Yahoo: Phoenix or Zombie? - Yahoo and Google Shake Hands
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The deal between Google and Yahoo was announced in early June. According to the terms of the deal, Yahoo will outsource part of its search advertising business to Google. Specifically, the deal covers the US and Canada. But will it help Yahoo? And was it worth turning down Microsoft?
At least some at Yahoo think it will be highly lucrative. The additional $250 million to $450 million in cash flow it is expected to generate is nothing to sneeze at. But just how much of Yahoo’s advertising will be replaced by Google’s? Yahoo president Sue Decker gave no estimates, but said that Google’s ads would show up mostly for long tail results, where Yahoo is weaker than Google because Google’s advertising base is larger.
Google clearly benefits from this deal, but Yahoo’s gains may be short-term at best. If advertisers know that their ads may show up on both Yahoo and Google if they advertise with Google, why would they choose to advertise exclusively with Yahoo? Indeed, some might even question Yahoo’s intentions to remain in the search ad market. “This partial outsourcing is going to be greeted by marketers as a confusing message about whether they’re in this for the long term,” noted Bryan Wiener, CEO of 360i, a New York digital agency.
But Yahoo may get something even worse than a mere short-term benefit out of the deal with Google: the scrutiny of the US Department of Justice and the US Senate’s Antitrust Committee. Committee Chairman Herb Kohl (D-WI) noted that “This collaboration between two technology giants and direct competitors for internet advertising and search services raises important competition concerns. The consequences for advertisers and consumers could be far-reaching and warrant careful review, and we plan to investigate the competitive and privacy implications of this deal further in the Antitrust Subcommittee.”
The two search engines allowed for a three-and-a-half month “window” on the deal so that the appropriate authorities could examine it for any competition irregularities. With Google owning about 68 percent of the US search market, and Yahoo maintaining a dominant position for Internet display ads, adding this kind of padding to the time table must have seemed only prudent. The deal also contains provisions designed to appease regulators; it is not exclusive, so Yahoo can choose to form other search advertising agreements, even with Microsoft. It also allows Yahoo to use Google’s ads at its own discretion. Whether that will be enough to appease the Department of Justice remains to be seen.
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