Yahoo buys email list service eGroups in stock deal

Web giant Yahoo today said it will pay $432 million in stock to acquire privately held eGroups, an email list service.

The acquisition will allow Yahoo to add eGroups' email services to its existing collection of communications properties, including its online clubs site, free email service and instant messenger. Yahoo said it eventually will include eGroups in Corporate Yahoo, the recently launched version of its service for internal company use.

Yahoo will issue about 3.43 million

Gartner analyst Whit Andrews says that Yahoo's acquisition of eGroups highlights the portal giant's desire to extend its influence further beyond the browser. see commentary

shares of its common stock for ownership of eGroups. Based on yesterday's closing price of $126, Yahoo will pay close to $432 million for the company.

For Yahoo, impetus for the acquisition stemmed from eGroups' lead in the marketplace and its audience of 17 million members and 800,000 email lists.

"Email groups is a function that Yahoo has been thinking about for a long time," said Geoff Ralston, vice president of Yahoo's communications group. "We see this as way to get in front of people in their email box."

eGroups will become another item in Yahoo's expanding toolbox. The company allows people to create or sign up for email lists based on interests. Once people sign up, they receive emails containing topic discussions and information. In exchange for the service, eGroups emails advertisements to members, saying it can target marketing pitches more effectively.

eGroups and Yahoo also share a common thread: Both companies have Sequoia Capital's Michael Moritz on their board of directors.

"He suggested (Yahoo) take a look at their set of services to enhance our set of offerings," Yahoo's Ralston said about Moritz. "At that point, a series of meetings took place between Yahoo's management and eGroups' management."

Like many Web companies, especially portals, Yahoo has made its fair share of acquisitions to expand its array of services and features. The company last year acquired Web community GeoCities and Net broadcaster Broadcast.com for $4.5 billion and $5 billion, respectively, adding traffic and new technologies. Some viewed the deals as highly overvalued, however, and in the case of GeoCities, they questioned the acquisition's benefits.

"Like the GeoCities acquisition, (the eGroups deal is) another attempt to buy a large community," said Dan O'Brien, an analyst at Forrester Research.

In the heated race for thinning online ad dollars, traffic is king. Yahoo and Web portal competitors such as Excite@Home, Lycos and CMGI's AltaVista have swept up smaller companies in hopes of corralling more dedicated consumers into their networks. The acquisitions largely have allowed those companies to increase their audience numbers, which are then used to woo advertisers.

However, spending millions, if not billions, for more eyeballs remains a questionable strategy. What remains to be seen is whether these sites can use viewers to generate revenues that are less dependent on advertising.

Email-based marketing may pose a significant revenue opportunity for Yahoo, according to Michele Slack, an analyst at Jupiter Communications. Slack said people who sign up for eGroups do so based on their interests. Thus, eGroups can charge advertisers higher rates, and people will be more likely to open email offers.

"They can get a sense of what your specific interests are, and they could turn it around and match it with an advertisement," Slack said.

eGroups merged with rival OneList last November.