Internet firm Yahoo (NASDAQ: YHOO) may replace its Geo-Platform with Google's (NASDAQ:GOOG), a move that could reduce its operating costs by about 2 percent to 5 percent, according to an analyst at Global Equities Research.
Yahoo Geo-platform is lagging behind both Google and Microsoft Geo-Platform, analyst Trip Chowdhry wrote in a note to clients.
The mapping data source on Yahoo's Geo Platform is mainly Navteq, which is a part of Nokia, and Tele-Atlas.
The analyst said Navteq has been relatively slow in keeping their mapping information up-to-date versus Google Maps and Microsoft Maps.
On the other hand, Google Maps are being constantly updated in almost real-time by the Google map community. For instance, if a road is blocked for repairs, Google Maps are updated to reflect this change in almost real time. Navteq does not have this capability.
Microsoft Geo-platform uses OpenStreetMap.org mapping community to keep their maps up-to-date in almost real time, the analyst said. Microsoft Geo-mapping is ahead of Yahoo's initiatives, but still is lagging behind Google mapping initiatives.
Yahoo incurs licensing costs for using Mapping Data Source providers, such as Navteq, Tele-Atlas and others.
In addition, licensing terms of Yahoo Geo-data providers - Navteq and TeleAtlas - makes Yahoo Geo-platform a perpetual laggard and expensive for the developers.
Both Navteq and TeleAtlas have very stringent licensing conditions that put unnecessary constraints on derivative works, the analyst noted.
For example, if a developer wants to write a Geo application on Apple iPad using Yahoo Geo-Platform, Yahoo will need to renegotiate the licensing terms with each of its Geo-Data provider to allow the derivative work, so as to make the developer's application legal.
These negotiations can take anywhere between 2 months to 6 months to complete, and is very frustrating for the developer, making them use alternate Geo-Platform from Google.
Yahoo is probably paying Navteq and TeleAtlas about $100 million to $150 million annually for the mapping data, Chowdhry said citing sources. By restructuring their Geo-platform, Yahoo can immediately save this $100 million to $150 million in operating data center server farm and license fees.
Converged view is that about 20 percent or so Yahoo Server Farm compute cycles are devoted to performing data rendering such as Geo-coding, Traffic feeds, Tiles Generation and Dynamic Tiles Generation, Chowdhry wrote.
Moreover, the analyst said with the transition, Yahoo can focus on innovating on user experience and applications layer, while Google can focus their innovation in the backend and monetization.
Chowdhry has an overweight rating and $18 price target on Yahoo stock.