Lessons From Yahoo!

Yahoo had its day in the sun on Wednesday after reporting better-than-expected quarterly numbers — but questions linger about whether the Web portal’s success will translate to others in the field.

Sunnyvale, Calif.-based Yahoo — which saw its stock boom 23 percent above Wednesday’s close — since last year has undertaken a number of initiatives designed to reduce its dependency on mainstream online advertising.

For instance, the company has leveraged its own technology to roll out a number of paid services for companies — such as its Webcasting and corporate portal businesses, which rely on skills and assets that Yahoo acquired or developed for its own, media-centric uses. In some cases, those assets are proving more lucrative as the core of Yahoo’s B2B services than the portal was able to leverage itself — for example, Yahoo’s failed streaming media play FinanceVision used technology that found itself repurposed into corporate Webcasting and advertising products.

Yahoo also has a number of potentially lucrative consumer offerings, such as its high-profile dialup and DSL agreement with SBC . While Yahoo Chairman and Chief Executive Terry Semel conceded that it’s too early to tell whether the portal’s foray into the ISP realm will be a success, he said that so far, signs are positive.

Even when it comes to advertising, Yahoo has made efforts to get away from the traditional forms of Internet ad inventory, opting instead to beef up its paid search and classifieds businesses.

As a result of the recent changes, questions now linger about whether Yahoo’s recent topping of Wall Street’s estimates foreshadows good things to come for the entire online publishing industry — or speaks only to the success of a single Internet firm.

For one thing, it’s not clear from Yahoo’s numbers how strongly the online ad market has improved in areas other than the non-traditional segments in which Yahoo is experimenting — such as in its pay-for-placement search, which it delivers through a deal with Overture .

“The online advertising market is not showing a rebound outside of paid search,” said Justin Baldauf, vice president at Merrill Lynch Equity Research. “Their deal with Overture is being very productive for them. Their core online advertising business … is down about 3 percent year-over-year, which is an improvement from last quarter, when it was down 11 percent.”

Still, there is some sense of applicability to other major publishers, he added. The ad market “is not shrinking nearly as fast as it was,” Baldauf said. “It’s a bit of fresh air going forward in what is a very challenging advertising environment.”

Additionally, some believe that Yahoo’s successful efforts in increasing advertising revenue could be coming at the expense of sales from rivals.

“The recent improvement has largely been driven by solid demand in key verticals, as well as share gains from other online leaders that appear to be fairly high advertising rate cards relative to Yahoo,” wrote DeutscheBank’s Jeetil Patel in a research note on Thursday.

Added Baldauf, “The impression I got is they believe they are gaining market share, and I suspect that the biggest loser on that front is AOL.”

But some point to the similar efforts undertaken by rival portals — such as Terra Lycos, which recently unveiled beefed-up paid search, as well as subscription-based email services — as evidence that Yahoo is less of a standout, and more of a representative of a new class of online publisher.

“I don’t believe that what’s happening with Yahoo is an anomaly,” said GartnerG2 Research Director Denise Garcia. “They are typical of the online portal these days, where most of them are diversifying their revenue stream and moving toward these other pockets of revenue, like business services and subscriptions.”

“All online media is trying to diversify, and most online portals are looking very similar to Yahoo,” she added. “I think it’s great news for the ad community in general, because [Yahoo] was able to increase their ad revenue pretty substantially. If they were getting revenue from all these other sources, and advertising had been flat, then I would say it’s bad news for advertising. But clearly, they’re not.”

Media players other than the major destination portals show similar successful trends. Dow Jones reported noteworthy third-quarter results from its online operations — despite the overall lackluster outlook for the rest of its businesses. The company said on Thursday that its Consumer Electronic Publishing division, which includes WSJ.com, turned its first profit after seeing a 24 percent increase in year-to-year advertising revenue, and a 9 percent boost in circulation.

Garcia added that Yahoo’s success also mirrored the slight pickup some see in offline media, as well.

“It’s more than just online — look at advertising in television, at upfront buying. Advertisers aren’t canceling, and that’s good news overall. [Yahoo] is indicative of the overall market.”

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