• by Wendy Davis  @wendyndavis, December 12, 2005

Yahoo!'s decision to market a low-cost Internet telephone service met with approval by financial analysts at Piper Jaffray. "This is an important step for Yahoo! both in extending its subscription services and in becoming a key player in the rapidly expanding VoIP industry," stated the report, authored by Safa Rashtchy and other analysts.

Yahoo! late last week said it would introduce an Internet phone service that will cost half of what competitor Skype charges for calls to the United States. The "aggressive pricing," combined with Yahoo!'s existing users, "give the company a solid base upon which to start building a critical mass for this service," stated the report.

The new offering also potentially solidifies subscribers' relationships with Yahoo! Currently, more than 20 million people use Yahoo!'s instant messenger, and 12 million consumers pay for one of Yahoo!'s subscription services.

As portals compete for users, they also have been rolling out additional services that give users reasons to be loyal. For instance, in the last year, portal companies have introduced desktop search, upgraded their free e-mail services, and offered personalized home pages--all in an effort to retain visitors.

Piper Jaffray also estimated that Yahoo! could generate between $10 million and $30 million in revenue just from this service within the next two years.

In the report, Piper Jaffray maintained its rating of "outperform" for Yahoo! and a target price of $45 a share. Last week, the stock price hovered around $40.