Yahoo gave up on the search business when it struck its partnership with Microsoft, and now it’s focussed on its strength, which is online display advertising. Yesterday, Yahoo reported a 17 percent increase in display revenues on Yahoo-owned sites. CEO Carol Bartz told analysts on the conference call: “We are running really fast. We are not going to give up this leadership in display very easily.”
But that leadership is already being threatened. Google, which has always trounced Yahoo in search, may soon surpass it in display revenues as well. Last week, Google broke out its display ad revenues for the first time. If you annualize all of the third-quarter display advertising revenue from DoubleClick, AdSense, and YouTube, it comes to a $2.5 billion revenue run-rate.
How does that compare to Yahoo? Display advertising on Yahoo-owned sites last quarter produced $465 million in revenues. If you annualize that, you get about $1.9 billion. But Yahoo also reported $557 million in affiliate revenues on third-party sites (the equivalent to Google’s AdSense and DoubleClick ad networks). Here is where it gets tricky because Yahoo does not disclose how much of those affiliate revenues come from display versus search ads. If you assume that Yahoo’s affiliate advertising breaks down roughly the same way as its and owned-and-operated advertising, then that would mean about half is display. So that is another $1.1 billion. Add that to the $1.9 billion, and you get $3 billion in annualized display revenue for Yahoo.
But that is being generous because most of Yahoo’s affiliate revenue is actually search. Depending on what that percentage is, Google’s display revenues are already either just as large or bigger than Yahoo’s. Not bad for a one-trick pony. For instance, if Yahoo’s affiliate revenues are 70 percent search, that would bring its total annualized display revenue to $2.6 billion. If they are 80 percent search, display goes down to $2.3 billion.
Whatever the number, the gap isn’t too large. (Note that for both Google and Yahoo these numbers are gross revenue before third-party publishers take their cut). And I haven’t even mentioned the other elephant in the room: Facebook. If Facebook’s total revenues are going to hit $2 billion in 2010,a huge portion of that is display. And Facebook revenues are growing much faster than Yahoo’s.
If Yahoo hasn’t already lost its leadership in display advertising, it in danger of losing it very soon.