Yahoo marketing angers store owners

Yahoo began attaching the advertisements last week as part of a partnership with online marketing company Webloyalty.com. Yahoo has touted the advertisements as a way to help sellers, since they offer customers two $10 coupons that they can use when they return to the store they just visited.

"Webloyalty program builds customer loyalty," Yahoo said in an e-mail message sent last week to Yahoo store owners describing the new marketing service. "Their direct marketing and customer loyalty services can improve purchase and transaction rates and generate new revenue streams."

But some of the store owners have criticized the program, saying that it detracts from their own marketing messages to customers. Even more upsetting, they say, is that Yahoo gave little advance notice of the program and implemented it with no input from sellers.

"They're taking away our customers and they're not giving us any choice," said Gloria Hoover, a Yahoo storefront owner since 1998. Calling the programs advertised by Webloyalty "scuzzy," Hoover added that they "do not fit anything that I would like on my Web site."

The new advertising deal gives coupons to Yahoo stores customers in exchange for signing up for one of several membership programs offered through Webloyalty. These membership programs offer discounted travel, computer security products and service or shopping protections such as a best-price guarantee. The membership programs each involve a monthly fee of about $6.

By clicking on an advertisement at the end of the checkout process, customers are taken to a Web site promoting one of the membership offers from Webloyalty.

Although Yahoo has heard from sellers such as Hoover who are upset by the new program, "many" merchants have responded positively to it, company spokeswoman Linda Pederson said. The program was designed to benefit merchants, she said.

"We're always looking for ways to help our merchants," she said. "This really benefits the merchants at no cost to them and no work on their part."

Jeff Ferguson, who owns The Gag, a novelty goods store on Yahoo, said although he understands why some sellers are upset about the program, he's seen such programs work for other companies and doesn't mind having the Webloyalty ads run on his site.

"If it helps business, I'm all for it," he said.

Webloyalty has marketing deals with companies such as Priceline.com and 1-800-Flowers and has "hundreds of thousands" of consumers signing up for memberships each month, said Rick Fernandes, the company's chief executive officer. "A lot" of Yahoo merchants are happy that Webloyalty is paying for gift certificates to their stores, Fernandes said, although he acknowledged that there had been some "noise" from sellers about the issue.

"Our intent on this thing was not to cause concern with merchants. Our intent is to provide extra value," he said.

Fernandes gave few details on the company's deal with Yahoo, saying only that they signed the agreement last month. Fernandes didn't know if the contract guaranteed that the advertisements would be placed on all Yahoo store sites.

"Clearly, the intent was to put it in front of as many merchants as possible," he said.

A win-win proposition?
Over the last several years, Internet companies such as Amazon.com, Yahoo and eBay have set up virtual shopping malls on their sites that allow small merchants to offer their wares online.

The arrangement has often been considered mutually beneficial for both parties. Through storefronts, the hosting companies can offer goods to customers without carrying any inventory. Meanwhile, the storefronts typically provide a low-cost way for merchants to set up shop online.

But merchants have often felt like the services don't provide enough customer support and don't allow enough discussion of changes before they are made. And problems and outages on the sites often drive merchants into a fury.

Last month, Yahoo drew flack from sellers when its stores area was placed on three lists of suspected spammers. Some companies and ISPs use such lists to block access to listed sites, and some storefront owners complained that their business plummeted after the listings.

Yahoo's marketing move is only the latest by the company that has angered sellers, said Cindy Alpers, president of the recently formed e-Merchant Association, which aims to represent online merchants in their dealings with hosting providers and on regulatory issues.

"That's the way they do business with merchants," said Alpers, who also operates two Yahoo stores. "They don't care about the merchants at all. They don't ever include us in the decisions."

Complaints
On Internet message boards, Yahoo sellers complained that the company notified them of the program only two days before it launched last week. Some complained that the company had not provided any way to opt out of the program. And some wondered who will pay for the coupons to their stores. Many said that all they had heard back from Yahoo were "canned responses."

As part of the advertising deal, Webloyalty will pay for the coupons that customers can use at Yahoo stores, Pederson said. Yahoo storefront owners who object to the advertisements can opt out of them, said Pederson. Although Yahoo did not make that option explicit in its information to sellers about the program, sellers who object can remove the advertising by contacting Yahoo, she said, adding that the company has already done this for a "few sellers."

"This program is available to those who want it," Pederson said. "If people are not interested in participating let us know; we'll take them out (of the program)."

But sellers also complained that the ads threatened to steal away their customers. Meanwhile, some worried that they might have to deal with complaints from customers confused by who was actually offering the coupon or the membership service.

"The way it's worded, the coupon sounds like it's coming from the store you just purchased from," Hoover said.

Pederson declined to discuss Yahoo's relationship with Webloyalty, saying only that it's a "business arrangement." But such deals often involve an advertising fee or include some kind of revenue-sharing agreement where, for example, Webloyalty would pay Yahoo a commission for each membership sold to a Yahoo stores customer.

Amid the advertising downturn over the last two years, Yahoo has been moving aggressively to expand its revenue base beyond online ads and into paid services.

Last month, for instance, Yahoo launched its long-awaited co-branded high-speed Internet service with SBC Communications. Earlier this year, the company began charging for access to The New York Times' archives and for an e-mail forwarding service.

But Yahoo has had to back away from other paid services due to lack of interest or criticism from users. It shelved a fee-based service that searched for research documents last month. The company has also dropped fees on enhanced personal ads and its person-to-person payment system.