Yahoo! Inc. (NASDAQ: YHOO) is an American public corporation with headquarters in Sunnyvale, California, (in Silicon Valley), that provides services via the Internet worldwide. The company is perhaps best known for its web portal, search engine (Yahoo! Search), Yahoo! Directory, Yahoo! Mail, Yahoo! News, advertising, online mapping (Yahoo! Maps), video sharing (Yahoo! Video), and social media websites and services.
Yahoo! was founded by Jerry Yang and David Filo in January 1994 and was incorporated on March 1, 1995. On January 13, 2009, Yahoo! appointed Carol Bartz, former executive chairperson of Autodesk, as its new chief executive officer and a member of the board of directors.[3]

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. According to comScore, the company had more than 660 million unique visitors worldwide, as of June 2010[1].

Yahoo's "marketing services" segment - which makes up its online advertising business - made up 88% of the company's revenues in FY2009[2]. Google and Yahoo! are the recognized leaders in this market, but the balance of power shifted significantly since 2004, when the companies posted similar revenue and operating margins. Google has since eclipsed its main rival - in fiscal 2009, it generated nearly four times as much revenue ($24.9 billion) as Yahoo! ($6.48 billion) with a profit margin over three times as high (28.3% vs. 12.2%).[3][4]

In 2008, news of software giant Microsoft's unsolicited $46 billion bid to buy Yahoo! were widely reported, raising questions about Yahoo!'s future. At the time, a combined Yahoo!-Microsoft would have had 32% of the ad revenue market versus 44% for Google, and 32.7% of internet search versus Google's 58.4% market share[5] Although after two failed bids Microsoft withdrew its offer, the two tech giants announced an agreement in July 2009 to combine their search engine operations in an effort to compete with Google. The terms of the deal make Microsoft's Bing search engine the exclusive platform on Yahoo!'s sites. Yahoo! sells advertising tied to online search for both companies and keeps up to 88% of the revenue for the first five years, while Microsoft will pay Yahoo! for the traffic it generates and will absorb most of the expenses[6][7]. As of May 2010, the partnership accounted for 30.4% of online search, trailing Google's market share of 63.7%[8].

Contents
1 Company Overview
1.1 Business and Financial Metrics
1.2 Business Segments
1.2.1 Marketing Services (88% of Revenues in FY2009)
1.2.2 Fees (12% of Revenues in FY2009)
1.3 Offerings
2 Trends and Forces
2.1 Microsoft Partnership
2.2 Increase in Online Advertising
2.3 Expanding International Markets
3 Competition
4 References
Company Overview

Business and Financial Metrics
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.

In 1Q 2010, Yahoo reported revenues of $1.6 billion, a 1% quarter-over-quarter increase. Yahoo! attributed its growth to a 20% year-over-year increase in display advertising, as well as guaranteed display of 24% in response to advertisers’ anticipation of an uptick in the U.S. economy. During the quarter, Yahoo! also received regulatory clearance from the European Commission and Department of Justice for its online search partnership with Microsoft. In an attempt to continue its content-driven growth, it also agreed to acquire Citizen Sports, a sports-based company specializing on mobile devices and social networking. It also expanded the availability of its TV Widget experience globally through new partnerships with Hisense, ViewSonic, MIPS Technologies, and Sigma Designs. [9].

Annual Financial Data, in millions[10] FY2005 FY2006 FY2007 FY2008 FY2009
Revenue $5,257.7 $6,425.7 $6,969.3 $7,208.5 $6,460.3
Gross Profit $3,161.5 $3,750.0 $4,130.5 $4,185.1 $3,588.6
Operating Income $1,107.7 $941.0 $695.4 $13.0 $386.7
Net Income $1,896.2 $751.4 $660.0 $424.3 $598.0
Business Segments
Marketing Services (88% of Revenues in FY2009)
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.[11]

Fees (12% of Revenues in FY2009)
Yahoo! gets the remainder of its revenue from a secret sauce, fees for premium services such as music downloads, small business services, and data storage. As with the Marketing Services segment, fees have accounted for a consistent percentage (11-12%) of Yahoo!'s total revenues year after year.[12]


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 June, 2008, Yahoo! and Google announced a plan that would allow Yahoo! to place Google ads on its web site. This revenue sharing agreement would have potentially netted Yahoo! $800 million a year. The deal was initially seen as an attempt by Yahoo! to fend off Microsoft. Because of Google's dominance of the search market -- Yahoo! is No. 2 -- many advertisers oppose this plan. 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. [13]Inevitably, in order to avoid further antitrust law complications, Google backed out of the deal in 2008.[14]

As a result of Google's withdrawal from a deal that would have netted Yahoo! approximately another $800 million, the possibility that Microsoft would again bid for Yahoo! was revived. In May of 2008, Microsoft offered Yahoo! $33 a share, but rescinded their offer when CEO Jerry Yang demanded $37, a price that Yahoo! had not reached since early 2006.

On July 29, 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.[15]

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 since 2001--faster than any other channel--taking share from stagnant channels such as newspaper, which has been flat over the same time period. At its current growth trajectory, worldwide Internet use is expected to nearly double by 2010, hitting 1.8 billion distinct users. 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 in October 2010[16]. In terms of video property and viewership in this month, 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[16].

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.[11]

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 January 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.
 
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