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Internet giant Yahoo! Inc. (YHOO - Analyst Report) has announced a partnership with Dropbox to integrate the cloud storage service into Yahoo! Mail.

Dropbox is a file backup service operated by Dropbox, Inc. that offers cloud-based file management, storage systems and client software. It enables users to access and synchronize files and use applications through multiple devices.

Dropbox allows users to create a special folder on their computers, which it then synchronizes for viewing on any computer. Files placed in this folder are also accessible through a website and mobile phone applications.

Dropbox provides client software for Microsoft Windows, Mac OS X, Linux, Android, iOS, BlackBerry OS and web browsers, as well as unofficial ports to Symbian, Windows Phone and MeeGo.

The integration will make it easier to send, receive and manage attachments in Yahoo! Mail. The service will allow users to share and store files more easily without any file size limits. The partnership will enhance Yahoo! Mail’s functionality and hence improve user experience.

The new partnership with Dropbox comes after CEO Marissa Mayer announced a newer version of Yahoo! Mail last December. Mayer is undertaking continuous efforts to revamp Yahoo's languishing collection of websites and apps. Recently, the company announced the redesigning of its home page with an intention to make it more attractive to users.

Yahoo was one of the earliest players in instant messaging and online news aggregation and dominated search and email. But it has gradually lost its leadership to Google . Yahoo! Mail is still the third most-used mail service in the world behind Hotmail and Gmail.

As per a report by comScore, Yahoo has been seeing declining traffic on all of its three major revenue earning portals: Yahoo Mail, search and the homepage. In Nov and Dec 2012, search revenues were down 28% and 24%, respectively while mail revenues dropped a respective 16% and 12%. Monthly unique visitors to the home page declined 17% in November but rose 4% in Dec 2012.

As per a report by comScore, Google sites in the U.S. alone have 67.5% market share followed by Microsoft, which has 16.7%. As of Feb 2013, Yahoo had 11.6% market share. Thus, reclaiming lost ground will be difficult for Yahoo.

Yahoo Mail is also likely to be challenged by the world’s largest software maker, Microsoft (MSFT - Analyst Report), which has started Outlook.com, a free email service. Microsoft will be moving existing Hotmail users to outlook.com along with their hotmail.com email addresses and passwords.

In the last concluded fourth quarter, the company performed well with revenues of $1.35 billion, up 12.0% sequentially and 1.6% year over year. Traffic acquisition cost (TAC) was up 10.8% sequentially while declining19.6% from last year. Excluding these costs in all periods, net revenue was up 12.1% on a sequential basis and 4.5% from last year.

However, Yahoo still has a huge task at hand as it attempts to bring back its users and make them spend more time on its properties. If successful, Yahoo may reclaim some of its lost market share going forward.

Yahoo has a Zacks Rank #3 (Hold). Intersil Corp. (ISIL - Snapshot Report), which carries a Zacks Rank #2 (Buy), is also performing well and is therefore worth considering.

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