Incredible lateness of being
Yahoo downgrade points to subscriptions as Internet test
By Thom Calandra, FT MarketWatch.com
Last Update: 4:15 AM ET Mar 7, 2001
LONDON (FTMW) - They giveth and they taketh away.
Goldman Sachs took away Yahoo's preferred status when new analyst Anthony Noto saw red flags in the content distributor's move to charge for some services, like auctions and perhaps financial data. Yahoo shares (YHOO: news, msgs, alerts) , in the halls of the mighty New York investment bank, are now a mere "market performer" and no longer appear on a "recommended list" to clients.
As most of us know, investment banks, when they downgrade shares, are late to the wake. Noto's downgrade comes with the benchmark Internet company's shares a notch from their lowest point since September 1998. The company's stock market worth of $13 billion is less than a tenth of the market capitalization of AOL-Time Warner (AOL: news, msgs, alerts) , which regularly charges for its online services, magazines and cable programming.
The incredible lateness of being for Wall Street analysts, however, is not what we take away from this rare downgrade. Instead, Noto is rightly portraying Yahoo's efforts to create so-called premium services as a litmus test for the Internet content business. (See the European side of the content debate.)
Hundreds of online distributors and publishers are accelerating their plans to charge fees for their best products, whether they are auctions, calendars, archived news stories or financial data. The acceleration comes amid a downturn in the willingness of companies to advertise their brands on the Internet.
In other words, the Internet advertising slump has Yahoo on the run.
Noto at Goldman Sachs in his very readable, if late-to-the-game, report, says Yahoo is "beta-testing" premium services that could catch the fancy of its 60 million registered users.
"We do not believe the company plans to charge for any service that it offers users for free today, but rather will focus on extracting economic rent for incremental or premium services," he writes in the report released this week.
One possibility is a financial services offering that might harvest investment banks' research and maybe even a stock-trading platform. Another is an entertainment service, like digital music.
The challenge for Yahoo, which is a distributor of other companies' online material but rarely a creator, is simple: Prove that it can appeal to paying consumers by packaging other companies' goods.
Yahoo's glaring lapse in execution has always been its failure to create original content (with a few exceptions, such as the live markets coverage of broadband service Yahoo Finance Vision.)
Yahoo, of course, has tried several pay services, including, Noto notes, a heavy-duty online mailbox for $19.99/year. "These services have achieved nominal results," the analyst says.
The rush to subscription services - not just by Yahoo - is a tribute to AOL. In the case of a mere middle-man such as Yahoo, critics will point out that the juggernaut's ability to rise above the fray of smaller competitors with superb content. Or perhaps even buy some of those competitors.
Jeff Minich CEO of technology consultant NitroWeb in California, says now is the time for the specialized publishers to get a leg-up on the giant distributors.
"Content providers, in order to reach the widest audience and achieve economies of scale, must also distribute on an infinitely varying scale," said Minich, who likens the Internet flow of content to the human body.
"Circulation in the human body occurs on an infinitely varying scale such that no point in the system is ever more than a fraction of a millimeter away from being connected to the rest of the system," he says from Roseville, Calif. "Content providers must learn to package their branded content so it is accessible across millions of websites."
Such a strategy is what has turned Reuters (RTRSY: news, msgs, alerts) into a far-reaching publisher of online financial content, with articles and data available across as many as 1,000 Web sites. Reuters was one of the earliest Yahoo investors and continues to weave content partnerships with Internet companies it has backed in the past, including investment research distributor Multex (MLTX: news, msgs, alerts) and financial data company Tibco Software (TIBX: news, msgs, alerts) .
Specialized publishers that move to a hybrid of distributed and centralized content circulation "will eventually squeeze out the centralized distribution providers who attempt to implement subscription models," says Minich at NitroWeb.
Only time, desperate time, will tell. Look for Yahoo to name a top-ranking executive from an old-line company to lead the charge for subscription services.
Thom Calandra is Editor-in-Chief of CBS MarketWatch and FTMarketWatch.com |
