Well, first of all, the stock had no business being at 237.50 in the first place. It was caught up in the frenzied, ultra-hyped dot com mania of 1999 and early 2000. But we all know that, don’t we? Secondly, what happened to Yahoo is symptomatic of a larger malaise that could prove deadly to all major search engines. Lack of revenue is putting a stranglehold on every search portal out there, and if some miracle cure doesn’t appear on the horizon soon, the Net will be much poorer place. We need solid search portals like Google, Yahoo, AltaVista, Excite and the others. Disney’s decision to pull the cord on Go.com could just be the first of many such decisions.

Yahoo’s Current State of Health

The ironic thing about this is that search engines in general and Yahoo in particular have never been more popular with users. There are millions of searches done daily and Yahoo garners between 30 and 55% of all this traffic (depending on the rating service used). The world is beating a path to Yahoo’s doors. Yahoo’s just not sure how to make money from them.

Yahoo has built tremendous brand awareness on the Web. It’s the best-known dot com name and the most popular site in the world. Other search portals look longingly at its market share and traffic numbers. Yet, lately it can’t seem to turn a honest buck. It’s enough to drive a Yahooligan insane!

Acute Banneritis

The primary reason for Yahoo’s current state of woe lies in a monumental mistaken assumption that was made about 6 or 7 years ago. In building their business models, the developers of high traffic search sites assumed that people would act online pretty much the same way they’ve always acted when it came to paid advertising. The search sites could provide a free service that would attract millions of viewers and those viewers would be served up advertising each time they visited the site.

The primary vehicle for this advertising would be the banner ad. Everyone assumed this 468 by 60 pixel chunk of online real estate would be a hot commodity for advertisers. They would scramble to lay claim out the hottest potential cyber-corners to intercept their potential buyers. There would be more than enough money flung by eager advertisers at the big search engines and directories to make everyone rich.

There was just one problem with this scenario. The Web wasn’t television, or radio, or newspaper. It was a totally new medium and people interacted with it in new ways. We couldn’t use the past to predict how people would respond in the future, because we were rewriting all the rules as we went.

At first, advertisers did line up to put their banner ads online. But unfortunately, banner ads just didn’t work very well. Only one in every 200 visitors bothered to click on the banner. The response rates were far below what was anticipated. Advertising rates had to drop dramatically to account for these poor response rates. The revenue literally dried up and withered on the vine.

The Unpredictable Web Browser

The poor performance of banner ads was due to two things, the nature of the Web itself and the nature of the average person browsing through the Web.

First of all, typically a banner ad would be presented on a page that was crammed with dozens of links to other interesting online destinations. We were conditioned to scan a page full of hyperlinks and click through on our merry way. The banner ad came and went, virtually ignored.

When you see a TV ad there isn’t 6 other sources of programming all being shown at the same time. A radio ad doesn’t have 3 songs playing simultaneously. Even with newspaper, the story you’re reading stays right alongside the adjacent ad. You don’t click through to another page in the newspaper, leaving the ad behind.

The other factor that has to be taken into account is the nature of the person on the web. For whatever the reason, web browsers tend to ignore paid advertising and go to free links. Study after study has shown that given the choice between what is clearly a sponsored link and a free search result, we will choose the free option the majority of times.

Could the Right Revenue Vehicle Please Stand Up?

As Yahoo grew and it became clear that banner advertising was not going to produce the revenue the company needed to survive, it desperately searched for other options. There was three places the engine could go to raise revenue. First of all, it could begin charging users. Secondly, it could introduce other advertising options apart from the banner ad. Finally, it could charge the site owners that wanted to be included in the Yahoo index. Yahoo decided to go with the third option.

The Business Express Submission was introduced in March, 1999. For $199 site owners would be guaranteed that they would get a yes or no answer from a real live Yahoo editor within 7 business days about whether their site would be included in the directory. Prior to this, getting included in Yahoo’s directory was one of the most frustrating experiences a web master could undertake. The Business Express Submission didn’t really make it less painful, but at least the answers came quicker now.

At first, the Business Express Option has fairly strict criteria for which sites were eligible. Only sites submitting within certain categories were eligible, they had to be US based sites and they had to be e-commerce sites. Gradually, these criteria were relaxed and now if you want to get into Yahoo’s index, chances are you’ll be able to choose the Business Express option. I highly recommend this course of action, by the way.

Recently, Yahoo has also joined most of the other search engines in offering a sponsored link program. Now, when you choose a category, right at the top you’ll see a box with sponsored sites listed before the regular alphabetical list. Depending on the category, monthly fees charges for being a sponsored site can range from $25 to over $300. It’s important to note that sponsored sites do not show up on keyword searches, only when you actually click on a category.

What’s in the Cards Now?

So, will Yahoo survive? I believe the answer is yes. As I said before, Yahoo has a lot going for it. It just has to find a revenue vehicle that treads the fine line between being acceptable to Yahoo’s user base and being attractive to potential advertisers. Most importantly, whatever advertising vehicle is chosen has to offer a significant return on investment for advertisers. To date, both banner ads and pop up windows have failed to produce significant click through rates. The jury is still out on the sponsored links. The Business Express submission seems to be an acceptable charge to site owner’s eager to have their sites included in the all-important Yahoo directory.