Taiwanese chipmaker Mediatek has agreed to embed Yahoo Inc (YHOO) services within its chips, as both companies try to grab a share of the smartphone opportunity.
Strictly speaking, Mediatek does not cater to the smartphone segment (its chips are mostly used in lower-end phones that are sold in emerging countries). However, Mediatek has developed the Maui Runtime Environment(“MRE”) software, which closes this gap by allowing regular phones to download and run applications in a manner similar to a smartphone. It is this opportunity that Yahoo seeks to tap.
While many people in emerging markets may not be able to purchase expensive smartphones, cell phone penetration rates in countries like China, India, Indonesia, Malaysia and Vietnam among others, continue to soar. When you add in the factor of population density, which is typically high in these countries, the opportunity is all the more considerable. Additionally, there are countries like Indonesia where cell phones are the primary devices for connecting to the Internet.
Pursuant to the agreement, Yahoo expects to have some of its services, such as its Yahoo Messenger, news, finance, weather, mail and Flickr embedded in Mediatek chips. So when MRE is loaded on a traditional phone, cost-sensitive users in emerging markets would have automatic access to these services.
A direct impact on Yahoo’s revenue is unlikely however, despite the fact that the services would differentiate Mediatek’s offerings. We doubt that this is what Yahoo is targeting. We think that by getting its most popular services right to consumers, Yahoo will have a better opportunity to serve them ads as well. And this is possibly what they are looking for.
Yahoo is well behind in the smartphone race, where Google Inc (GOOG) is fast establishing its leadership with the Android OS. Microsoft Corp (MSFT) also signed a deal with Nokia Corp (NOK) in the smartphone segment (although it remains to be seen how this partnership will function, given Nokia’s recent woes.
However, things could be getting worse, since tech behemoth Apple Inc (AAPL) is also showing signs of interest in the search market (or at least the serving of ads) on its popular MIDs.
So while we welcome Yahoo’s initiative and like the strategic approach, we prefer to take a wait-and-see approach, not cheering as loud as the investment community, which pushed up share prices 3.3% yesterday.
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