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WIKI ANALYSIS
Yahoo! Inc. (Nasdaq: YHOO) is a global internet services company that operates the Yahoo! Internet portal. It provides varied products and content, from email and search to media streaming and downloads, while its main revenue sources come from advertising and marketing services. In fiscal year 2010, Yahoo reported revenues of $6.3 billion and net income of $1.2 billion. While Yahoo's main presence is in the United States, its well-established name and solid partnerships in Asia make international expansion a promising opportunity for the company. In response to the fast growing mobile advertising market, Yahoo has been actively pursuing partnerships with carriers and original equipment manufacturers in the mobile industry, as well as tailoring their existing marketing services to mobile users.
Company Overview
Founded as a web directory by two Stanford graduates in 1994, Yahoo! has since become a dominant player in the field of Internet services. While the company has experienced healthy growth in top-line revenue year over year for the last four years, net income has fallen year-over-year due to increased costs of doing business in the increasingly competitive sphere of internet advertising. Specifically, Yahoo!'s year over year cost of revenue is increasing faster than their revenue growth.
Business Segments
In fiscal year 2010, Yahoo reported revenues of $6.3 billion and net income of $1.2 billion. Yahoo's operations are divided into several main segments--marketing services, fees, product-based offerings, and content-based offerings.
Marketing Services
Yahoo!'s primary revenue stream is from the sale and facilitation of internet advertising and related services, generally referred to as "marketing services." This segment has remained at a steady portion of the company's' income year after year.[1]
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Offerings
Yahoo!'s offerings can be divided into two categories, product-based and content-based. In addition to these basic offerings, Yahoo! has expanded into mobile advertising, content, and services.
- Product-based offerings include Yahoo! web mail and Messenger, Maps, and classifieds/personals options. In addition, Yahoo! 360° offers a blog/web community that tries to rival MySpace, small business solutions (online stores, business-grade email, web hosting/domains), and commerce opportunities (Yahoo! Shopping, Autos, Auctions, Travel). Yahoo!'s flagship product remains its search engine, recently revamped and renamed OneSearch. OneSearch tries to deliver an integrated search experience, letting users benefit from the convenience of hybrid search types while also leaving the option of type-specified search (e.g., image search).
- Content-based offerings are focused on entertainment and media. Yahoo! boasts an extensive collection of video and music for streaming/download, and its 2005 acquisition of Flickr also gives it a strong presence in the photo upload/sharing niche. Yahoo!'s news offerings include finance, news, movies, and sports information.
Yahoo! has also recently reorganized its company structure around three areas of focus: Audience (general web traffic), Advertisers and Publishers (those paying to advertise through Yahoo!), and Technology (new platform/product development).
Trends and Forces
Microsoft Partnership
Following Microsoft's aborted attempt to buy Yahoo!, the company has explored other partnership opportunities with two of its biggest competitors. In 2008, Yahoo! and Google announced a plan that would allow Yahoo! to place Google ads on its web site. Google and Yahoo! together control 80% of the search advertising market, and, as a result, the plan has been opposed by U.S. public interest groups on grounds of antitrust. [2]Inevitably, in order to avoid further antitrust law complications, Google backed out of the deal.[3]
In 2009, Microsoft and Yahoo! announced a 10-year collaboration in internet search and online advertising. Microsoft's search engine Bing will also be used by Yahoo!, and Yahoo! will spearhead advertising sales efforts for both companies, with Yahoo! obtaining 88% of the ad revenue generated by search results on Yahoo!'s web sites during the first 5 years of the agreement. The partnership will help Yahoo! cut costs, while enabling Microsoft to become a powerful force in Internet search.[4]
The two companies hope to achieve better efficiencies of scale by a division of labor, with Microsoft focusing on search engine development and Yahoo! focusing on advertising sales. With a greater critical mass of viewers, prospective advertisers may be more amenable to utilizing their search resources.
