How Yahoo Can Cash in on Its User Base

The one thing that differentiates Yahoo (YHOO) from others is its user base – 463 million and counting. The number is big but does it translate into big benefits for Yahoo? If you answered “No” then read on.

Search is big. But so are Online Shopping and Travel. Google (GOOG) isn’t losing its top spot in Search. Amazon (AMZN) and Expedia (EXPE) are probably number one in Online Shopping and Travel respectively. So where does this leave Yahoo? Can Yahoo do something about Online Shopping? Yes - it could leave the end sale to Amazon but enrich the process of making that end sale happen.

Here's how:

· Replace Yahoo Tech’s content with that of CNET.

· Award points to users as they click on sponsored links during their search/research of products.

· Integrate Amazon Shopping within Yahoo and as the users make the purchase, make the points redeemable.

· Users can cash on these points – could be in the form of purchasing subscription services from Yahoo.

Behavioral marketing is probably the next big thing, but isn’t it obvious that if a user is shopping for a digital camera, say from Canon (CAJ), that is the best time for other vendors like Sony (SNE) or Kodak (EK) to reach out to him/her. This is where Yahoo’s integrated shopping interface with Amazon will come in. Yahoo displays the ads from competing vendors as the user shops for a product. Amazon makes the sale.

A lot has evolved since the start of web but the banner on top of page has stayed the same. How about breaking this one banner into five advertisements from competing vendors as the user shops for a product? The ads play in page as the mouse hovers over them. The advertisements can generate deals on the fly to take that one last shot to lure the user away from what he/she is purchasing. As the user clicks on the advertisement, Yahoo makes more money and the user gets more points.

Moving on to Travel; it is too crowded to offer the best price on a ticket but there is another segment out there – Corporate Travelers. They do not need the deals to book their tickets. Expedia probably has big partnerships with companies and provides a nice integrated interface to directly charge the respective cost centers. Yahoo needs to make inroads into this segment and use the points system to provide an incentive for the employee (already a registered Yahoo user probably) to book using Yahoo Travel.

The Points system isn’t new - it has been used by brick and mortar companies for a long time. The web just adds a new dimension to it. It is a win-win for all the parties involved. As the users accumulate points, Yahoo can add to the services it already offers and make the points redeemable against the purchase of these services. Some examples of these services could be credit score management, finance/investment news from paid sites like the Wall Street Journal, etc.

As the incentive to stay within the confines of Yahoo grows for a user, it will fuel more online advertisements and thus more points for the users, leading to a vicious cycle. Yahoo may still go on to become the Window to the Web.

Yes, the above model can be easily imitated by other sites, but isn’t dotcom about getting to the market first and doing it right?

YHOO 1-yr chart

Disclosure: none