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Yahoo sees ad gains ahead--in the long term

Yahoo may have slashed its earnings expectations for the next year, but Chief Executive Tim Koogle says the market downturn hasn't caught his company unawares.

Yahoo may have slashed its earnings expectations for the next year, but Chief Executive Tim Koogle says the market downturn hasn't caught his company unawares.

The Web portal announced fourth-quarter results Wednesday, meeting earnings expectations of 13 cents a share but offering substantially lowered predictions for 2001 on concerns over the weakening market for online advertising and the possibility of a deeper slowdown in the economy.

The outlook raises tough questions again about Yahoo's advertising-based business model. The company counts 90 percent of its revenues from advertisers, including 40 percent from customers in the troubled dot-com sector.

In an interview with CNET News.com, Koogle talked about the market downturn and his strategies for surviving a newly hostile environment.

CNET News.com: What's behind the collapse in the dot-com sector, in your view?
Koogle: It's pretty straightforward. The capital markets have pulled back pretty substantially. That's affected a wide array of companies and not just early stage companies. What's happening is pretty natural. I've been around for a while. I may not act like it all the time, but I'm old enough that I've seen it a few times in my career where new industry segments have emerged really fast. All that have fit that bill in the past were technology-driven. It's marked by a couple of trends--capital rushed in, sometimes more than could be absorbed, then consolidation, then post-consolidation, when market share flows to those who (survive).

So you wouldn't say this is a result of companies with poor business models or bad management?
We've seen a lot of companies that are unfortunately struggling that have (strong business plans and management).

Is there a turnaround on the horizon, or have things fundamentally shifted?
The effect of the market pullback is that it is driving consolidation faster than anyone had predicted. It's behind all of us. Most of the?effect of the financial pullback will be through by the first quarter (or) through by the first half of the year.

What are the key changes you see in terms of running a successful dot-com in the coming year?
I'm not going to make any big general predictions, but I can say (Yahoo is) going to continue to focus on the things we have always have focused on?We're going to become more and more essential to our consumers' lives and to our business customers and do what we've always done in terms of managing the company prudently.

Analysts like Merrill Lynch's Henry Blodget are predicting flat advertising growth: $8 billion this year, $8 billion next year. Can Yahoo thrive in an environment of flat advertising growth?
We believe strongly that this medium is hugely valuable to marketers and businesses worldwide?The short-term effect is one of a pullback, including for some of our customers. (But) we strongly believe the Internet will win a larger share of overall advertising dollars, and spending will consolidate more among those companies that provide scale. We're one of those.

Are you considering cutting any of your current offerings or implementing any other cost-saving measures?
We feel really strongly that we have a big opportunity. We have?a big audience and the opportunity to build deeper offerings. We have the flexibility and the scale and the management to do this, but we're going to be prudent.

So you plan to expand further, not cut back?
Yes.

AOL and Time Warner are close to regulatory approval of their merger; it could come as soon as this week. Will that deal force Yahoo to change strategy?
I'm very respectful of those companies (and) think they're fine businesses. But I also think the industry we serve is large enough to support several branded services.

You have mentioned charging for premium services to diversify revenue and reduce reliance on advertising. What services specifically do you plan to try to sell?
Business and enterprise services, broadcast services, and our corporate portal service have great momentum. Just last week, we named 11 more customers for the corporate portal service. We plan to grow both business and premium services (such as) listing fees for Yahoo auctions. That's a little different, but we include it in that (premium services) category. At the end of this year, we should have increased these services as a percentage of overall revenues to 15 (percent) to 20 percent, represent a doubling of current (non-advertising) revenues.

If you could have seen the current situation coming, what would you have done differently?
We actually did (anticipate the market downturn). That's why we began to build integrated marketing solutions and began to build a channel to build corporate services a year ago. We talked about fusion marketing and building a suite of advertising tools. We've been driven all along by the idea that the largest marketers worldwide would want to buy these integrated solutions. We anticipated that and began building it over a year ago. Of course, nobody predicted the markets would pull back as fast as they have.