Bear Stearns say Yahoo's mobile assets are the apple of Microsoft's acquisitive eye.
It's no secret one of the traits that makes Yahoo so attractive to Microsoft are its mobile assets, but it's hard to quantify such assets because Yahoo doesn't advertise those assets or their productivity in financial reports.
Equity research analysts from Bear Stearns estimate that Yahoo is positioned to capture up to 5 percent of the mobile advertising market over the next few years, or up to $1 billion, thanks to a combination of mobile search and communications products and deep relationships with operators and handset manufacturers.
The report, published Feb. 13, comes two days after Yahoo rejected
Microsoft's original $44.6 billion purchase offer
because it undervalued the company. Microsoft said it would pursue Yahoo
but has been quiet ever since. Analysts expect Microsoft to counter with a higher offer.
Smart phones are increasingly becoming the starting point for Internet usage across the globe and there are currently more than twice the number of mobile users as personal computer users, according to the report from Bear Stearns analysts.
Mobile advertising can be injected on the mobile Web as text message promotions, ad-supported voice minutes as well as ad placements around video content, mobile games, mobile music, mobile TV and mobile search.
Many advertisers and Internet services providers employ targeting and tracking technologies to better match ads to consumers. These tools help advertisers bait consumers into impulse buys.
Moreover, the proliferation of social networks, such as Facebook, MySpace and Twitter, on the devices can open up new opportunities for Internet services vendors, such as Google, Microsoft and Yahoo, and advertisers to target consumers based on their profile data.
The ability to not only let users easily search for what they're looking for on Web-enabled phones and place ads in front of them could generate $16 billion in ad revenues over the next five years, according to eMarketer.
"We believe Microsoft sees Yahoo's mobile advancement coupled with the future direction of Web growth as an undervalued gem in the Yahoo portfolio," the analysts wrote.
Yahoo offers Go 3.0 mobile platform, the oneSearch mobile search engine, and, as of Feb. 13, oneConnect, which integrates social networks with address books and e-mail, instant messaging and text messaging capabilities.
The company also has relationships with 29 operators and several handset manufacturers, where Yahoo services such as OneSearch, e-mail and instant messaging, are pre-loaded onto the handset.
These alliances, which include a newly minted deal with T-Mobile to be the preferred mobile search provider on T-Mobile phones in Europe, reach more than 600 million subscribers in over 40 countries.
All told, these assets make Yahoo better penetrated in mobile than Google and Microsoft, the analysts believe. Google could close the gap with its Android operating system.
However, the first Android phones are several months away and a new operating platform takes time to build momentum. This is time Yahoo could use to fortify its mobile market position.
With Microsoft lurking, it's unclear whether or not Yahoo will get the opportunity to reach its mobile potential on its own, or as part of the software giant. Google is preparing for either scenario.