Yahoo! Caught in Net Crossfire

While Yahoo! reveals only that 88% of its calendar 2006 revenue came from marketing services, AG Edwards analyst Denise Garcia estimates that 60% of that comes from search-related ads, meaning that the remaining 40% comes from rich ads.

That would peg a sizable 35% of Yahoo!'s total revenue to rich-media advertising. Yahoo! also commands a hefty price tag for its high-end ads, according to Garcia's estimates. For each 1,000 impressions, Yahoo! gets between $25 to $30 for rich-media ads, $5 to $6 for banner ads and an average of $1.39 for text ads.

AG Edwards doesn't have an investment banking relationship with Yahoo!

Losing even a comparatively small number of rich-media advertisers to Google or Microsoft could put a dent in Yahoo!'s rich valuation. The company currently trades at about 43 times forward earnings, compared with 25 for Google and 16 for Microsoft.

While Yahoo! continues to make impressive gains in not only its search business but also emerging areas such as the mobile Internet, the company may find trouble in the one arena it dominates.

And while the war between Google and Microsoft is usually framed as a titan-vs.-titan battle, investors should be aware that some shells will inevitably land in Yahoo!'s backyard.