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StockTalk:
TMF Interview With Yahoo! President and CEO Tim Koogle
With Yi-Hsin Chang (TMF Puck)
and Brian Graney (TMF Panic)

July 22, 1998

Our guest today is Tim Koogle, president and CEO of Yahoo! (Nasdaq: YHOO). Of course, this is a company that requires little introduction. It's a Web media company that offers an online navigational guide, free email, as well as Internet programming and services. Yahoo!'s websites have consistently been ranked the most popular sites on the Web.

TMF: Mr. Koogle, thank you for joining us today.

Koogle: Thanks a lot. It's my pleasure.

TMF: With the recent investments in new media, Disney (NYSE: DIS) in Infoseek (Nasdaq: SEEK) and NBC in CNET's (Nasdaq: CNWK) Snap!, do you still plan to remain independent?

Koogle: Yes, we do. You know this is an interesting topic area. As I mentioned on our conference call to the analysts about a week and a half ago, from the beginning Yahoo! has been a big believer in partnering across a broad array of companies, including content companies, merchant services companies, and communications services companies. I actually took a tally recently. We have over 400 contractual relationships across the world, which we bring content into Yahoo! or feature products that people want to sell. And many of those are actually with either affiliates or directly with some of the larger networks out there in the media world.

We have good cross-branding, cross-distribution relationships with them and have chosen, on Yahoo!'s side of things, to remain independent so that in fact we can bring the broadest array of choice to our users. And I think that's a really valuable kind of approach for us to continue to take on behalf of our users.

TMF: So there's not going to be a linkup with Netscape (Nasdaq: NSCP) to form "NetanYahoo"?

Koogle: [Laughs] That's an old joke. It isn't likely. [More laughter]

TMF: Speaking of Netscape, how do you plan on competing with some of your competitors? And do you view Netscape as a bigger competitor to you, or an online services provider like America Online (NYSE: AOL)?

"[We] have chosen, on Yahoo!'s side of things, to remain independent so that in fact we can bring the broadest array of choice to our users."
Koogle: Well, I think both are competitors to us, and we view them differently. In Netscape, with their recent Netcenter initiative, Netscape is trying to move in the direction of operating a website that has some appeal to consumers. We view all competition very seriously, and so we view that one seriously. But, on the other hand, they're trying, as you know, to both run an enterprise software products business, trying to maintain browser share, and now trying to be in the business of doing content aggregation and having a consumer gateway kind of offering, if you will, by offering a website. Those are different businesses. They're coming to the game a little bit late. I wouldn't totally discount their ability to compete, and we do view them very seriously. But I would say that we, on the other hand, respect AOL very much. They do have good scale, and we admire what they have done in the past. And we do compete with AOL for both eyeballs as well as dollars, as you know.

The last thing I'll say is that I've always believed that the market for consumers -- as measured in number of users coming on to the Web and are likely to be on the Web, as well as dollars in the form of advertising and e-commerce (business-to-consumer commerce and business-to-business commerce) -- all of those things are more than big enough to support several global branded networks. Probably not 10, probably not any more than about five, but certainly three or four global networks. So, I believe the pie is big enough and will only get bigger to support the number of players, and we'll compete.

TMF: Excite (Nasdaq: XCIT) recently began advertising on TV, specifically on the final episode of Seinfeld. Do you have plans to advertise on TV or other forms of media?

Koogle: Sure. In fact, we've been doing advertising across media since we started our business pretty extensively. We've done a fair amount of experimentation -- measured buys, if you will, across media to promote Yahoo!'s brand. We've done some placement in print, we've done some placement in radio, and some placement in TV. In fact, some of our TV commercials are pretty famous by now -- the hair commercial and the fish commercial. Probably the fish commercial is more famous. And so we've done a lot of cross-media buying actually since our inception and will continue to do that.

There are certain seasons during the year where we find that there's a larger targeted audience that we want to appeal to on various media, and so we actually have seasonal budget ourselves to reach the targeted audience. Also, by virtue of the number of the media partnerships that we have, we get a lot of airtime and in some cases print space as barter, as part of our business relationships with a number of affiliates, certainly across North America. So we get free airtime, and we buy some airtime, and we certainly will continue to do that.

TMF: Under your business plan, pageview numbers and click-throughs are very important. Can you maybe explain how those translate into revenues and income for Yahoo!?

Koogle: Sure. Pageview probably bears a little bit of definition. Pageview is quite literally one display's worth of information on your computer screen, as an example. So on your CRT, when you call up Yahoo!'s home page, that is an entry point. That counts as one pageview. Every pageview that gets consumed is an opportunity for us to post up a paid advertising message in the form of a banner or one or more merchant buttons.

