Yahoo-AT&T Renegotiation = Capitalism at Work

The WSJ reports that Yahoo and AT&T are renegotiating their broadband access partnership on terms far more favorable to AT&T.  According to the article, this is a result of three factors:

1. Yahoo's reduced stature and buzz (thanks to Google)
2. A reversal in the market dynamic in which search engines are now paying for carriage (thanks to Google).
3. AT&T's newfound prowess in broadband access (7 million subs).

No. 2, a reversal in who's-paying-who, is a profound change, one ushered in by Google's deal with Dell in which it agreed to pay $1 billion to be preloaded on Dell PCs.  Paid search is so profitable that Google can afford such deals, but the changing dynamic illustrates that search, like other businesses, is subject to the laws of capitalism (attractive returns draw new competition which reduces returns).

Google and Yahoo won't soon be forced to hand over most of their profits for carriage--most of their traffic, presumably, goes direct, and users usually demonstrate significant loyalty/habits about who they search with.  Like the massive increases in CAPEX at both companies, however, increased distribution and CAPEX costs will probably continue to weigh on both companies' bottom lines.

In Yahoo's case, according to the WSJ, a new AT&T deal could significantly reduce the $200-$250 million in revenue the company earns from the deal (approx 5% of overall revenue).  This revenue is probably at least as profitable as the rest of Yahoo's business, so it might feel an even greater impact on the bottom line.   

Comments

[Feedback Dude]

i use Yahoo DSL by ATT. I only I don't even use Yahoo, just the DSL. Who gives a shit if they are partners.

Also I bought a new Dell computer with Google as the start page. my wife, who is a foreigner from Jordan, is familiar with google. However, she thought the google search box in the browser was the actual browser and the only way to get to a website. So the Google Dell deal is giving them the results they are looking for. Not only does Google mean "search", but for some people it also means "Internet browser".

[michelle]

Random

[uh unh]

who's-paying-whom

freakin yalie

[Henry Blodget]

Sorry...built-in grammar-checker clearly polluted by that Whitney or Aretha song that used to echo around the campus senior year (which, as I recall, was not entitled "Who's Zoomin' Whom?")

[Teletruth]

AT&T's a monopoly. This is just another example of the leveraging that position.

You should also mention AT&T has petitioned the fed to get access to the USF moneies we all pay on our bill so that they can subsidize their fiber expansions rather than rolling DSL or other high speed services to rural communitees.

[pwb]

I hope Yahoo walks. AT&T sux.

[P-]

It's funny that even though w/o the size/eyeballs that Yahoo has, Google being first innovator at least for certain catagories related to "search," has the ability to dictate or re-dictate how business is done or revenue is defined in the area of search-commerce.

yhoo/goog search "invest_mavin"

World's Greatest Detective!

[Ravi Dronamraju]

I think AT&T is really flexing the wrong muscle. They should use their brains in my opinion.
DSL is the new dial up. Everybody has it, and it's inadequate to the emerging computing needs. This is nothing to do with speed. The inadequacies are more about the last mile of wiring and lack of mobility.
For example,
- I pay for this internet service which only 'at home'
- it needs me to be technical enough to know about routers and set it up
- I need to know how to be secure with my data if i am using wireless

I would rather just signup for internet service that is available everywhere and has the same speed.

WI-FI/WiMax is to DSL what DSL was to dial up.

AT&T should be focusing on innovating in this new space and how to win in this space rather than getting a bigger share of (soon to be) declining DSL pie.

Atleast, Y! I hope will recognize this and invest their margins in creating a great network of WiFi ISPs.

As for google, their challenge is distribution. After 4 years, their mail product is a woeful 4th across the world. They want to challenge microsoft with apps, but don't have a strategy for getting their apps out. They are paying for this distribution.

[salim]

Does anyone know EXACTLY how/when Yahoo is paid on the AT&T deal?

Ie, if I sign up for Yahoo/AT&T DSL... does Yahoo get paid for as long as I am a subscriber (do they "own" me even AFTER their AT&T expires?). In that case, I imagine AT&T would want to call me to change my plan/contract such that I'm no longer a Yahoo customer... Still, it seems like if this was the scenario, the $200-250M per year that Yahoo generates isn't just going to vanish upon expiration.

But anyway, I dont know how this works... someone please enlighten me.

[Ravi Dronamraju]

Salim,

I don't know/remember details. As far as i know, there's a yearly rev/share per user. It's on the order of ~1-2$/per user per month. SBC/AT&T owns the users. So if they leave, they take the user's email address. i am not sure what happens to the user id. SBC users used to get a different my yahoo & yahooo page (several y! sub properties had SBC version of the site). I am not sure if this is still valid or not.

[akenna]

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