Yesterday, Yahoo! Inc (NASDAQ: YHOO) confirmed rumors that it has agreed to purchase Flurry, a startup company dealing with mobile analytics and ad networks. Yahoo! plans to utilize this deal to bolster its mobile ad revenue from smartphones and other mobile products.

Yahoo! refused to disclose the terms of the acquisition in the statement released yesterday.

According to an inside source, the search and email provider has agreed to pay just over $200 million for Flurry.

For Yahoo! Chief Executive Marissa Mayer, this deal is one of the largest acquisitions and boldest moves she has yet to make in her efforts to get Yahoo! into mobile advertising. The mobile advertising market is dominated by forces like Google (GOOG) (GOOGL) and Facbook Inc (FB).

Flurry was founded in 2005. The company provides tools to assist marketers to analyze and decide which mobile advertisements work best with Android and iPhone users. According to information from its website, the company aggregates data from about 540,000 different mobile apps.

The startup company has over 8,000 mobile publisher clients, including news outlets like the Guardian and game producers like Sega Corp. These clients use Flurry’s services to sell banner ads within its apps. The relationships that Flurry already has with these companies give Yahoo a huge competitive advantage in making a bigger impact in the mobile ad space, as well as more chances to pitch to its advertisers.

Scott Burke, senior vice president for Yahoo!, states that Flurry brings an incredible partnership to Yahoo!. He expressed Yahoo!’s excitement in working with the startup company to bring Yahoo!’s services to these mobile apps.

The announcement of this acquisition comes in wake of a week of bad news – Yahoo! reported that its revenue fell about 3% in its second quarter, not counting commissions that were paid for Web traffic to the company’s partners. This decline marks the company’s fourth decline in the last five quarters. Yahoo! also reported that its revenue from display ads dropped 7%.

The mobile ad market is one of Yahoo!’s best chances to grow and develop revenue from ads, and successfully provide super-targeted ads along with increasing digital content. The company hopes to advertisers’ perception of it as an outdated relic of an earlier era of Web browsing, and to redefine itself as a socially engaged and modern company in the smartphone market, a space where most companies are still playing around with different methods of marketing.

The mobile ad market is also one of the fastest growing areas for digital advertising. The market is on track to grow about 85% this year, according to an estimate by eMarketer. Google currently leads this market with over 50% of the market share, followed by Facebook, who retains about 22% market share. Another other companies are expected to hold less than 3% of the market share. Yahoo is estimated to hold less than 1%.

So far, Yahoo! has gathered just over 450 million monthly users of its mobile applications, including Yahoo News Digest, Yahoo Weather, and versions of its email and Flickr services specialized for the smartphone. The company has already been selling ad spots inside these applications. However, the company’s revenue from its mobile ads is not yet big enough to make a dent in its quarterly earnings reports.

 

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