We have merchant partnerships now in which we display our merchants' offer in the form of a little graphical button or something. So the raw consumption number is about pageviews, and those literally are the number of electronic pages that consumers are pulling up on their screen. And that is kind of a raw inventory against which we post paying ads or paying merchant programs distribution fees. So you can monetize those pages that way.

"Netscape is trying to move in the direction of operating a website that has some appeal to consumers... They're coming to the game a little bit late."
TMF: And what about click-throughs?

Koogle: Click-throughs are an interesting point. You know, the Web, unlike any other medium that has come before, is interactive, two-way, and measurable. And, as you know, when you put up a banner or a merchant button, that's a call for action, if you will, on the part of the consumer. The consumer clicks on that, then they are taken to another page or site on which somebody can sell them something. And so click-throughs really are a measure of the number of times, as a percentage of the times that someone saw, as an example, an advertisement, how many times did they click on it? That's the click-through rate that typically gets referred to in the industry.

Its analogy in the direct-marketing world is, of the number of direct-mail pieces that were sent out from someone advertising something, what percentage of those were actually filled out and sent back to the advertiser? It's a similar kind of response-rate measurement. Click-throughs are important to the advertisers as a performance measurement, and it's something we work very hard to optimize on the part of all our paying customers.

TMF: Some of our readers wanted to know, how much revenue do you derive from ads from pornographic sites? That is, how closely should Yahoo! shareholders follow the porn industry, including Internet regulation, to predict the company's advertising revenue?

Koogle: This is a question I get asked actually very rarely. But the answer is that we do support a little bit of a very, very small amount of advertising on the part of adult-content companies. We take a very measured approach to putting it up. We offer several levels of warning to users that click on those ads. The ads are typically only put in sections where it's very clear that the consumer is making a conscious choice to consume that.

As a percentage of our revenue, it's insignificant. It's in the single digits as a percentage of our revenue. So, to the last piece of your question, I would think that shareholders out there don't have to worry because we're not reliant at all. We're in the low single digits as a percentage of revenue for that type of advertising.

TMF: What's Yahoo!'s overall growth strategy going forward? Is it going to be acquisitions, or is it going to be more focused on internal growth?

"We've always tried to operate a pretty balanced strategy here in the company. We're pretty prudent and pretty disciplined when it comes to making acquisitions and also in internal investments."
Koogle: It's both. We've always tried to operate a pretty balanced strategy here in the company. We're pretty prudent and pretty disciplined when it comes to making acquisitions and also in internal investments. We're also pretty aggressive, but we're pretty disciplined. We have started making acquisitions as of the fall of 1997, and we have made two or three since that time. We'll continue to do those in a kind of prudent fashion as well as invest internally for our growth.

TMF: Do you have plans to develop your own content, or do you intend on getting content from your partners?

Koogle: This is an area that we're very clear about. We are not in the original content creation business here at Yahoo!. We play a role very similar to a broadcast network in which we source content from independent studios -- in this case, independent websites -- aggregate that, put it all together in a kind of an easy-to-consume fashion for the user, and brand it and distribute it. It's very much like the role of a large broadcast network. But we do not compete by being in the original content creation business. We aggregate content openly and inclusively on the part of all those authors out there that are doing great stuff on the Web.

TMF: Considering that Yahoo!'s market capitalization is larger than that of the New York Times Co., do you think your stock and other Internet stocks are overvalued?

Koogle: This is a conversation I have with both institutional investors as well as folks out there in other businesses somewhat regularly, although less regularly than you would think. I usually make a habit of not really commenting on the share price. We typically don't focus on it here at the company. You can believe me when I say that we're building an enterprise that we believe is going to be very large and very profitable, and we're building it for the long-term. And so we focus more on taking care of customers and building a nice, profitable, well-run enterprise here.

My role, on the other hand, in interfacing with Wall Street is one of educating both institutional investors as well as analysts out there on the Street on what the company is doing. I do a regular amount of that, so that when they make decisions on buying a stock, they're making it in an educated way.

All that said, I have talked to a number of institutional investors, as you might imagine, quite regularly and talk with a wide range of them. Almost without exception, they all say that, in their estimation, what they see in Yahoo! is a leader that's executed against a very good business model that's well-managed. Usually that is a combination they look for and are willing to pay a premium for. That's the input I get typically from institutional investors and analysts. They see that very unique combination in Yahoo!. It puts a lot of responsibility on us to continue to execute, which we're fully up to, and we're very focused on doing that going into the future.

Related Links:

  • Yahoo! website
  • Yahoo! message board
  • StockTalk with Excite
  • StockTalk with Infoseek

     

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