Today whenever we want to search a piece of information we no longer flip through the pages of the books instead we open a search engine more often Google (GOOG, Financial) search and enter the key words of our search to get all the information related to our search. The search engine trend has become so much integrated into our daily life that now we no longer say "search it" rather we say "Google it." Though in the search engine arena Google is the widely used search engine across the globe however there are a lot many search engine equally equipped as Google. One of the major competitors of Google in the search engine segment is Yahoo! (YHOO, Financial) search engine. Yahoo! is taking certain initiatives of late to popularize its search engine business and thus increase revenue earning from it by boosting its ad inventory. In our earlier article titled: "Yahoo! – A Lot Of Steam Left"Â we had illustrated how Yahoo! still has a lot of upward potential. The new search engine move will further boost this upward potential.
Yahoo!’s search engine initiative
Yahoo! will now become Mozilla Firefox's default search engine, which strengthens Yahoo!'s ability to generate search queries, increasing the total amount of ad inventory available for purchase. While the two companies did not disclose how they would distribute the revenue from the liaison, however going by the market whispers Firefox will earn significantly more partnering with Yahoo! over Google.
It is by far one of the best deals signed by Yahoo! since it will give a lot of upside strength to Yahoo!’s domestic search operation. Signing up a long-term deal with the third largest web browser by market share can actually increase the visibility of Yahoo! into the web domain. In fact, a lot of analysts feel that it's the most promising business decision Marissa Mayer has made since becoming CEO.
Over the last year though Yahoo! has been successful in pushing its price per click upwards however the number of paid clicks has been dwindling for the IT honcho. By tying up with Mozilla Yahoo!’s search engine business can gain significant visibility thus giving it the dual edge of more paid clicks and further increase the price per click thus enhancing the margins from the business considerably.
In the last fiscal Yahoo! somehow barely managed to hold on to its market share of 10% in search query segment. By getting into a deal with Firefox if it can manage to increase its domestic search share to around 20%, the amount of revenue yield from its search query segment can almost double from its current levels over the next five years.
Current Stand
Till now Yahoo has not featured as the default search engine for any major web browser. Most of its search volume is generated either through Yahoo Search app or users who has been using Yahoo service. However it does not appear as a default page whenever any browser is opened. Hence the tie-up with Firefox appearing as a default search page of the web browser will obviously increase Yahoo’s visibility and accessibility and thus help it to gain more market share.
Going by the last quarter report the search engine has contributed 41% of the company’s total revenue. In the last twelve months the company has generated $1.78 billion. Hypothetically even if half of Firefox users move on to making Yahoo! their default search engine then almost 7.5% of the global web population will get added to Yahoo!’s current numbers. So Yahoo!’s market share in the search query segment will move up to 17.5% from 10% and with the domestic search share standing at 80% of the revenue mix the annual revenue can be incremented by almost 60% from its current levels. The traffic acquisition cost and cost per click expenses might pull down the revenue growth by some level but still the numbers on Yahoo!’s books will grow.
Assuming that the gross growth level stands at 60% the total ads sales will also grow to the same level going by the calculations. This will drive the revenue boost of Yahoo! to the tune of $4.32 billion over a period of next three years. However we cannot expect all the users of Firefox to make a shift from Google to Yahoo! overnight; it will take time for the users to move out of their old mantel and shift to the new search engine, hence we classified the transition time to be over a period of the next five years. But to ensure the transition goes towards the Yahoo! way the internet search giant will have to ensure that the convenience of access and the user experience has to be better than the Google search engine.
A few hurdles
Even though the new handholding between the two tech giants will certainly prove to be beneficial and would certainly add upside momentum to Yahoo! however a couple of hurdles which will still continue to plague the search business of Yahoo! are its absence from the mobile internet search area. According to the current trend more and more netizens are moving from the desktop PCs to mobile internet or more specifically smartphones. The two major smartphone OS iOS and android has Google as their default search engine.
Also to add to this Google Chrome is the most popular web browser used in the laptop and PC environment accounting for 40% of the market share. Owing to these issues the upward climb for Yahoo would certainly be a difficult move unless the Yahoo management takes cognizance of these issues and works out means to plug these gaps.
Conclusion
After evaluating all its pros and cons and the details of the deal as available in the market Yahoo! still has an upside potential despite the gaps it needs to address. Obviously even if Yahoo! manages to buy in a portion of the Firefox users to its ambit from Google it can add substantial numbers to its revenue and margins thus giving it an upswing. According to us it would be a strong hold and buy in Yahoo! at current levels for the near to mid-term to encash the benefits of the liaison.
