A New Direct Marketer Finds Its Way

Yahoo knows a lot about me.

The company knows my name, gender, email address, birth date, industry, occupation (“Executive”), home address, and home telephone number. It also knows that I’m interested in business, investment, hardware, software, and sports.

Yahoo knows me better than some of my closest friends, and, until lately, I hadn’t thought too much about the subject. Recently, however, Yahoo decided to change its policies regarding customer registration data, and I was spurred to learn more about our relationship.

Yahoo’s recent moves to sustain profitability have been well documented. Certain services that were once free will now be fee-based. Certain consumer preferences regarding the use of their data and their accessibility have been unceremoniously changed (though consumers can change them back). The bottom line is that I suddenly find myself enrolled to receive promotional emails from Yahoo, and the company or its “selected partners” can now send me direct mail or call me on the phone.

Yahoo has finally become a direct marketer. And by charging fees for things such as games and offering me the opportunity to receive promotional offers, it is changing more than its privacy policy. The not-too-subtle message here is that the landscape of the Internet economy has changed and will not be changing back.

Yahoo has changed its ways before and led others with it. Once the firm struggled to differentiate itself from mere search engines. Yahoo changed the landscape when it began calling itself a “portal.” As a portal to all sorts of content, which would increasingly reside within its own domain, Yahoo had an idea large enough to justify its market valuation.

With this change, Yahoo will surely increase its profitability. Take the example of Yahoo’s new fee structure for email services. Those consumers who access their Yahoo email accounts using desktop applications will now have to pay for this service. By charging, Yahoo will clearly lower the volume of customers who use the service. But that’s OK, because Yahoo will essentially eliminate its costliest users, as providing servers for email account access is an expensive undertaking. And the users Yahoo will be eliminating are those who provide no revenue-generating advertising opportunities in return for their use of the service. By not visiting the Yahoo site to access their email, these users were not even exposing themselves to banner ads.

This change does more than just make a lot of economic sense. It alters the business model upon which Yahoo was built. By becoming a profit maximizer, Yahoo will eventually trade away its dominance in reach. Those who have been using services without paying for them, or even enabling Yahoo to make advertising revenue from them, will go away. The people who run Yahoo are smart and are surely aware that they are trading reach for profits.

Yahoo needs a moniker for its new business model. “Portal” no longer covers it. By funneling consumers from content to fee-based services, Yahoo is becoming less like the broadcast television networks to which it once favorably compared itself and more like, well, Reader’s Digest.

Now before you knock the comparison, hear me out. Reader’s Digest is one of the world’s most widely known and distributed brands. It has been an engine for profits for 80 years. And its business model is to offer a broad base of readers access to content (often from outside publications) they would not otherwise find and to market additional products and services — such as Reader’s Digest Condensed Books — to this audience. Reader’s Digest is an upsell machine and one of the great success stories in direct marketing.

So if Yahoo wants to be the Reader’s Digest of the future, that may not be all bad. Last year, in a harsh economic climate, Reader’s Digest had a net income of $132 million.

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