to hire 100 new employees to bolster the six divisions that it plans to focus on.

In addition to highlighting planned growth areas, Yahoo announced that it will cut services including Living and its B2B marketplace. It will also pare down to a handful its partnerships in its Yahoo Everywhere mobile service.

"We were fundamentally order-takers. No more," CEO Terry Semel said at the company's annual analysts' day meeting. "We must be more diversified going forward by focusing our efforts, leveraging our core strengths to provide deeper and more valuable solutions for our customers and business partners...It's an evolution, not a night-and-day change."

Analysts and investors have been waiting impatiently for a blueprint for reversing Yahoo's fortunes from Semel, ever since he was appointed some six months ago. The Web portal has been hammered by a steep downturn in advertising spending, which accounts for about 80 percent of its revenue.

Before Thursday, the former Warner Bros. executive had refused to tip his hand except to downplay expectations of a major overhaul, suggesting last month that pending changes will be evolutionary rather than revolutionary.

Semel reiterated that view Thursday, saying he plans to move from the company's historical approach of aggregating free content. Going forward, he said he expects Yahoo to own more content that carries a price tag.

"We will continue to offer content fundamentally for free, but we will offer additional options for pay," he said, adding that the company will pursue acquisitions and partnerships for more content.

"We are looking at acquisitions to be a principal and to gain a competitive edge," Semel said, holding out Yahoo's purchase of Launch.com as an example of buying a new opportunity.

Semel also emphasized the company's efforts to augment management and organize the staff for greater efficiencies. On Wednesday, Yahoo appointed two new members to its board of directors.

Cutting the ad revenue mix
Yahoo's goal is sustainable, profitable growth with less reliance on advertising revenues, Semel said. In 2000, 90 percent of the company's revenue was driven by advertising, with consumer fees and commerce transactions comprising the other 10 percent. At the end of this year, advertising revenue are expected to be 76 percent of the mix.

Semel said his goal is to reduce advertising to 50 percent of the company's overall revenue by 2004.

Yahoo's ad ache He also said he wants to create ongoing billable relationships with at least 10 million of the company's current 80 million active registered consumers.

"We're lucky. We're one of the strongest brands in the world, with the largest consumer base...in 24 different world properties," he said. "We have a fantastic opportunity. And we intend to announce more access deals and intend a better job in advertising and marketing. (We want) a more revenue-driven search engine.

"We have real growth opportunities in the near-term future."

Key to Semel's turnaround strategy is a plan to develop deeper relationships with Internet service providers. On Thursday, he highlighted a high-speed Internet access partnership announced Wednesday with SBC Communications as a model for deals he plans to strike with other access partners.

Semel pointed to Yahoo's recent partnership with Overture Services for paid search listings as rich soil for future growth. He added the deal is a makeshift solution to garner revenues from search until the company introduces its own for-fee sales.

"It's a large business we left on the table for all these years," Semel said. "But it's something we can do ourselves."

Yahoo also talked about ways to bolster its flagging advertising revenues to better use customer data and offer marketing services to other companies.

Lastly, Yahoo executives highlighted new paid content offerings planned in the future. Next month, Yahoo is expected to begin selling online music subscriptions through Pressplay, a joint venture between Vivendi Universal and Sony.

Analysts in attendance said they were generally pleased with the presentation, but said the company still has a lot to prove.

"It will come down to execution," said Safa Rashtchy of U.S. Bancorp Piper Jaffray, who added that Yahoo's diversification plans should not distract investors from problems within the company's advertising revenue engine. "I would have liked to have seen more focus on what they are going to do to get these big advertisers and why these big advertisers haven't come yet."

Taking a good look
Thursday's conference is also providing analysts with a chance to size up Semel, who replaced Tim Koogle in May. Semel has largely remained in the shadows, making only a handful of public appearances since taking the helm.

Analysts who have sat down with Semel in private meetings have not expressed overwhelming enthusiasm. At the same time, Yahoo executives--including Semel--have preached that the company's turnaround will come from a series of incremental steps instead of an earth-shattering proclamation.

For now, it appears there's still a lot of work to be done. The company has to figure out how to stem revenue loss since the bursting of the dot-com bubble. Yahoo last quarter announced it would report between $160 million and $180 million in revenue next quarter, down from its $190.8 million expectation, according to research firm First Call. The company also cut its year-end estimate to between $688 million and $708 million in 2001, from $700 million to $775 million.

"Things that were perceived as problems in the rearview mirror appear much smaller than they once did," said Jordan Rohan, an analyst at SoundView Technology Group. "But don't expect miracles."

 

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