For almost three years Ted Meisel's calls to Yahoo went unanswered. As CEO of GoTo.com--now called Overture--Meisel knew that Yahoo could make money by using his pay-for-placement search offerings. Companies were lapping up the service, which lets, say, findaplumber.com pop to the top when a user searches for "leak" or "clogged toilet" or "plumber." But with dot-com advertisers lining up to get a spot on Yahoo, the company hardly needed to field unsolicited pitches. "It wasn't something that they were willing to make time for," says Meisel.

Then last fall an odd thing happened: Yahoo called in Meisel for a test run. Within three months Overture was placing its listings on Yahoo, and by April the two companies had inked a three-year deal. By early this summer the partnership was responsible for an estimated 10% of Yahoo's $226 million in second-quarter revenues--all with Yahoo's barely lifting a finger or spending a dime.

So it's no surprise why Yahoo did the deal: The listings are a rare bright spot in another year of advertising malaise. One question: Why didn't Yahoo do this earlier?

The answer, says Yahoo CEO Terry Semel, has a lot to do with Yahoo's vision of itself during the bubble. "In addition to doing a lot of great things, Yahoo had a sense of arrogance, of we-invented-this," he says, fiddling with his silver-rimmed glasses. "If we are going to succeed, we have to have people with different attitudes."

This is Terry Semel's Yahoo. In the past 16 months the former Warner Bros. chief has remade the embattled portal in his image: It's humbler, quieter, and more willing to play with others when it has to tackle what it doesn't know. Much of the new demeanor has come through the business equivalent of regime change: Of Semel's 18 top executives, almost half have arrived since his watch began in May 2001. Those eight execs bring distinctly old-media backgrounds--the head of advertising sales is a 25-year publishing veteran; the head of global marketing is one of the people responsible for turning around Sears; the COO is the former head of tech media publisher ZDNet. Then there's Semel, who over 21 years--first as COO, then as co-CEO--built Warner Bros. from a $750 million studio to an $11 billion mammoth before stepping down in 1999. "This is a classic example of bringing the adults in to mind the children," says UBS Warburg analyst Christopher Dixon.

And what the adults know, or believe they know, is that in the real world people will actually pay for things they find useful. So small businesses will shell out to be listed in a separate area at the top of Yahoo's website, the top search destination on the Net. Employers will pay to find good job candidates--something Yahoo learned by buying No. 2 career site HotJobs.com for $436 million in February. And users--grudgingly--will fork over cash for better versions of services they're accustomed to getting free. To date, one million Yahoos have subscribed to at least one of the portal's 20 new or expanded premium add-ons (see chart, Playing in the Fast Lane), which range from a mail-forwarding service to an online play space for private bridge games. Those users are a tiny fraction of the 238 million surfers who visited Yahoo last quarter, but they're a million more than Yahoo had before. "Every dollar that comes in from any premium service is incremental to us," says Semel. "Last year we had zero. Literally."

Together, Semel's changes have righted what was a badly listing company. After six quarters in the red, Yahoo reported a profit in the quarter ended June 30, posting net income of $21.4 million. Thanks largely to the Overture pact and the HotJobs deal, Semel not only pushed up sales by 24% from the same quarter a year ago but also began to wean Yahoo from sickly Madison Avenue. In 2000 nearly 90% of Yahoo's revenues came from advertising; in the June quarter that figure was 60%.

Wall Street's reaction? A big yawn. Yahoo's stock now trades at about $10.50, not far from its all-time low last September of $8.11 and light-years from its $237.50 bubble high in 2000. While investors have politely clapped at most of Semel's moves, they're still skeptical that he can progress from stabilizing the company to actually making it thrive. "Semel's managed the downturn pretty well," says James Preissler, director of digital media research at Investec. "But where I wouldn't give them good marks is building the future of the company. We basically have Yahoo from two years ago with some new stuff."

In a few weeks that should change. Semel is making a big bet that broadband will convert Yahoo users from free riders to subscribers. In late September, Yahoo is expected to roll out a high-speed Internet service in partnership with Baby Bell SBC. For about $50 a month, users who sign up for DSL service in SBC's 13 states will get a special Yahoo browser, 125 megabytes of e-mail storage, and the chance to see whether Yahoo is actually worth more than they're currently paying: nothing. For Semel, the real test starts here. "This will be the foundation for the company's entry into the broader world of subscription services," says Jim Brock, Yahoo's senior vice president of major initiatives, who's overseeing the launch. "This is our flagship product."

Playing in the Fast Lane

Top ten broadband ISPs (and major partner) by number of subscribers.

ISP No. of subscribers AOL Time Warner Roadrunner 2,466,000 AT&T Broadband 1,762,000 SBC (Yahoo) 1,360,000 Comcast High Speed 1,168,900 Cox High Speed 1,115,000 Charter Pipeline 905,500 Verizon Online (MSN) 892,500 Cablevision Optimum Online 610,505 EarthLink 583,538 BellSouth Internet Service 526,768

Source: The Yankee Group

Every Penny, Nickel, and Dime Helps

Semel has rolled out 17 pay services since he arrived. Here are some of the more interesting ones.

Service Price Features Yahoo Mail extra storage varies Yahoo's four megabytes of free e-mail can hold plenty of spam. But users who want to swap larger files need to pay up. Yahoo Mail forwarding $29.99/year It takes at least three clicks to sign in and get to Yahoo Mail. Premium users' e-mail application can snag the mail quickly. Yahoo Personals ClubConnect $19.95/month Lonely singles can troll the Yahoo personals all they want. But responding to that DWJF takes CASH. Yahoo Games All-Star $7.95/month Free-riders can play hearts or trivia against other users. All-Stars get to run private leagues and earn "a special star next to their name." Yahoo Express $299/year One for big spenders: Yahoo started as a free website directory. Now companies must pay to ensure they'll be considered for a listing. Geocities Pro $8.95/month Nothing says "This site will detail my love of Garfield" like a Geocities URL. Website builders can avoid that by paying for a personalized address.