Internet strategies: Yahoo! increases direct marketing

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Yahoo! has stepped up its direct-marketing tactics to push a growing stable of premium pay services. E-mail, banner ads, guerilla marketing and a recently launched marketing-preferences page are signs the Internet company is increasingly adopting the strategies of traditional marketers.

Yahoo! plans to test direct-mail offers. It matches consumers with pay services that may interest them by researching the places they spend the most time on the network and how they interact with the network-whether it's in finance, news or games-and then targets appropriate communications to them. E-mail and banner advertising across the network remain, by far, the most commonly deployed strategies for reaching consumers. With 237 million unique users, 98 million of which are active, registered users, Yahoo! can't afford to squander the opportunity to market additional services. Those 98 million people are responsible for 68% of all transactions on the network, according to Yahoo!

"From a consumer standpoint, we have unique opportunities. ... We have free services and fee services, we always want to be able to offer both," said Lisa Nash, Yahoo! VP-consumer and direct marketing.

Yahoo! has placed increasing emphasis on a growing stable of premium pay services in recent months as it looks to diversify revenue streams and decrease its reliance on advertising. "They're going to be looking to promote new services," said Chris Dixon, media analyst, UBS Warburg. "The cost of providing the services is too high, and therefore Yahoo! had better come up with new sources of revenue." Mr. Dixon added that to continue to grow, Internet businesses like Yahoo! must get people to pay.

Yahoo! claims more than 500,000 subscribers to its various pay services; it doesn't break out numbers for individual services. Among the fastest-growing of the 25 premium services are online personals, offered for $19.95 a month. Others include Yahoo! Astrology, where consumers can receive an e-mail reply from a astrologer for $14.95 per question or a complete reading for $49.95, to Yahoo! Fantasy Football Plus, which costs $24.95 per team.

Later this year, Yahoo! and SBC Communications will launch a co-branded portal to target consumers on broadband Internet service with a menu of premium services. The arrangement will include some in-bound telemarketing conducted by SBC-run call centers and represents an entirely new business model for both companies, Ms. Nash said. In addition to SBC's 3.1 million Internet subscribers, a bundle of services will also be marketed to the general public.

Customer backlash is a real concern as Yahoo! customers get pelted with more and more offers. Already a few Internet chat-room conversations reveal unease. Yahoo! changed its marketing-preferences page to allow consumers to tell it what types of offers they would like to receive. But some recipients of e-mail alerting them to the change observed they were already signed up to receive various offers, and even calls from telemarketers. Yahoo! customers found they would receive such offers if they didn't alter the preferences page within 60 days.

Yahoo! partners such as retailers and travel companies may use telemarketing, but at the moment Yahoo! won't do so for its own services. "We have no plans to do telemarketing, but you can never say never," Ms. Nash said.

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