Jennifer LeClaire, newsfactor
Yahoo will run Google-supplied ads alongside its own search results and on some of its Web properties in the U.S. and Canada. The agreement is non-exclusive, giving Yahoo the ability to display paid search results from Google, other third parties, and Yahoo's own Panama marketplace.
"This agreement provides a source of funds to both deliver financial value to stockholders from search monetization and to invest in our broader strategy to transform display advertising and advance our starting-point objectives with users," Yahoo President Sue Decker said. "It enhances competition by promoting our ability to compete in the marketplace where we are especially well positioned: in the convergence of search and display."
Yahoo's Strict Control
Yahoo will define its users' experience and will determine the number and placement of the results provided by Google and the mix of paid results provided by Panama, Google or other providers. The agreement applies to paid search and content match and does not apply to algorithmic search. The agreement also applies to current partners in Yahoo's publisher network.
Enhancing Search Monetization
Yahoo said the deal with Google will help it better monetize its search inventory. In the first 12 months following implementation, Yahoo expects the agreement to generate an estimated $250 million to $450 million in incremental operating cash flow.
Yahoo said the agreement will let it continue to invest in ongoing initiatives such as algorithmic search innovation and search and display advertising platforms. It allows Yahoo complete flexibility to continue using its Panama paid-search results.
"There's a lot of unanswered questions about how it will play out. Yahoo maintains it will have full control and flexibility and will be able to show Google ads when it wants to and not show them when it doesn't want to," said Greg Sterling, principal analyst at Sterling Market Intelligence. "You get the sense that this really amounted to backfill to boost monetization when Yahoo didn't have good ads or any ads to show in certain long tail situations."
A Way of Escape
The agreement allows either party to terminate the agreement in the event of a change in control for either party. It also requires Yahoo to pay a termination fee if the agreement ends as a result of a change in control that occurs within 24 months. The fee is $250 million, subject to reduction by 50 percent of revenues earned by Google under the agreement.
Although Google and Yahoo said they are not required to receive regulatory approval of the deal, they have voluntarily agreed to delay implementation for up to three and a half months while the U.S. Department of Justice reviews the arrangement.
"This commercial agreement provides Yahoo with the opportunity to deliver more relevant ads to users and provide advertisers and publishers with better advertising technology to help them succeed in their own businesses," said Eric Schmidt, Google chairman and CEO. "This agreement will preserve the competitive and dynamic online advertising space."
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