Yahoo! is at a crossroads. While the major U.S. Web portal surprised Wall Street last week with better-than-anticipated second-quarter earnings, it's under pressure to expand internationally. In addition, Yahoo!'s decentralized international strategy--it currently works with more than 10 agencies--is becoming difficult to manage.
Yahoo!'s international business is small but growing. Revenue outside the U.S. rose to $59.1 million last year, 10% of Yahoo!'s $588.6 million total, up from 6.6% in 1998. Net income was $61.1 million.
While only 10% of revenue is non-U.S., about 40% of the traffic to Yahoo!'s main U.S. site--yahoo.com--comes from overseas.
ADS KEY TO BRAND
Yahoo! sees advertising as key to growing its brand. It spent $79.5 million on advertising in 1999, up 103% from 1998, according to Yahoo! securities filings.
So far, it's adapted ads developed by longtime creative agency Black Rocket, San Francisco, for international markets while tapping agencies in those areas to add local talent and humor, said Karen Edwards, VP-brand marketing at Yahoo!. (Its 23rd regional site--Yahoo! India--opened two weeks ago.)
"We view Black Rocket as our agency that will solve this challenge; they could end up helping us find local agencies in countries," Ms. Edwards said, noting that Black Rocket already has helped Yahoo! find agencies in Europe.
Jasmine Kim, director of international marketing at Yahoo!, said Yahoo! sought overseas agencies similar to Black Rocket: creative boutiques with founders who hail from big agencies.
For example, Yahoo! works with Jack Watts & Associates, Sydney, to promote its Australia/New Zealand site and Turbulence Communications, Toronto, for Canadian operations. Other roster shops include: Howell Henry Chaldecott Lury & Partners, London; Adpeople, Copenhagen; and Gibert DDB, Mexico City. It's reviewing agencies for Argentina, Brazil, Japan and other countries.
"The U.S. work is designed to be adapted to other languages," added John Yost, president of Black Rocket and a onetime executive at Hal Riney & Partners, San Francisco.
For example, most TV executions rely heavily on visuals and use the English tag "Do you Yahoo!?" Testing showed the tag does better left in English rather than translated.
Screen shots from local sites are done in a variety of languages. For print, Black Rocket creates a template from which agencies can adapt creative.
Black Rocket hasn't handled all international work because "it would be pretty daunting to manage" everything worldwide, Ms. Kim said. "Until now [hiring local boutiques] has been the most effective way to do it.
"Until very recently, there were very few agencies that understood the Internet space," Ms. Kim added. "I think looking back, what we did was the right thing. Should we continue to have a decentralized approach or move to a centralized one?" Yahoo!, she said, is figuring that out now.
As for Black Rocket, Mr. Yost said he is considering a number of possibilities to expand international operations. A decision is likely by the end of the year.
Mr. Yost said one of the simplest solutions would be to ally with a larger agency that has offices internationally. "We will definitely look at that option. It has been on the plate for a while," he said. "It represents an opportunity for us to grow with Yahoo! around the world."
He would not say which agencies he is considering, but denied he has heard from J. Walter Thompson Co., which was said to be looking to buy a shop to shore up its San Francisco office. Other possibilities include Y&R Advertising, former agency of Yahoo!'s Director of Fusion Marketing Murray Gaylord; possibly Euro RSCG, which has a strong international network of agencies; and even Omnicom Group, which has a stake in Goodby, Silverstein & Partners, former shop of Black Rocket partner Bob Kerstetter.
Mr. Yost said the agency is also considering opening international offices. He estimated Black Rocket would need to be in Hong Kong, London and Tokyo.
The race to grow internationally is hot, especially since Lycos in May agreed to be acquired by Madrid-based Terra Networks.
In addition, [email protected] just kicked off its first pan-European campaign, a $38 million effort from Bartle Bogle Hegarty, London. Amster Yard, New York, handles Excite's U.S. ads, which use a different approach and tagline.
In another move, America Online last week launched its first Spanish-language service in Mexico.
Yahoo!'s challenge is somewhat similar to that once faced by its Santa Clara, Calif., neighbor, Intel Corp. Dahlin Smith White, Salt Lake City, largely grew up on the chip account, creating work that Intel ported to agencies in other countries. But that approach became more challenging as Intel expanded as a major global marketer. Four years ago, Euro RSCG bought Dahlin; Intel simultaneously consolidated its global account with the Euro network.
Like Intel, Yahoo! is a profitable, powerful brand competing in a tough field, and coping with global ad challenges that grew out of success. That's not a bad problem to face.
Contributing: Bradley Johnson.