Yahoo! BB: leaning on modem-sales revenue (2001)

“Real business, or share price?” — a mirror of the parent’s strategy

The core of this decision lay less in Yahoo’s own business strategy than in how far Yahoo would lend its own profit and loss to the broadband gamble of its parent, SoftBank. By taking on customer acquisition and modem distribution and capturing the margin on the hardware, Yahoo could manufacture rising revenue even in the depths of an advertising slump. That a company built on the high-margin model of selling advertising without owning facilities would deliberately shoulder a low-margin business of selling things was a compromise struck to make the group’s cash flow and its own growth story hold together at the same time.

In that light, the question of the day — “real business, or a device to prop up the share price?” — cannot simply be dismissed as a smear. A mechanism that dropped a margin automatically in proportion to subscribers did indeed swell Yahoo’s revenue and support its share price, but whether that profit sprang from Yahoo’s true competitiveness is far from clear. That the telecom business belonged to SoftBank, and that the data-leak incident too occurred on the parent’s side, shows that Yahoo! BB was in essence SoftBank’s story. The lesson for Yahoo was that when it lent out its assets — brand and reach — to the parent’s strategy, the quality of its earnings and the locus of its credit could blur in exchange for the revenue figures. Lasting value lay, in the end, on the side of its own high-margin model — advertising and auctions.