Yahoo’s Strategy Behind Launch Of New Mobile Developer Suite

Yahoo! (NASDAQ:YHOO) announced last week a new mobile developer suite at its first mobile developer conference. ^[1] The suite for developers is designed to help developers measure, advertise, monetize and enhance their mobile apps. This suite reaffirms Yahoo’s commitment to its growth businesses — mobile, social, native and video. Yahoo hopes that through this effort it will be able to attract more mobile developers for its properties. so as to foster greater mobile usage of its sites. Developers are to create more apps and attract more users to its site through an improvement in user experience. Yahoo aims to further tap into the mobile ad industry, which is expected to grow to $40 billion by 2019. ^[2] In this note, we will explore the latest offering, and how it will help Yahoo to boost its revenues.

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Why Is Yahoo Targeting Mobile Developers?

Since Marissa Mayer took over the company in 2012, the company has been focusing on improving user experience and increasing user count on the mobile vertical. Despite  these efforts, developers have been developing apps and content for Yahoo’s properties. The primary reason for this has been that  Yahoo has paid little attention to the needs of the marketers that advertise across its properties. As a result, the company has failed to monetize its properties effectively. This is reflected in company’s results, which have remained flat over the past few quarters.

According to Forester, mobile advertising in the U.S. will total $40 billion by 2019. ^[3] eMarketer estimates that online mobile ad spending in 2014 was at $18.99 billion. ^[4] In order to capitalize on this trend, Yahoo launched the unified ad market place for mobile search and native display advertising in February last year. ^[5] The seamless integration of mobile search with native display ads, which look and act just like the other stories on the page but are marked as ads, not only enhances user experience but can also boost revenue per pageview, as higher engagement leads to increases in pageviews. According to eMarketer, Yahoo is all set to capture over a billion dollar worth of revenues from mobile vertical in 2015, which is on par with the expected market share of Twitter (in the U.S.).  Currently, we expect Yahoo’s display ad revenues to increase to $1.8 billion and search ads to grow to $1.6 billion by 2021. If Yahoo can capture a good chunk of mobile ads through its ads and development efforts, then its ad revenues can be significantly higher in the future.

The Yahoo Mobile Developer Suite

The suite integrates Yahoo, Flurry and BrightRoll Technology, and creates services for mobile developers to advertise, monetize and enhance their Apps. The suite includes:

• Flurry Analytics with Explorer – The Flurry Analytics Explorer introduces an easy-to-use data exploration interface that expedites analysis and lets developers leverage existing code for analysis.
• Yahoo App Publishing – Developers can also monetize their apps by deploying high-quality native, video and display ads using the combined capabilities of Yahoo Gemini, BrightRoll and Flurry. This combination offers developers the capability to seamlessly integrate ads and improve experience for users.
• Yahoo App Marketing – By leveraging Yahoo Gemini, developers can buy and sell targeted native and video advertising across Yahoo’s network of premium content, including Tumblr. Yahoo App Marketing streamlines the experience as developers can use just one platform to gain exposure to Yahoo’s active users across desktop, mobile and social.
• Yahoo Search in Apps – This offering makes integrating Yahoo Search directly into a developer’s apps easy. This enhances the user experience by allowing users to search the web from within the app. It also can create an additional monetization channel for developers.
• Flurry Pulse – Flurry Pulse makes it easy for developers to share app signals with partners using just the Flurry SDK and the click of a button. Pulse can help limit SDK proliferation and engineering work by pushing signals from your app to partners.

As we have stated earlier, content is the driving force behind ad revenues. Yahoo plans to empower developers with the capability to combine their apps and content with bespoke ads to improve user experience. This can not only improve user engagement but also boost mobile unique users. The number of unique visitors is vital for Yahoo’s ad revenues as more people visiting the website generally translate into more pages viewed across Yahoo’s websites. Currently, Yahoo’s mobile monthly active user base stands at 575 million. If Yahoo’s mobile monthly active user base were to increase by 50% by 2021, its revenues could be meaningfully higher. Better content and user engagement can also increase the time spent on the website and advertisers are willing to pay higher revenue per impression for these sites. Yahoo is ranked third in terms of time spent by a user on the website. ^[6] We expect revenue per pageview (RPM) for Yahoo to improve due to these efforts. Currently, we project RPM for Yahoo to increase to $1.10 per 1,000 impressions by 2021. However, if it were to increase to $1.50, our stock price would increase by 5%.

We have a $47.29 price estimate for Yahoo!, which is 7% above the current market price.

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More Trefis Research

1. Yahoo Announces New Mobile Developer Suite at First Yahoo Mobile Developer Conference, February 19 2015, investor.yahoo.com [↩]
2. US Mobile Advertising Spending To Reach $40 Billion By 2019, May 9 2014, www.forester.com [↩]
3. US Mobile Advertising Spending To Reach $40 Billion By 2019, May 9 2014, www.forester.com [↩]
4. Yahoo Poised to Pass Twitter in US Mobile Ad Share by 2015, December 4 2014, www.emarketer.com [↩]
5. Introducing Yahoo Gemini, February 19 2014, www.yahoo.com [↩]
6. Most visited websites in the United States in April 2014 by user engagement, May 2014, www.statista.com [↩]