Can Yahoo! turn searchers into buyers?

A new advertising campaign hammers home the idea that the Net giant is a place to shop.

Yahoo! Inc. is changing its advertising to focus on shopping, entering one of the most crowded Internet ad markets ever.

Yahoo! (Nasdaq:YHOO) became a Web behemoth by pitching itself as a directory service and entry portal. Its new campaign, launched on television Wednesday during World Series coverage, is aimed at persuading Americans to think of Yahoo! as a shopping destination.

The motivation: While the rest of Silicon Valley has increasingly focused on companies that sell products over the Internet, Yahoo! executives concede that its online stores haven't yet caught on with users. "We've done a pretty good job communicating to people that Yahoo! is a place to find anything and connect with other people," says Karen Edwards, Yahoo!'s vice president of brand marketing. But, she adds, "people still don't necessarily think of Yahoo as a place to buy things."

The new campaign will enter a growing cacophony of Web shopping ads. Inc. this week announced it would triple its ad spending in the fourth quarter in an effort to stay ahead of the noise.

Great expectations
Yahoo!'s new emphasis on shopping is an effort to deliver on investors' expectations that it can cash in on the value of its huge nonpaying membership. While its message is different, executives say there has been no change in their basic strategy. "This is merely an extension of our overall brand building," Edwards says. Yahoo! shares closed Thursday at $175, up 81.25 cents, on the Nasdaq Stock Market. The company's market capitalization is $45.3 billion.

Yahoo!'s first ad in its new campaign is hitting the airwaves just as consumers start making their holiday shopping plans. Produced by the San Francisco agency Black Rocket, the ad opens with a man, dressed in Eskimolike clothing, hauling a catch of fish across the icy tundra in a dogsled. He enters his teepee and greets his family, who look glum as they huddle over a fire. The man then turns to his computer, clicks on a Yahoo shopping site -- and the next scene shows the family playing together in a hot tub while a nearby television shows images of a beach. In the final shot, the familiar "Do You Yahoo!" now has the word "shopping" added in red letters.

Technically, Yahoo! doesn't sell anything at all. Its shopping area, begun last November, is an agglomeration of other online retailers that pay Yahoo a fee for bringing surfers to them. The shopping site is now featured prominently on Yahoo!'s home page and takes consumers to an area that divides retailers by categories such as baby care and electronics.

A dollar per user
This month, Yahoo! reported that its users made $100 million in purchases from affiliated merchants. That's a big number, but the buyers are a fraction of the 105 million people who use Yahoo!'s other services.

Despite the growing competition from other Web-shopping advertisers, Edwards says the company has no plans to boost end-of-the-year ad spending beyond original projections. She declines to provide exact numbers, but Bear Stearns analyst Scott Ehrens says the company will spend $64.5 million on marketing in the fourth quarter, the vast majority of which will be spent on advertising.

That's up significantly from the estimated $42.5 million Yahoo! spent in the fourth quarter of last year but still less than the $100 million-plus sums other Internet companies are spending.

Edwards says the company is committed to sticking to its business model and its profit-margin model. She adds that Yahoo!'s early start online gives it a big advantage over newer rivals.

"When there's a lot of clutter and noise, it bodes well for the brands people trust and know," she predicts. "Unestablished brands will have a very difficult time stealing loyal users away from services that have critical mass."


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