Increase in Online Advertising
Advertising spending continues to show a disproportionate skew in favor of newspaper, TV and direct mail. However, the Internet channel has grown at approximately 18% per year--faster than any other channel--taking share from stagnant channels such as newspaper, which has been flat over the same time period. Continued growth in quality and availability of Internet access means that the Internet services sector--particularly Internet advertising--will remain lucrative for some time to come. An increasingly pronounced trend of replacing print directories and classifieds with virtual alternatives will also create a push for online search use as well as increase demand for online classifieds.
Online Video Advertising Growth
Video advertising promises to be a particularly lucrative area of rapid growth in the online advertising sector as online video viewership continues to rise. In research released by comScore, data shows that 175 million U.S. Internet users watched online video content in October for an average of 15.1 hours per viewer.[5]. In terms of video property and viewership, Yahoo ranked second with 53.8 million viewers, behind Google Sites's 146.3 million unique viewers and ahead of Viacom Digital, VEVO, and Facebook[5].
- Branded vs. Search Advertising
Branded advertising is often image-based and usually priced on an "impressions" basis--the more times it shows up, the more the advertiser pays. Search advertisements are primarily text-based and usually rely on click-through; the more times a particular link is clicked, the more Yahoo! is paid. Together, the two constitute a good balance of different kinds of online advertising. However, branded advertising tends to depend very heavily on the economic situation of the brands in question.
- Mobile Advertising
Mobile advertising is in its nascent stages and is currently growing at more than 20% per year, making it a powerful source of potential growth for Yahoo! On its end, the company has been actively pursuing partnerships with carriers and original equipment manufacturers in the mobile industry, as well as tailoring their existing marketing services to mobile users.[1]
Expanding International Markets
Strong expansion in Internet connectivity and activity in Asia and Europe means that Internet service companies will have to consider much more than just the domestic advertising scene. Yahoo! is well-positioned for a rise in Asian traffic and advertising. Asian companies exhibit a tendency to stick with familiar, well-known, tried-and-true options, both for search and for advertising. Yahoo!'s well-established name and solid partnerships in Asia make international expansion a promising opportunity for the company. China's Internet demand has risen dramatically and now has the second largest number of Internet users in the world.
But in Europe, Yahoo! may face more challenges, losing significant search share there to Google and Microsoft.
Yahoo! owns a roughly 40% stake in Alibaba, a Chinese internet company that IPO'd in 2008.
Competition
- Google is Yahoo!'s biggest competitor in search advertising. Its recent acquisition of popular video site YouTube put it directly against Yahoo! in media streaming, and the two already have a long-standing rivalry over search-based online advertising. Yahoo! has lost significant search market share to Google. In 2009, Google made headlines by overtaking Yahoo! in unique users per month. However, Yahoo! recently released a next-generation online advertising platform system called Panama. Their system will in theory optimize advertising profits by increasing the average revenue per search click and has returned modestly successful results so far. Yahoo!'s recent acquisitions of RightMedia and BlueLithium further solidifies its position in display advertising. Finally, Yahoo!'s perceived role as a community-based entertainment site may also give it a slight edge over Google in entertainment-based advertising. However, Google's MySpace-YouTube advertising alliance may be poised to challenge the company.
- Microsoft, with the introduction of Windows Live and adCenter, Microsoft is also a growing threat. Microsoft's acquisition of LiveJournal gives it a significant foothold in the webblog scene, and along with Google, it has been steadily gaining ground against Yahoo! in the European Internet services market. However, by itself Microsoft remains less a threat than Google.
References
- ↑ 1.0 1.1 Yahoo! Inc. Form 10-K for Fiscal 2008, Section 1a
- ↑ Consumer group opposes Google, Yahoo partnership (Reuters) news.yahoo.com released October 29, 2008
- ↑ Google scraps ad deal with Yahoo - November 5, 2008
- ↑ Microsoft, Yahoo! search pact cleared in Canada, Australia (November 24, 2009).
- ↑ 5.0 5.1 "Hulu Generated 1.1 Billion Video Ad Impressions in October," Rao, Leena, TechCrunch, November 15, 2010
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