Business Models - Advertising Model

This model relies on advertising to make money. To attract users to its site, leading Web portal Yahoo! offers things like free e-mail, extensive content, and travel services. The firm got its start in early 1995 when founders Jerry Yang and David Filo put together a simple list of favorite Web sites. The firm's lucrative initial public offering in April 1996 allowed it to launch an acquisition spree that eventually would exceed $10 billion. In September of 1997, Yahoo! bought a news delivery service, as well as technology that allowed it to add people-searching and e-mail to its free online services. Purchases in the following year allowed Yahoo! users to play games and shop. The firm paid $4 billion for Geocities and $5.7 billion for video services provider Broadcast.com in 1999. This aggressive growth strategy reflected manage-ment's belief that more features, services, and content would attract more visitors and advertising dollars.

Unlike many other dot-com startups, Yahoo! actually was able to parlay advertising dollars into profitability. This partially was due to the technology the firm developed for monitoring each visitor's online activity, selecting the advertisements displayed to each visitor, and tracking the hits received by each ad. Eventually, Yahoo! proved too reliant on other dotcom upstarts for advertising revenue. When these fledgling ventures were forced to curtail spending, Yahoo! began looking to traditional brick-and-mortar companies. However, many of these firms also were cutting costs, and quite often the dollars earmarked for online advertising were the most vulnerable to cuts. Eventually, the firm recognized that it needed to reduce its reliance on advertising, which accounted for roughly 85 percent of sales in 2000. Yahoo! altered its business model when it began offering fee-based services like online bill paying to consumers, and fee-based services like e-store management to corporate clients.