In the online world, Google (NASDAQ:GOOG) may have the edge in search, but Yahoo! (NASDAQ:YHOO) still has the upper hand in the content realm. Yahoo! has been able to use that advantage in forging profitable relationships with telcos, such as Motley Fool Stock Advisor recommendation SBC Communications (NYSE:SBC), which is a partner in selling DSL services.
With a proven model in place, Yahoo! was recently able to strike a similar deal with Verizon (NYSE:VZ) to establish a broadband Internet service. The price tag for the service, called Verizon Yahoo!, will be $14.95 per month, and it will be available in 28 states and the District of Columbia. Subscribers must sign a one-year contract.
There is a downside to the low price: The maximum access speed is only 768 kilobits per second for downloading and 128 Kbps for uploading. SBC's service with Yahoo!, meanwhile, offers a maximum download speed of 1.5 megabits. Still, Verizon Yahoo! most certainly offers some service advantages over dialup offerings. And Verizon hopes that by giving customers a taste of higher Net speeds, they will eventually upgrade to higher-priced plans. (Verizon will continue to sell faster DSL for higher prices.) According to estimates from Verizon, about 50% of U.S. households with an Internet connection still use dialup. And for many to make the switch, price is critical.
Of course, Yahoo! will offer users its plethora of online services, including music, video, instant messaging, photo storage, mail, games, and antivirus/spam protection.
Verizon is feeling a variety of competitive forces as it makes such alliances. Cable companies, for one, have the ability to bundle a suite of services, such as voice, video, and broadband. Services like Clearwire, moreover, are offering cutting-edge broadband alternatives. And there is pressure from cities that are setting up their own broadband services through Wi-Fi networks.
For Verizon, this is an expensive race to compete in. Netting new customers in this niche entails a mix of lower-priced service offerings, continued advertising expenditures, and -- perhaps -- lower margins.
But for Yahoo!, the Verizon partnership is good news. Yahoo! is not likely to rake in large amounts of revenues (probably less than $20 million, and that's my high-end estimate), but it will benefit from additional branding -- or at least hits to its main page -- from Verizon's anticipated marketing push, which stands to go a long way in the search biz. And all that with virtually no risk.
Fool contributor Tom Taulli does not own shares of companies mentioned in this article.
