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Yahoo Fucks Up Big Time

SAN FRANCISCO – The Web has flourished as a freewheeling medium that gives any interest an audience. But as big business has tried to capitalize on those audiences, advertisers increasingly find their brands popping up in the Internet’s darkest corners.

Yahoo Inc., the most popular Internet site, shut down all of its user-created chat rooms this week after three blue-chip companies found their online ads running alongside discussions of sex with children.

PepsiCo Inc., State Farm Mutual Automobile Insurance Co. and Georgia-Pacific Corp. pulled at least some ads from Yahoo earlier this year in an incident that underscores the risks posed when the masses create their own media.

Ads from the three companies appeared with Yahoo chat rooms bearing such titles as “Girls 13 and Under for Older Guys.”

“We were horrified,” Georgia-Pacific spokeswoman Robin Keegan said. The company – maker of Dixie products, Brawny paper towels and Quilted Northern toilet tissue – pulled all of its Yahoo advertising and hasn’t returned.

The Yahoo flap is an extreme example of the anything-goes unregulated spirit of the early Internet colliding with community values and corporate concerns. Record and movie companies have complained that their ads sometimes appear on the same file-sharing networks that allow millions of people to rip off their products. And some companies have seen their online campaigns undermined by spyware.

“The very thing that makes the Internet so appealing – its user-controlled nature – is also its risk,” said Kristi VandenBosch, president of the Tequila ad agency office in Los Angeles. “If a community springs up and that community is something you want to be involved in, that’s fantastic. But if it’s not what you were looking for, and someone links the brand and the community, that puts the advertisers in an unfortunate position.”

Internet advertising is surging to record highs as the percentage of homes with high-speed connections rises and growth at more traditional media atrophies. Online ad sales topped $2.8 billion in the first quarter, up 26% from 2004. Sunnyvale, Calif.-based Yahoo posted 2004 revenue of $3.6 billion, most of it from advertising.

Some advertisers, however, are realizing just how little they know about what their money is getting them. Users contribute all or most of the content at many increasingly popular types of sites, including discussion boards, social-networking companies and blogs.

Most companies have little control over where their ads run because they buy online ad space in bulk through brokers who purchase spots on various websites. Individual ads often are placed by computer programs that match up keywords so that, at least theoretically, car ads pop up in discussions about cars.

Although big Web companies in particular have adapted to the needs of the Fortune 500 as they have matured, they still face occasionally unpleasant reminders of their roots. The Internet “is still somewhat of an infant when it comes to advertising,” said State Farm spokesman Phil Supple, who noted that the Yahoo glitch was the insurance company’s first embarrassment in seven years on the Web.

“This is a really important issue in our industry,” said Mark Kingdon, chief executive of Organic Inc., an online advertising and Web development firm. “The Internet was created as a way of linking a diverse and disparate community and was based on the simple premise that information wanted to be free, that it wasn’t filtered and that it’s raw, and that’s persisted.

“But with the advent of blogs and all the consumer-generated content that we’ve seen, in words, pictures and, increasingly, video, there’s going to be an explosion of content features challenging brands in really interesting ways…. It can be very powerful, but it also brings risk.”

Highly interactive sites such as chat rooms are attractive for advertisers because visitors stay longer and come back more often, and repeat traffic of a certain sort lets advertisers aim more precisely.

“You want to know who that audience is,” said Denise Garcia, an Internet ad industry analyst for Gartner Inc. “You want to know you’re going to hit men 18 to 34 or whatever the target audience is.”

The downside, however, is that a site’s users can take things in an undesirable direction. That’s less of an issue in traditional media, which are more carefully controlled and allow advertisers to buy airtime on particular programs or print ads on a particular day.

This week, for example, the Los Angeles Times canceled a feature that allowed readers to rewrite an editorial on the newspaper’s website after some users sabotaged it with foul language and pornographic images.

Yahoo spokeswoman Mary Osako said the company didn’t monitor the chat rooms at issue, but it “condemns the abuse of Internet tools” and encouraged offended viewers to report improper behavior. There was little to no debate inside Yahoo before all user-directed chat rooms were killed, a person close to the company said. Advertising on those pages makes up less than 3% of Yahoo’s ad revenue.

Although Osako said she didn’t know how many user-created chat rooms existed within Yahoo, any of its 345 million users could start one. The company will continue to operate the chat rooms it created.

The shutdown comes after a $10-million lawsuit was filed against Yahoo last month on behalf of a 12-year-old molestation victim whose photo was circulated in a Yahoo chat room. Child advocacy groups have pressured Yahoo and other big online companies to stamp out the child pornography that flows through their services.

Citing concerns about sexual predators, Microsoft Corp. closed its chat rooms in 28 countries in 2003. It has maintained them in the U.S. for subscribers to its MSN Internet access program. AOL monitors its chat rooms targeted at children and teens, but allows adults unsupervised chats.

Even many chat rooms that are sponsored by websites are checked infrequently by those companies. And monitoring is no guarantee of propriety: A lawsuit filed recently against America Online Inc. accuses the company of allowing a chat room monitor to seduce an underage girl.

In some cases, the freedom of users to do what they want is a large part of the appeal. That’s true for sites such as that are popular with young Web surfers. As a result, advertisers have a new issue to weigh: Even though a particular site may attract millions of visitors, do the advertisers want to be associated with it?

Despite their immense popularity, file-sharing sites that allow users to transmit copyrighted material also have had a hard time attracting big-name advertisers.

“There’s a lot of political pressure and social pressure and legal pressure brought by Hollywood,” said Wayne Rosso, former head of peer-to-peer network Grokster. “I was in discussion with Virgin Mobile and eventually couldn’t make it happen because of that.”



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