The Yahoo Business Model

In the back of my mind I had always understood the Yahoo! Business Model. Yahoo! gets you to sign up for the compelling online services that they provide and in return they sell advertising targeted at you. This was confirmed at the July meeting of the SDForum Business Intelligence SIG where Madhu Vudali, Director of Pricing & Yield Management at Yahoo! Spoke on "Pricing & Yield Management at Yahoo!"

For years, I instinctively resisted signing up for any online services and deliberately avoided using any services like driving directions that would reveal part of my identity, while still making liberal use of anything that did not reveal anything about me except for perhaps a few stocks that I was anonymously interested in. Recently I have been required to sign up for a couple of Yahoo! services so they have my identity, as they do for the half billion other people who are also signed up. As I said before their services are compelling.

Madhu explained the other side of the coin where Yahoo! sells advertising. This is not the auctioned search advertising that Google has become known for, although Yahoo! also does this. This advertising is the banner ads that you see when you use all those compelling services. The ads can be very specifically targeted such as a movie ad that is shown for a few hours on a Thursday and Friday afternoon to a specific demographic.

As Madhu explained, Yahoo! uses the yield management techniques that were pioneered by the airline industry in the 70's. The airlines use yield management to get the most revenue out of every available airplane seat while keeping the airplane full. Yahoo! has a similar problem but on a much larger scale. They have a huge inventory of page views and several dimensions such as age, location and interests on which to segment the viewers and interest the advertisers.

The problem is to extract the maximum revenue out of this mix. Compared to aircraft yield management the inventory is much larger and more squishy and the number of potential products numbers in the multi-millions rather than in the tens of thousands that an airline has.

All in all, it was a very interesting presentation. Unfortunately for anyone who was not there, Madhu's presentation is not available, so this is the best that you are going to do. Sign up for the Business Intelligence SIG mailing list (sdforum_bisig-subscribe@yahoogroups.com) and do not miss another meeting.