Would You Pay to Pay Bills at Yahoo!?
By Timothy J. Mullaney
Yahoo! (YHOO ) has always had one big disadvantage compared to Web rival America Online (AOL ), now the top dog in media conglomerate AOL Time Warner. Where Yahoo gets 75% or more of its revenue from online advertising, which has become a notably tougher business in the last eight months or so, America Online has always had consumers ready to pay up to $21.95 a month. To be sure, it wasn't only AOL's original content that people paid for, since it usually comes bundled with Internet access. But those fees have always given the 800-pound gorilla of the consumer Web about 700 of the pounds it throws around so regularly.
Under pressure from Wall Street, Yahoo has decided to try to even the score by rolling out services it hopes people will pay for. This, of course, is part of the broader movement toward paid Web content and services that may be the last hope for an online business model that serves both consumers and investors.
But in Yahoo's case, the effort seems especially questionable: Too few of its services are unique, and many of them are offered free elsewhere on the Web. And there's little that's distinctive enough about them to make anyone confident Yahoo is ready to break its dependence on the online ad market.
Yahoo has said it plans to concentrate its paid efforts in digital entertainment, its Yahoo Finance investing section, and services like extra-large e-mailboxes and personal Web pages with more capacity than on the company's GeoCities service. The digital-entertainment options haven't been unveiled yet. Extra-large mailboxes and home pages will doubtless find some audience. But early moves into paid content and services in Yahoo Finance illustrate just how tough the path to the paid Web will be.
Two of Yahoo's first forays into paid finance-related content have been to offer an online bill-paying service -- starting at $2.00 per month, plus $.40 per payment -- and a feature that delivers real-time stock quotes and trading alerts on companies you select.
I've followed the online bill-paying business closely, however, and don't see much likelihood that Yahoo will get much traction. First, there's still no consensus that any large number of people will choose to pay their bills online. Second, it's not at all clear that they'll pay to do it. Third, it's unlikely that a Web portal like Yahoo will be the first choice for online bill payment anyway. More consumers are likely to use their bank's site as a place to manage their checking account: It's simply more intuitive and easier to market.
And banks are in a position to offer the service for nothing. (Some analysts, like the Gartner Group, think people who pay their bills online won't even use bank sites: They argue that the future is people going to AmericanExpress.com to pay Amex, Verizon.com to pay the phone bill, and so on.)
Yahoo Bill Pay doesn't appear to be anything that my own bank's Web site doesn't offer. It has the same basic services, such as a balance-projection feature, which compares current account balances to scheduled bill payments to help avoid overdrafts. But my bank has an advantage Yahoo isn't likely to match: It can subsidize the fees (or build the cost of online bill pay into existing checking account fees) in exchange for control of some low-yielding assets (like your checking account) and the opportunity to cross-sell you.
At Summit Bank, the arm of Fleet Boston Financial where I do business, high-balance customers get bill-paying service for free. They have no particular reason to use Yahoo. As for me, sometimes I have a high checking balance and sometimes I don't. But I get free service anyway by paying my credit-card bills at AmericanExpress.com and DiscoverCard.com.
Most fixed-payment periodic bills can easily (and for free) be set up to be paid automatically from a checking account. I haven't written a check for a mortgage or car loan since 1995 or so, and now utility, cable-TV, and Internet service provider bills can just as easily be autodeducted. So people have other, free options for paying bills. And for most of them, you don't have to hit the site every month in order to process transactions, as you do with Yahoo. Set the account up once, and it's done forever.
Real-time quotes are hardly something you need to pay for either. If you don't want to shell out $9.95 a month for Yahoo's package, just shuffle over to RagingBull.com, the Lycos affiliate that has long offered real-time quotes to anyone willing to fill out a registration form. Or you can simply maintain a brokerage account at sites like Datek.com or CSFBDirect.com, the online home of Credit Suisse First Boston. Then there's E*Trade, which will give you 100 free real-time quotes daily even without an account. If you need more than that, you're either trading too much, or you don't have the stomach to move out of CDs.
Even if RagingBull and its ilk don't last, the brokerages will (though there may be fewer of them). They can build the cost of providing real-time quotes into commissions, with or without Yahoo. And that's going to be a tough problem for Yahoo to address for all kinds of paid financial services. The easiest niche to see for financial services online could be a complementary role, in which the services are deployed as part of a comprehensive relationship between financial institutions and customers.
No one said building the paid Web would be easy. In fact, failure is all but assured unless Web services can do two things: Avoid duplicating what's available free somewhere else, and add some value beyond raw information. Yahoo's early efforts just go to show: Asking a price for something others can offer free is likely to be a very tough road.
Mullaney covers finance and e-commerce for BusinessWeek