Yahoo: Profit Down but New Search Up

October 16, 2006 0

Online media firm reports sales that miss targets and cuts revenue guidance. But stock climbs after CEO discloses vital new technology is now running.
The small business and merchant marketplace is one that Web companies have long seen as a key to long-term growth of the Internet and e-commerce. Despite plunging prices for Web domains and hosting services, millions of small merchants still do not have a Web presence.

Online media company Yahoo!, which is struggling to keep pace with top rival Google, recently reported third quarter sales that were lower than expected, earnings that matched analysts’ forecasts, and a current quarter outlook less robust than previously forecast.

But the company also had some good news. Yahoo’s chief executive officer said during a conference call with analysts that its long-awaited new search technology was now live.

Yahoo Small Business, one of the most popular options for merchants to establish their first online presence, started to roll out a major upgrade, revamping the way it gets merchants set up to focus more on immediate sales results.

The e-commerce platform, known as Yahoo Merchant Solutions, got the first of several planned upgrades, with a new, simpler process for establishing Web stores and loading product information.

It also has been hurt by concerns about the delayed launch of its new search platform, codenamed Project Panama, a technology that Yahoo hopes will make its searches more relevant to advertisers as it seeks to regain market share it has lost to Google.

Yahoo was supposed to unveil Panama in the third quarter but told analysts in July that it would come out during the fourth quarter instead.

The company warned in September that sales would be at the lower end of its financial forecasts due to weakened online ad spending by auto manufacturers and financial services firms.

"I am not satisfied with our current financial performance and we intend to improve it," said Yahoo chief executive officer Terry Semel during a conference call with analysts. "We are not exploiting our considerable strengths as well as we should be and we are committed to doing better."

Yahoo says about 40,000 merchants — or some 12 percent of all online stores — use the Yahoo e-commerce solution and about 1 million sites use Yahoo’s hosting and Web design services.

But during the conference call, Semel said that Panama was now live and that the company was in the process of shifting advertisers to it over the next few months.

Guided by Wizards
Yahoo said additional upgrades to its platform would include easier access to the Yahoo Shopping search engine and simplified online marketing programs that use paid search and other techniques.

The changes come from a new focus on getting merchants up and running faster, according to Jimmy Duvall, director of e-commerce products at Yahoo small business. The catch phrase for the upgrades is "results in 30 days."

"A lot of work has been done to make the process of getting started easier," Duvall told the E-Commerce Times. But a lot of merchants still spend too long up front designing their sites and loading products and that delays them reaching their real goal, which is to start generating sales and getting the money flowing.

The first new feature is a design wizard, which is meant to further simplify the site-building process by walking merchants through a few basic steps. E-commerce site design has come to be standardized around a few designs, Duvall noted, leaving merchants to choose a few basic elements, such as color and other design effects and what text will be added.

Most Web hosting and site-building services today focus on features, Duvall claimed. "There is a lot of focus on checkmarks on various feature sets," he said. "We have talked to many merchants and found that those that are successful have success early on. They get started right away and then they build from there."

A second tool, known as the "add-a-product" wizard, lets merchants upload product information to their new site, either one item at a time, or in large groups if they have them in a pre-set database format.

The wizards do a lot of behind-the-scenes work as well, including indexing and meta-tag creation to ensure that sites and products being offered can be found on the major search engines. The wizards can also handle categorization and indexing of a site, something that trips up many newcomers to the Web.

“We have found that merchants who start a store with a simple handful of products to get up and running do the best,” Duvall explained. Once they start to get a taste of success, they already know what sells better or worse. The reality is that the best way is to start off very simply and make sure the site is functional and operational before you start adding 10,00 products.

Deep Pool, Full of Fish
The small business and merchant marketplace is one that Web companies have long seen as a key to long-term growth of the Internet and e-commerce. Despite plunging prices for Web domains and hosting services, millions of small merchants still do not have a Web presence.

Future rollouts will include a marketing wizard that will help people new to the lexicon of online marketing determine the best approaches without becoming experts on keywords. The platform will continue to offer third-party assistance and "off-ramps" to third party Web designers and other services. "There are times when that level of help is appropriate, but for most small merchants, we can get them to where they want to go by keeping them focused on the results they want," Duvall added.

The arrival of innovations such as local search and click-to-call advertising is expected to help convince another wave of small merchants and other businesses onto the Web in coming years, according to analysts.

"It remains to be seen how powerful a draw local search will be for small businesses to invest in an online presence," said Sterling Market Intelligence analyst Greg Sterling. "The consumer is becoming more aware of how the Web can be used to find local merchants and the process is getting simpler. That could add up to a significant trend in that direction."

Tim Boyd, an analyst with Caris & Co., said that it was crucial for Yahoo to not postpone the rollout of this new search technology any further or else many investors would have given up hope on the company.

Investors and advertisers have flocked to Google, which will report its latest results soon and made waves lately when it announced it would buy online video juggernaut YouTube for $1.65 billion.

Yahoo also is facing a tougher challenge from the likes of Microsoft’s MSN, IAC/InterActive’s Ask.com and MySpace, the popular social networking site owned by media giant News Corp.

“Clearly some new players have emerged in this area that has attracted a lot of attention. But we a far bigger player in this space than many people realize,” Semel said.

And Yahoo did make two moves that could improve its standing in the online ad race. The company acquired AdInterax, a privately held company that has tools which can be used to create video ads.

Yahoo also said it would buy a 20 percent stake in Right Media, a company that runs an exchange which allows companies to buy and sell online ads.

Automated platforms such as those from Yahoo and eBay have helped many smaller businesses find a niche online, where search engines can bring them buyers who might otherwise have never found them.