- Yahoo is reportedly close to launching its video sharing platform, a direct competition to YouTube.
- Yahoo’s stock has been trading as a proxy for its Asian investments for a major part of the last year.
- The launch of the video sharing platform is an attempt to revive its stalled advertising revenue.
- The revival of core operations will have a greater impact on Yahoo stock price after the expected partial exit in Alibaba’s upcoming IPO.
Yahoo Inc. (NASDAQ:YHOO) has been busy with its acqui-hire spree for close to two years now. CEO Marissa Mayers has ensured things are moving at the tech giant, having been given up for dead by many. The latest in the series of acquisitions was a rumoured acquisition of RayV, a developer of software for high definition video streaming over the internet. A possible acquisition of RayV will be a boost to Yahoo’s video service on account of the technical competitiveness of the RayV team. While the RayV acquisition is yet to be officially acknowledged by any of the parties, a new report from AdAge suggests that Yahoo’s online video service, in answer to Google’s YouTube, is on the anvil.
Online video ads market could be highly lucrative for Yahoo
Our recent article on the potential of Facebook video ads pointed out the fast paced growth which is expected in the video ad space over the coming years. A market projected to grow at an annual growth rate of 26% up to 2017 is definitely a market any company would love to be in. All the big internet companies including Google, Facebook and Yahoo are therefore looking to take a bite of this highly lucrative segment of online advertising.
Yahoo’s rumoured USP
Yahoo’s proposed online video platform will be a direct competitor to YouTube, the king in the online video ads industry with 2013 gross revenues of over $5 billion. Though Facebook is on an aggressive expansion drive to ramp up its own video ads segment, it will not be a direct competition to YouTube, which will continue to remain the default video viewing/sharing platform, an area which Yahoo is targeting.
Another difference between Facebook and the YouTube model is in the way the two implement the video ads. While Facebook has an auto-play ad consisting of the ad video, YouTube’s is more often an in-stream ad played before a video. Thinking from the user experience point of view, a personal opinion is that viewing an auto-play video ad in the midst of my Facebook stream would be annoying, to say the least. The reason is people go to Facebook to connect with friends and would probably scroll past the interruptions (read auto-play ads). On the contrary, a user on YouTube has certainly come to watch a video and hence an in-stream video wouldn’t be as annoying. The difference lies in the expectations with which the users visit the two platforms.
Moving back to facts, let’s compare Yahoo’s upcoming service with its potential direct competitor, YouTube. The service will provide most of the features currently offered by YouTube like channel creation and embeddable videos. The critical question to be answered is why will existing content creators shift from YouTube, with its billion users, to a totally new platform?
This is where AdAge reports that Yahoo’s USP will lie in the fact that Yahoo is adopting a more generous revenue sharing model, or fixed ad rates at a discount to YouTube’s offering. YouTube customers dissatisfied with YouTube’s 45%-55% revenue sharing model will find Yahoo’s pitch difficult to ignore. Yahoo will also be offering content creators (posting videos) an opportunity to reach out to audiences across Tumblr and other Yahoo properties and other partner sites from Yahoo’s network. Coming on the back of recent uptick in number of visitors to Yahoo sites, as reported by Comscore, the deal might be an attractive package to bring video content creators onboard.
According to the AdAge report, Mayer is attempting to jumpstart Yahoo’s stagnant ad revenues through the proposed video platform in an attempt to gain a significant pie of the $70 billion US TV ads market.
However, all is not rosy and smooth going for Yahoo. A few of the content creators have been dissatisfied with Yahoo’s content ownership policy. The final contracts may have to see some tweaks before the platform can actually take off.
While the proposed video sharing platform is going through its fair share of troubles, it is definitely a step in the right direction aimed at resurrecting Yahoo Inc’s core operations. Yahoo’s stock price has largely traded as a proxy to its stakes in its Asian investments, Yahoo Japan and Alibaba. The upcoming IPO of Alibaba will reduce Yahoo’s share in Alibaba and will limit the upside to in Yahoo stock price to that extent. On the positive note the IPO will provide Yahoo with a significant amount of cash reserves to complete a turnaround of its core operations. We continue to hold our bullish outlook on Yahoo stock as we head into Alibaba’s upcoming IPO. We currently rate YHOO stock 2.4/5, a reflection of its stagnating core operations. The launch of the video platform couldn’t have come at a better time. Hence we will be keeping a close watch on the release of the proposed video sharing platform and other attempts to turnaround the core operations. This comes at a time when the stock will have reduced exposure to its Asian investments and a greater exposure to its core operations.
To see the current stock price of Yahoo click here: (NASDAQ:YHOO)