Yahoo’s Small-Business Unit Draws Short Straw in Alibaba Spinoff

Yahoo is tucking its small-business division in with its Alibaba stake as part of a spin-off.

The company told employees last week that Yahoo Small Business, a division that sells tools to help small business owners market and sell their goods online, would be separated from Yahoo as part of the plan to spin out its shares of Alibaba.

While the real purpose of the spin-out is to unlock the value of those shares and save investors billions of dollars on taxes, Yahoo was also required to jettison a part of its operating business so that, at least for tax purposes, the new entity includes an “active trade or business.”

Yahoo won’t say exactly why it chose the small business group, but it’s safe to assume the unit didn’t fit neatly into any of Chief Executive Marissa Mayer’s current priorities of mobile, social, video and native ads.

Yahoo Small Business has more than 100 employees, according to people familiar with the matter. They will all be “invited” to join the newly formed company, SpinCo, which will operate under new management and a new board of directors when the spinout occurs later this year, Yahoo wrote today in a post on Tumblr.

The company wouldn’t indicate whether those employees would report to a new physical location or how their jobs might change working for a company whose primary purpose is to hold shares of Alibaba.

At least one precedent exists for this kind of odd-couple holding company. Last year,John Malone’s Liberty Ventures LVNTA +0.46% spun out its $3 billion stake in TripAdvisor and combined those shares with a small company it owned, BuySeasons, an online shop for costumes and party supplies.

Yahoo Small Business is a bit more significant than a costume shop. It sells e-commerce tools, domain names, Web hosting and local listing services to more than 1.5 million paying customers. They include women’s fashion site, guitar string provider, and cubic-zirconium jewelry outlet

Yahoo has offered a version of this service since 1998, when the company acquired e-commerce tool provider Viaweb, a startup founded by Paul Graham, for $49 million. Graham later became a seed investor in tech startups and founded the popular startup incubator YCombinator.

The small business group makes about $50 million in earnings before interest, taxes, depreciation and amortization, Yahoo finance chief Ken Goldman said on a call with analysts last week.

Yahoo expects the spin-out to occur in the fourth quarter of this year.

A Q&A With Amazon’s Prime Boss on Program’s 10th Birthday

To promote Prime’s 10th anniversary on Monday, the vice president of Prime, Greg Greeley, talked with The Wall Street Journal about the program he oversees. But Greeley was cautious not to reveal too much about Prime that isn’t already known, including presenting membership growth charts with no Y axis.

Amazon started its Prime membership shipping program 10 years ago.

The unlimited shipping membership, with a $99 annual price tag, is thought by analysts to be one of the, ahem, prime reasons for the company’s revenue growth from $6.92 billion before the program was announced to $89 billion last year. Prime users, by some estimates, spend nearly three times per year what non-Prime customers do.

Amazon, based in Seattle, doesn’t disclose the financials behind Prime, nor does it talk about membership figures. Analysts figure Amazon has about 40 million members. Amazon says Prime memberships grew 53% growth last year (off an unclearly-defined base of “tens of millions”).

The Seattle company has bulked up Prime to include streaming video – for which it spent $1.3 billion last year – unlimited streaming music, product exclusives and discounts, among other goodies. As a result, Amazon for the first time last year raised the price of Prime, from $79 to $99.

WSJ: How many Prime members do you have?
Greeley: We’re not letting out the numbers. Lots of competitors would love to know that. It’s continuing to be a very important part of our business.

WSJ: Does Amazon make money on the Prime subscription price itself?
Greeley: We don’t break that out, obviously. If you look at the typical parcel rate card, what UPS UPS +0.44% or others will charge for two-day shipping, it’ll range from $15 to $45, so it’s pretty clear the $99 is not covering the cost of the two-day shipping for us.

Does the $99 cover the cost of the program? No.

WSJ: Do Prime members spend more on average than non-Prime members? What specifics can you provide?
Greeley: Yeah. Prime members, once they join, become more engaged and they start buying across more categories. We can be top of mind for everyday shopping that folks might previously have thought they’d do it through other channels.

WSJ: What is the rate of turnover among Prime members?
Greeley: We don’t break that out.

WSJ: You once experimented with a month-by-month Prime program. Is that an idea you’d ever revive?
Greeley: Don’t know what we may or may not do in the future. We tested that for a few months and basically just found the easier messaging is as an annual program. We found that worked better for us, it was easier to communicate.

WSJ: There are many exclusive offerings on Prime. Is that what the program will be defined by in the coming years?
Greeley: All of the innovations are things that we expect customers to benefit from and use. We’re trying to provide a portfolio of opportunities that allows people to unlock the best of Amazon. We don’t think of it as being an exclusive-only program. It’s a gateway to some new innovations. Things we are making investments in, we want to launch on the Prime platform.

WSJ: With customers locked into a $99 membership, does Prime promote less price sensitivity?
Greeley: I know at Amazon we’re constantly trying to provide the lowest possible price. We’re definitely obsessed with making sure we have the lowest possible price. We scour prices both offline and online to make sure we’re out there meeting and beating where we can.

WSJ: When are all third-party products going to be available with Prime shipping benefits?
Greeley: We don’t have anything in the foreseeable future to talk about.

WSJ: Would Amazon consider a tiered pricing program for Prime, with greater benefits for those paying more?
Greeley: We’re always hesitant to talk about what we may or may not do in the future, but right now we’re super happy with the three tiers we have. We have three tiers of Prime right now: a student version, which is basically just discounted, with similar benefits; we have the $99 version; and we have the Prime Fresh program, which is $299 and includes access to all the fresh groceries. Those three tiers are working for us.

WSJ: Is it safe to assume that Prime Air, the drone delivery system, will be exclusive to Prime?
Greeley: We haven’t talked about that. We think of it as a Prime program, it’s a Prime program. We will be ready when the regulators are.