Yahoo Doodle Dandy - Company Business and Marketing

Industry Standard, The, August 21, 2000 by Jim Evans

The company changed its playbook for Europe. Now it's running some of those plays in the United States.

WHEN FABIOLA ARREDONDO became Yahoo's managing director for Europe in December 1997, her friends in London had never heard of the company. It had launched its European operations more than a year earlier, but it had only 15 people working on its sites in the U.K., France and Germany.

"I got a bunch of calls from people asking what I was doing," says Arredondo, an energetic executive who previously worked at BMG Entertainment Latin America and J.P. Morgan. "Yahoo just wasn't known back then in Europe."

Not three years later, Yahoo is recognized as a leading consumer brand across Europe, with sites in eight European countries -- Denmark, France, Germany, Italy, Norway, Spain, Sweden and the U.K. In every market except Sweden, Yahoo regularly ranks first or second in page impressions. It lags behind local competitors such as T-Online in Germany and Wanadoo in France, but neither of those companies, which are owned by state-owned telcos, can match Yahoo's strength across the region. Yahoo has 9 million users across Europe, almost double the number of T-Online, the No. 2 portal, according to research firm Media Metrix Europe.

That market position is starting to yield concrete results. When Yahoo reported its first-quarter numbers in April, it separated the European financial figures for the first time. Yahoo Europe garnered about $22 million in revenue and, according to Yahoo officials, turned a profit. That may not seem like a big deal, but compare it with 1996, when Yahoo went public and the company had $19 million in revenues and a net loss of $2.3 million.

Yahoo's Europe conquest was particularly unlikely given that its European competitors had the home-field advantage. It is also notable because Yahoo came to dominate the region by modifying the sternly independent strategy widely seen as the cornerstone of the company's success in the U.S. In fact, corporate leaders at Yahoo admit they have learned a thing or two about partnerships from Arredondo and her European colleagues.

American Web companies began establishing settlements in Europe about five years ago, and they typically viewed joint ventures as the best way to get off the ground. In early 1995, European music and publishing giant Bertelsmann took a 5 percent stake in America Online and the two began plans for a joint service in Europe. That same year, Microsoft launched its European ISP business. In 1997, Lycos, which already had a German joint venture with Bertelsmann, formed a separate Pan-European company with the media behemoth. Excite created joint ventures in the U.K. and Italy as launching pads for its expansion into Europe.

Yahoo, however, didn't jump into deals with any European partners, in part because of bad experiences with joint ventures in the past. In 1996, Yahoo and Visa signed a joint venture agreement in the U.S. in which the two set up a separate company that would function as an online shopping mall. The idea didn't take off and eventually Yahoo bought Visa's share of the company.

In Japan, Yahoo became a minority partner in a joint venture in 1996 with Softbank, a Japanese investment firm that also holds a large stake in Yahoo. That arrangement turned unpleasant because Softbank could call the shots for Yahoo Japan, which made it difficult to integrate operations and technology there with the rest of Yahoo.

Those two episodes helped shape Yahoo's conviction of neutrality above anything else. When every other U.S. portal aligned itself with a broadband partner, Yahoo played it cool and did nothing. When other portals signed broad distribution agreements with Internet service providers or computer manufacturers, Yahoo kept agreements to a minimum.

So when it was time to expand in Europe, Yahoo played it the same way. It had plenty of opportunities to partner with major European companies but it balked, realizing that in the long run a joint venture wouldn't allow Yahoo the control it needed to run a Pan-European business. "We found that the major players like the Virgins and the Bertelsmanns were really established in one country," says Jeff Mallett, president and COO of Yahoo. "We realized early that they didn't have the presence to do a true Pan-European business."

Arredondo says that when the European operations were being launched, Yahoo was in the midst of a battle stateside with Excite, Infoseek and Lycos for portal superiority. All four companies went public in 1996, and it wasn't clear at that point that Yahoo would emerge the winner. Any cash earmarked for advertising went to operations in the U.S.

Without an advertising budget of her own, Arredondo was compelled to depart from the company's neutral stance and seek distribution agreements with European powerhouses in the retail and Internet access worlds. Yahoo management in the States wasn't sure it wanted its European satellite to go down the path of distribution deals. According to Arredondo, Yahoo executives in the U.S. had mixed reactions to distribution agreements. Says Mallett: "In the end, we agreed that getting in bed with retailers didn't make sense here, but in Europe it did."