A lot is changing at Yahoo Small Business, e-commerce platform provider for dozens of smaller and midsized online retailers. The Yahoo unit has a new name, Luminate, and it’s being separated from parent company Yahoo Inc. in a move to minimize the taxes from Yahoo’s highly lucrative investment in Alibaba Group, China’s leading e-commerce company.
“Luminate reflects how we illuminate the path forward for our customers and underlines our commitment to helping small businesses grow,” Amer Akhtar, vice president of product management and head of Yahoo Small Business, wrote in a blog post July 30 announcing the new name.
While retailer clients of Yahoo Small Business contemplate what this means for them, Yahoo is still working to convince the Internal Revenue Service to complete the spinoff. Yahoo announced earlier this year it would bundle Yahoo Small Business with its 384 million shares in Alibaba—a stake worth over $30 billion that accounts for most of Yahoo Inc.’s $34 billion market value. The new company to hold those assets is called Aabaco Holdings Inc.
Yahoo had to include an operating unit with its massive stake in Alibaba to avoid a huge tax bill on its lottery-like profits from its $1 billion investment in Alibaba in 2005. Yahoo took in $7.6 billion in 2012 when Alibaba bought back part of the 40% of the Chinese company that Yahoo acquired in the 2005 deal.
IRS senior technical adviser Isaac Zimbalist is quoted by Bloomberg News as saying the agency is considering a change in its rules governing such spinoffs but that plans already filed will be dealt with in normal fashion. Yahoo notified the IRS in late January that it had formed an independent investment company that would include its Alibaba shares as well as Yahoo Small Business.
Yahoo and the IRS declined to comment. But Victor Anthony, senior Internet analyst at Axiom Capital Management, a New York-based investment bank, says Yahoo expects the spinoff to be approved. “The IRS rules are in place, and Yahoo says they are confident the IRS will rule in favor of their process,” he says.
While Yahoo Small Business is an afterthought from a financial perspective, its future means a lot to the online retailers that use its technology as the basis for their web stores. The client base for the Yahoo technology service, formerly known as Yahoo Store, has declined, but it’s still significant. Of the retailers in the Internet Retailer Top 1000 in 2014, 38 listed Yahoo Small Business as the provider of their e-commerce platform—12 in the Internet Retailer 2015 Top 500 and 26 in the Second 500, according to Top500Guide.com. That’s down significantly from 2010 when 65 Top 1000 e-retailers used the Yahoo technology, 19 in the Top 500 and 46 in the Second 500.
Will the Yahoo platform fare better as a company independent of Yahoo?
That depends on how well the new Luminate team develop the platform and how well they work with the other vendors that create features that work with the Yahoo platform, says Bernadine Wu, founder and CEO of e-commerce technology consultancy FitForCommerce.
“It’s still unclear what the separation will mean,” Wu says.
“Platform technology providers are fighting to win and keep a piece of the large market of small and midsized merchants, putting more pressure on even the established platforms such as Yahoo Stores to continue to innovate and keep their platforms current and strong,” Wu says.
Rick Chavie, CEO of Enterworks, says Yahoo Small Business’challenge is staying relevant. “With the launch of Amazon Business, which provides the Amazon brand for small businesses looking to break out to a channel, it is hard to see how Yahoo Small Business can build a compelling offer that entices businesses to provide the content and support for another business model. As we know from Amazon on the consumer side, Amazon has most of the leverage,” Chavie says.
He cited these “levers” that an alternative must provide to be persuasive:
- Enable a better content platform where business can interactively enrich their content, attributes and messaging based on performance, not just leaving it to Yahoo to manage the site.
- Offer greater insights into the end customer purchase behavior—where they searched, how they navigated the Yahoo site, what other products they looked at.
- Provide real-time alerts to businesses so they can update and adjust based on current competitive behavior and purchase intensity at specific times.
For online retailer Matthew O’Donnell, president of NorthShoreCommercialDoor.com, nothing will change. The online seller of garage-door controls, parts and openers based in Elyria, Ohio, says he believes the transition will be seamless, and he looks forward to how Yahoo’s unit could help his business grow even more when Luminate operates as an independent company.
O’Donnell considered moving off of the Yahoo Stores platform, but says he couldn’t make other alternatives work. “Yahoo customizes the different plug-ins to meet my needs,” he says. “The template makes it super-easy for a novice to get started. And I could get everything done through Yahoo’s chain of vendors, from shipping managers for specialized shipping orders down to data feeds.”
Kevin Richards, CEO and founder of Ventura Web Design, a Las Vegas-based e-commerce design firm that has built more than 1,000 stores for merchants using the Yahoo store platform, says Yahoo has continued to improve and upgrade its system, and he expects more of the same after the spinoff.
The latest initiatives include offering a mobile-friendly storefront; a one-click integration of Google’s Trusted Store certification and added security and risk tools such as an upgrade aimed at eliminating fraudulent orders.
“We are anticipating a lot of new features, a lot of growth and a rejuvenated marketplace,” Richards says. Richards believes Yahoo stores/Luminate, too, will become more nimble as a new, independent company.
“They haven’t been able to do everything they’ve wanted to do,” he says. “Yahoo has always viewed it as an ancillary business.”
O’Donnell had considered changing platforms in part because of Yahoo’s spinoff, and says he spent thousands of dollars on an alternative, only to realize the rival’s checkout form had too many pages and its platform did not work well with his order-management system. “We were six to seven months into looking into moving (to the new platform), and it kept coming up short,” he says. “I finally said about two months ago, ‘we’re not doing it.’”
NorthShoreCommercialDoor.com uses Yahoo’s chat service and a calculator on Yahoo’s shipping manager for customers to figure shipping costs. It also relies on Nextopia technology for its site search feature because it integrates easily with Yahoo Stores. O’ Donnell says the site’s conversion rate for visitors who come to the site via all mobile devices increased 837% when it used the Yahoo Store platform and Ventura Web Design two months ago to implement responsive design site that allows a single website to adapt to the screen the consumer is using. He declined to give details on the conversion rate before and after the switch.