Yahoo!: Changing the Business Model From Free to Paid Services?

The transformation from a free service to a paid subscription model has been a slow process for Yahoo! Starting 2001, Yahoo! faced tremendous execution risk as it went about the challenging task of reinventing its business by shifting its revenue model from an advertisement-based service towards a broader portfolio of diversified revenue sources.

This involves moving from an aggregator business model to a principal in key markets and verticals. Yahoo! began to enact this new strategy when it acquired HotJobs. HotJobs is the second leading online recruiter behind TMP Worldwide's (Nasdaq: TMPW) Monster.com. It has a network of more than 8,000 employers and recruiters like Adecco along with a database of 5 million resumes. The acquisition of HotJobs will bring Yahoo!'s resume database to more than 7 million, making it the No. 2 player in the online recruiting space.

This also involves moving from a free content model to a premium subscription model and developing deeper relationships with its users. Yahoo! began to enact this strategy by charging for e-mail - the staple of the bygone "free services" era. Now frequent high-volume users of Yahoo! e-mail pay up to $29.99 a year. Another example is one of the ala carte services, Games on Demand, which provides the ability to rent and play a variety of games on broadband-connected PCs.

This case study attempts to shed light on the potential benefits and challenges of Yahoo!'s emerging strategy such as Fusion Marketing and Broadband Portals. The key question that we address in this case is: Can Yahoo! survive and thrive by changing its business model? Or, will it be relegated to the list of companies who were fashionably "hot" for a brief period in history when gravity didn't seem to exist?

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