Yahoo's Revamped AT&T Deal Aligns with Display Ad Network Goal

Yahoo’s renegotiated deal with AT&T reflects its mission to build its off-site display advertising business.

The multi-year renewed agreement essentially makes a once-reliable revenue stream for Yahoo less so, yet it could mean bigger bucks in the long run for the company, which is under pressure from investors. According to an original contract signed in 2001, Yahoo powered AT&T’s broadband ISP portal, and received payment for each broadband subscriber. The renewed deal gives Yahoo a cut of search and display advertising revenue it serves on AT&T’s Web and mobile sites. It also allows the telco’s customers to access co-branded Yahoo mobile Web properties and the Yahoo Go app.

Despite getting between $300 million and $400 million upfront from AT&T in accordance with the renewed deal, Yahoo stands to lose at least $150 million as a result of it and a renegotiated agreement with Canadian broadband provider Rogers Communications, announced in November of last year.

Whether or not the altered terms of the agreements were initially favored by Yahoo, the firm is taking a glass-half-full attitude towards them. The potential to earn more through what Yahoo deems high quality traffic and ad revenue is what the firm has focused on in touting the renewed AT&T partnership.

“The revised relationship is inevitable, and the fact that Yahoo still has plenty of upside here is good news for both companies,” said Peter Krasilovsky, program director, marketplaces for local media research firm Kelsey Group. Even Yahoo agrees altering the partnership to one based on ad revenue share is a sign of the times.

In 2007, Yahoo put increasing emphasis on its mission to build a dominant display ad network. Deals with an expanding group of online newspaper publishers, the acquisitions of ad networks Right Media and Blue Lithium, and an agreement to sell, manage and serve display and video ads on Comcast.net have set Yahoo on a firm path towards competing as a full-fledged display ad network.

Yahoo President Sue Decker elaborated on the company’s aim to become a “must-buy” for advertisers during its Q4 2007 earnings call with investors earlier this week. “To differentiate and innovate, which is what is now occupying a much greater share of our development and investment dollars, we are intensely focused on improving product excellence and relevance across our key starting points, building an off-network, integrated display product in a scaled, open exchange that reduces friction for all and increases pricing and liquidity for inventory owners,” she said.

The renewed contract also makes AT&T-owned YellowPages.com the primary online and mobile local search provider for AT&T subscribers. YellowPages.com, like Yahoo Local, offers local business directory information and consumer reviews.

The mobile component of the new deal, giving AT&T subscribers access to co-branded Yahoo mobile Web properties and Yahoo Go, could “gain a lot of importance in year three and beyond of this contract,” said Krasilovsky. “We should remember that AT&T is the exclusive [carrier] of Apple’s iPhone; it will be interesting to see how Apple manages its relationships with Google and with Yahoo,” he continued. Apple’s iPhone enables Yahoo and Google search along with other apps from the rival companies.