World Online Exclusive: Spinning the Web - Yahoo! stumbles

Online giant struggles to balance user and investor interests

In the relatively brief commercial history of the World Wide Web, few institutions can better be described as venerable nor are more influential than the multitentacled beast known as Yahoo!. As such, its successes and misfortunes are regarded with great interest not only by its millions of users but by anyone else struggling with the still largely unsolved mystery of how to turn a buck online.

Founded as a hobby by David Filo and Jerry Yang � Ph.D. candidates in Electrical Engineering at Stanford University back in 1994 � Yahoo! began as a modest guide to the Web and has grown into arguably the best-known brand online.

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In 1995, $2 million of venture capitol took Yahoo! into the big time. By the time the company became a publicly traded corporation in 1996, Yahoo! had a mere 49 employees. Today Yahoo! is a massive enterprise that's led the way in areas such as instant messaging, online shopping and hosting self-published communities of interest on the Web.

Though the company seemed to have weathered the dot-com self-immolation that occurred in the waning months of the last millennium, Yahoo!'s recent behavior has begun to betray just how desperate for revenue it has become.

Yahoo! provides a lot of value to its users and it's reasonable for them to make every effort to find a profitable business model.

Growing up in the days when hopes were still high that the Web could be profitable as an advertiser-supported medium, in the recent past Yahoo! has led the charge in testing the limits of how intrusive and ubiquitous Web advertising can be. Ever larger ads, interstitial ads that disrupt the continuity of Web surfing and countless pop-ups and pop-unders push the envelope of reader aversion. Is there anyone left with an Internet connection that hasn't made up their minds about whether they need a tiny wireless camera?

In the quest for revenue, Yahoo! has begun to identify and convert some of its services from advertiser supported to fee-based. Some months back, its online personals ceased to be a free service and on April 24 people who have their Yahoo! e-mail accounts configured to forward their e-mail to other e-mail addresses will have to pay for that service.

There is real concern among users and moderators of Yahoo! Groups � the company's focal point for communities of interest � that this too will become a pay-for-play feature. The viability of these little pockets of common interest is not a sure bet if people have to pony up to host or join a group.

Such fears aren't unwarranted. Yahoo!'s ability to manage transitions in its services has not been anything to boast about.

Once upon a time, there was an outfit called Onelist. Onelist was a free, Web-based tool for managing mailing lists for interest groups. Onelist was eventually absorbed by eGroups with its expanded tools for handling things like images and files. eGroups was very similar to Yahoo! Clubs. Yahoo! in turn absorbed eGroups. Because eGroups was both competition and a superior product, this purchase was of two-fold benefit to Yahoo!.

Over the course of the last year Yahoo! has been converting all of its old "Clubs" into "Groups." Recently the company announced that the conversion is complete and shut down the old Yahoo! Clubs site, leaving many club moderators struggling to locate their clubs that never reappeared as groups. Some, giving up, have set about re-creating their clubs as groups from scratch, with membership lists, files and message archives simply lost.

Other club moderators have found their old clubs, transformed into groups, inexplicably exiled into the ghetto of "adult" categories, with no way to contact the company to correct such errors.

Perhaps the most disturbing example of Yahoo!'s desperate and ham-fisted scramble for revenue has to do with its recent moves that seem to position the company to become the world's largest purveyor of spam, also known as unsolicited commercial e-mail.

At the tail end of March, members began receiving e-mail with the subject line, "Message from Yahoo! about changes to our Privacy Policy and your Marketing Preferences." This message contained a paragraph that included tidbits such as "In order to keep you up to date about our many new products and services and how they might be of use to you, we have created a new Marketing Preferences page within the Account Information area" and "We have reset your marketing preferences and, unless you decide to change these preferences, you may begin receiving marketing messages from Yahoo! about ways to enhance your Yahoo! experience, including special offers and new features."

Sure enough, a visit to http// by members reveals a list of services provided by Yahoo! that have had the "Include Me" option for receiving promotional e-mail preset to "yes." It doesn't end there. Also preset to "yes" is the item "Special offers from selected 3rd parties delivered by Yahoo!." That's spam, my friends.

Yet it gets even worse. At the bottom of the page members find that they must opt out to avoid receiving both postal mail and telephone solicitations. It seems that Yahoo! has mined the data collected from members who have shopped through its e-commerce sites to connect this personal information with their membership information even though members aren't asked for addresses and phone numbers when registering.

One would be hard-pressed to find a single Yahoo! Group where news of this zenith of customer abuse has not spread. In a rather mind-boggling misstep, this unilateral alteration of Yahoo!'s privacy policy and its opt-out procedure for marketing preferences have been implemented globally for Yahoo! members worldwide and may in fact be a violation of the law in the European Union where a number of affected members are already promising legal action.

In the wake of the brushfire that news of the marketing preferences caused, it was also revealed that an examination of Yahoo!'s privacy policy exposes a reference to "Web Beacons." A visit to illuminates the significance of this reference. Web beacons as utilized by Yahoo! involve the placement on Web pages, of tiny image files that can be used to track Yahoo! members' Web-surfing practices.

Yahoo! states that it uses Web beacons "to conduct research on behalf of certain partners on their Web sites and also for auditing purposes" and "no personally identifiable information about you is shared with partners from this research."

Not shared directly with partners perhaps, but as a "selected 3rd party," presumably Yahoo! will be happy to deliver its commercial solicitations to you, on its behalf. Again, you will find that there is an opt-out procedure for declining this "service."

Recently, a poor first-quarter earnings report led Yahoo!'s stock price to drop more than 16 percent in a single day. Things aren't looking great for anyone who relies on Yahoo! for their economic well-being or for providing Web-based tools that can be trusted.

Yahoo!'s viability and success matter. They matter as a bellwether for the Web as a whole and because its failure would intimately affect the social interactions of millions of people. It seems unlikely that selling out the trust and good will of its users for a quick infusion of cash is any kind of recipe for success. In the end Yahoo! will not have done its members, its investors, its employees or its advertising clients any good at all.


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