Yahoo And AT&T Shift Strategic Alliance, RestructureTo Ad-Supported Portal From Premium; Revenue Hit
By Staci D. Kramer - Tue 29 Jan 2008 03:15 PM PST
Alongside Yahoo’s (NSDQ: YHOO) quarterly report (see coverage at paidContent.org), the company has announced an ‘extension and expansion’ of its strategic alliance with AT&T, which has been a source of concern among some analysts. Starting in the second quarter, the relationship will shift from co-branded DSL with Yahoo services to an ad-supported, revenue-sharing based att.net portal “powered by Yahoo.” This means the site will be open to any AT&T customer, even those who do not rely on AT&T for Internet access. The new portal will run on the My Yahoo and Yahoo Mail platforms. The companies describe this as “a new multi-year strategic alliance that paves the way for an even richer and more innovative online experience for consumers - whether at home or on the go.”
Among the changes: AT&T Yellowpages.com will supplant Yahoo Local Search, becoming the lead local search engine on PC and mobile for AT&T customers. But Yahoo will provide search and display advertising for AT&T customers on PC and mobile. Financial terms of the agreement were not disclosed.
Update: The new deal is similar to Yahoo’s other deals with Vodafone (NYSE: VOD) and T-Mobile in Britain than it is with the preexisting AT&T deal, Marco Boerries told Reuters. Jeffries & Co analyst Youssef Squali estimated last week that Yahoo would effectively be giving up somewhere around $200 million to $250 million in highly profitable annual access fees from AT&T, in favor of sharing ad revenues from AT&T traffic.
Update II: The deal is similar to the one with Rogers, moving from a premium model to ad supported. Yahoo CFO Blake Jorgensen explained during the earnings call: “The market has clearly moved to an environment in which ad revenue sharing is the prevailing model and we are evolving our partnerships accordingly ... While the near term economics of the renewal will impact our 2008 revenue and OCF (operating cash flow), we expect the overall economics of these renewals to be positive.” Yahoo expects aggregate revenue outside of traffic acquisition costs to decline by $150-200 million over 2007 because of the restructuring; Yahoo also expects a $300-400 million upfront payment from AT&T (NYSE: T). That revenue will be recognized over the life of the contract. “
More in the release.
Posted in: Companies, Operators, Cingular-AT&T, Yahoo
