Yahoo! To The Rescue

It's shoring up its dot-com advertisers--to help itself

On Aug. 28, Lehman Brothers Inc. analyst Holly B. Becker sent a chill right down the ol' Internet backbone: Yahoo! Inc., the pride of the sector, was in for trouble, she said. With an estimated 61% of revenue coming from dot-com advertising, Becker argued that Yahoo--which brings in more ad revenues than any other site--is quite vulnerable to the Internet shakeout. Her comments sent Yahoo's stock price tumbling 9%.

Is she right? For its part, Yahoo execs concede they aren't immune from the turmoil. But the company claims it has been readying for the current slide for some time. "We didn't get surprised by the Dr. Koops of the world," says Yahoo President Jeffrey Mallett, referring to the struggling health-care Web site, "That's why things are still cooking."

GLOBAL NETWORK. Specifically, Mallett points to Yahoo's efforts to replace shaky advertisers with more established players. He claims that new business from the likes of PepsiCo, Ford, and Spiegel has more than made up for any revenue lost from dot-commers, although Yahoo declines to release actual figures. Indeed, Yahoo says the number of traditional advertisers on its site has grown. Although Becker agrees, she doesn't think the shift is impressive enough. According to her calculations, the number of old-line companies and their Net offspring among Yahoo's top 200 advertisers grew by just 1%--exactly two companies.

So how can Yahoo fend off Internet shakeout blues besides wooing Corporate America? Quietly, the Internet giant has also been aiding a handful of dot-coms hammered by hostile investors. And why not? The recipients of this helping hand, which include and, have strong partnerships with Yahoo and represent important streams of revenue to the portal. So ensuring that they continue to flourish is as important to Yahoo as it is to them. "They're paying customers," says Mallett. "If they're healthier, we're healthier."

Yahoo's assistance includes everything from making strategic investments to using its talent to help less established players. For example, longtime partner, which has seen its stock tumble 70% since March, has benefited from Yahoo's global network in its effort to go international. Yahoo also has enlisted Travelocity to provide the travel service for Yahoo Canada. Travelocity, which will pay Yahoo a percentage of the transactions from the site, will soon announce that it will also handle Yahoo's travel service in Britain.

Online print shop, whose stock has fallen 78% since March, says Yahoo has been willing to consider deals that none of its rivals would entertain. For example, iPrint Chairman and CEO Royal P. Farros says Yahoo recently agreed to integrate iPrint into its popular mail center--a move that gives iPrint access to Yahoo's 15 million users. "Yahoo let us into the family jewels," says Farros, who is paying $8 million over 15 months for the privilege.

Yahoo went even further with advertiser Google Inc., a still-private search engine. In addition to recently making an undisclosed investment in Google, Yahoo in June replaced Inktomi with Google as its default search engine. "Yahoo has helped out our company a lot," says Google President and co-founder Sergey Brin. Of course, it's a lot easier to be a benefactor when you can help yourself at the same time.