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MAY 15, 2000
COVER STORY -- E.BIZ -- THE E.BIZ 25

By: Steve Rosenbush


How Can Tim Koogle Stay So Cool in the Face of AOL's Assault?

Yahoo intends to remain a pure Web play--while becoming an e-commerce juggernaut


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Yahoo!
----------
Position: Chairman and CEO

Contribution: Koogle built a Web portal with 145 million registered users, more than any other in the world--and it's profitable. Now Koogle is goosing the economy of this huge virtual bazaar with online wallets, shipping services, and other features.

Challenge: America Online enables three times more e-business per user than Yahoo does. Yahoo must find a way to turn its registered users--it has six times more of them than AOL--into spenders.

At Yahoo! Inc. (YHOO), the new millennium began with a whomp to the solar plexus. CEO Timothy Koogle learned that archrival America Online Inc. (AOL) was about to rock the business world by acquiring Time Warner Inc. The deal raised questions about the viability of Yahoo's strategy of partnering with lots of companies instead of buying a big one. Koogle, co-founder Jerry Yang, and President Jeff Mallett hustled off to a small conference room with a whiteboard. Cool-under-pressure Koogle led a reevaluation of the strategy. The three resolved to stand firm. ''He really held the group together,'' Mallett says.

Koogle remains convinced that his strategy is the winning one for Yahoo. Rather than trying to own everything from Web sites to cable-TV systems--not to mention TV studios and print magazines--Koogle sees Yahoo as a pure Web media play. He'll stick to offering the masses a friendly gateway to the Web. And he'll jazz up his offerings with ever-richer programming. Example: the introduction this year of live video broadcasts of personal-finance tips. ''We want to be a global broadcaster. TV companies in traditional media could never do that because of physical and economic constraints,'' Koogle says. ''The Web creates an opportunity to overcome them.''

Still, Koogle recognizes that he's still light-years from dominating the media world. Yahoo trails No. 1 AOL in terms of online visitors--59.8 million a month for AOL, vs. 48.3 million for Yahoo. And the tremendous scope of Time Warner's assets seems likely to widen the gap. Most important right now, Koogle has to catch up in e-commerce.

Yahoo arrived late to e-tailing. It didn't start experimenting with online stores until 1997, and didn't take a total plunge until last year. Koogle's rationale: His top priority was building an audience. Now that Yahoo has 145 million registered users, it's e-tailing away. Rather than selling merchandise itself, though, the company partners with retailers. It charges them fees for transactions generated on its Web site. The result: Its gross margin of 82.7% is more than four times Amazon.com's. It doesn't have to pay for warehouses and labor.

Now, if Koogle's strategy works, Yahoo could become an e-commerce juggernaut. It added Amazon-style cyberwallets and product reviews last fall. It also teamed with Kmart Inc. on free ISP BlueLight.com, which has more than 1 million users who automatically became Yahoo users, too. ''Commerce is coming into focus at Yahoo. They are going to be a major force,'' says Merrill Lynch & Co. analyst Henry M. Blodget. Early results are certainly encouraging. The value of sales at Yahoo's shopping center jumped some 40% in the past quarter, to more than $1 billion.

If anyone can rise to the AOL challenge, it's Koogle. He learned auto mechanics from his beloved late father, a Navy machinist. He put himself through college as a mechanic and graduated first in his class at the University of Virginia. Next steps: Stanford University grad school and Motorola Inc. But Koogle has an artistic side, too. Friends include a group of glass blowers and painters near Venice. And he has fun: He plays the electric guitar, and he has tuned his Mercedes to hit 170 mph.

Renaissance man Koogle still reflects the spirit from which the Web was born: that of academics and intellectuals. AOL has a better feel for the commercial main street. To win, Koogle must learn to straddle both worlds.



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