Why Yahoo Looks Like a Broadband Winner

I usually don't like to make "winner and loser" type of predictions. And I tend to be doubly cautious when I'm basing my opinion solely on what I read and observe, as opposed to direct, first-hand knowledge.

However, this time I'm making an exception. As I'll explain below, Yahoo's strong broadband distribution, and its competence in online advertising and content/navigation, put it in a strong position to be a broadband winner, and a big-time threat to lots of established players in the current media value chain.

Yahoo Gets Broadband Distribution

Yahoo has pulled off a huge coup by inking deals with both SBC and Verizon. These are in addition to its deals with Rogers and BT, with others sure to follow. These broadband service providers have obviously come to the conclusion that it's better to point their users to a co-branded Yahoo start page than to go into the portal business themselves. Just between Verizon and SBC, Yahoo is in front of 8.7 million DSL users, with that number poised to grow dramatically.

But the real action with these telco partners is with their fiber-based deployments which are now underway in the 42 states that these two goliaths cover. Reading these recent press releases (disclaimer - never believe everything you read in a press release) -- Yahoo is highlighted as the key content partner. As a result, Yahoo has the potential to become the de-facto IP-based programmer to a large chunk of US homes plus the 90 million wireless customers that Cingular and Verizon Wireless serve.

Equally powerful is Yahoo's appeal as a marketing partner to the telcos. If it executes in the content and advertising areas as I've described, it offers the potential to bring tens of millions of its loyal online users to the telcos' networks.

Yahoo's DNA is Online Media

The advertising business is in the early stages of a huge disruption brought on by radically changing consumer media behavior. The traditional model pursued by established media companies is broken. The shifting of ad dollars from offline to online media will only accelerate.

This is Yahoo's edge. Its DNA is in online media. Yahoo's been in the online media space longer than anyone else. Successfully monetizing Yahoo's various media properties' traffic in a rapidly evolving online ad market requires discipline and creativity. Based on Yahoo's recent Q4 financial results, and those of previous quarters, it appears that Yahoo has both. Continuing this earnings momentum will be key to providing the company with the breathing room to experiment in emerging areas.

I believe that when it comes to figuring out how to sell advertising in the fast-growing world of IP- based video, Yahoo's deep online media expertise will be a big advantage. While others who come from TV backgrounds puzzle over untested ideas for delivering advertiser value in an on-demand world, Yahoo is learning daily what works and what doesn't.

A perfect example is the video advertising that Yahoo runs before The Apprentice videos in Yahoo TV. Big brand advertisers like Intel, Staples and Nescafe have bought these spots. I think they're just the tip of the iceberg for how advertising in a broadband world will work.

Yahoo Knows Content and Navigation

Finally, if you haven't checked out The Apprentice mini-site within Yahoo TV, it's well worth the visit. Yahoo did a deal directly with Mark Burnett Productions (hey, where's NBC?) to build The Apprentice's companion web site, while splitting the ad revenues. The site is extremely appealing and highlights exclusive video not seen on TV.

With the recent addition of Lloyd Braun, an ex- ABC exec, and the opening of a big Santa Monica office, Yahoo will be tempted to pursue expensive, Hollywood-style programming projects. I think they'd be smarter to focus on doing more Burnett-type deals. Yahoo brings reach and web expertise to any program producer wishing to extend their brands online.

Further, these deals offer a window into some of the exciting potential Yahoo has in broadband video.

Look how Yahoo offers "Apprentice Video via RSS". (Side note - if you're not familiar with RSS, click here to learn more). If you are familiar with RSS, then you know that droves of internet users are adopting RSS "readers" to organize the mounds of information that interests them on the net.

The same scenario will unfold for online video, when there's a plethora of it floating around the net. Consumers who have deep attachments to their favorite programs will personalize their RSS readers to pull in all the video available on the net that they would love to see, but aren't going to take the time to repeatedly find (think TiVo "Season Pass" on steroids). Yahoo is now promoting its own RSS reader as a feature in "My Yahoo". Coupled with Yahoo's video search, Yahoo is in a prime position to become the de facto personalized video aggregator of the web.

Going a step further, when tens of millions of people have video pulled into their My Yahoo start pages, Yahoo is in a position to offer them all a collaborative filtering feature (e.g. "if you enjoy subscribing to The Apprentice video feeds, you may also enjoy subscribing to The Contender video feeds"). The result is a broadband video cross- promotional powerhouse.

The next step is to enable easy synching of all of this personalized video to portable video players. These "video iPods" are just starting to hit the market, but they are useless without valuable content. When "My Yahoo" video feeds can be seamlessly transferred from the PC to the portable, then voila, these portable players have a much stronger value proposition.

Stay Tuned

It's a pretty daunting vision with lots of moving parts. But all the pieces are there. If it does all come together, the ripple effects that will be felt across the advertising, television, cable and broadband industries will be dramatic.

(Disclaimers:My predictions are worth what you've paid for them, I don't own any Yahoo stock, and I don't have any privileged information.)