Yahoo Ads Have Room to Grow

Yahoo beat analyst estimates, with strong growth from both advertising and paid consumer services including music downloads.

“We’ve launched some of best products to date in this quarter,” said Chairman and CEO Terry Semel. The company updated Yahoo Messenger and signed a landmark interoperability agreement with Microsoft that will create what he said was the world’s largest IM community. The company also launched a beta version of a new e-mail service.

On the content side, Yahoo introduced original columns and original reporting from Kevin Sites in the Hot Zone. While some Yahoo content partners may worry about competition from the home portal, Semel said consumer traffic was strong, while consumption of audio, via Yahoo’s music download services and podcast search, was growing rapidly.

On the advertising side, revenue of $1.160 billion was up 46 percent year-over-year. CFO Susan Decker said consumer packaged goods manufacturers are leading brand advertising and starting to move heavily into search advertising, as well.

Yahoo recently began testing a self-service advertising platform for small advertisers, similar to Google’s . “While we have been very successful in tapping large publishers,” Decker said, “we believe this service will ultimately position Yahoo as the preferred ad partner for small and medium publishers.” She added that the company believes it’s on track to gain global market share in both forms of advertising.

Yahoo also has been working on improving relevance in regular search and in local search, Decker said; these enhancements are expected to pay off in 2006.

Yahoo is spending some of its revenue gains on the purchase of Whereonearth, a company that has technology for local search — and local advertising. In the Yahoo Search blog, Bassel Ojjeh, Yahoo vice president for strategic data solutions, said the company’s technology combines global data and software algorithms that will help Yahoo improve the geographic relevance of all its products and services, including search and search marketing, local search and maps, mobile and personals. Yahoo was already a customer of Whereonearth, using its technology to improve the relevance of local searches.

While Yahoo Local isn’t contributing a lot of revenue yet, COO Dan Rosensweig said it’s been growing, and a large percentage of Yahoo’s total queries are local. “This acquisition will help with the monetization side and more effectively target advertising to the local markets, both large advertisers who also advertise locally and small advertisers who have not yet come onto the Web.”