Google & Yahoo Sign Deal to Begin Advertising Partnership
Internet behemoth Google and one of its lagging competitors, Yahoo, have agreed to a deal potentially worth up to $800 million for Yahoo. The deal grants Yahoo access to Google’s Adsense, which allows users to advertise on search and content sites participating in the program.
Yahoo has committed to 4 years in the agreement, with the first expected to generate between $250 – $400 million in cash flow for Yahoo. Should the deal please Yahoo, the company has 2 optional 3-year renewal periods following the initial agreement.
Some murmured about the possibility this deal could breach antitrust regulations. To start things off on the right foot, both companies have agreed to delay the actual implementation of the deal 3.5 months to allow the Senate Antitrust Committee to examine it and its possible effects on the marketplace. Senator Herb Kohl, chairman of the committee, vowed to examine the deal closely.
Google Denies any Idea of a Merger
“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,” said Senator Kohl.
Google quickly denied any ideas of a merger. “This is not a merger. Rather, we are merely providing access to our advertising technology to Yahoo through our Adsense program,” said Senior Vice President of Global Sales and Business Development Omid Kordesani.
He was also quick to point out this deal does not force any competitors out of the marketplace or prevent Yahoo from making deals with any other companies. The deal also does not increase the amount of search traffic flowing to Google, and Google also is not able to raise prices for other advertisers.
Microsoft/Bing Becomes the Big Loser
Although Microsoft continues to maintain an advertising partnership with Yahoo, Yahoo has sent a very clear message to Microsoft that it will soon be on its own. Together with Yahoo, it sunk billions of dollars into the partnership, attempting to dethrone Google from its position as the search advertising leader.
Years of evidence have shown that at the very best, Microsoft has done absolutely nothing to improve Yahoo’s search revenue, and in fact, probably undermined it more than anything else. Google is four times the size of Yahoo, making deals with any other search provider guaranteed failures. Marissa Mayer’s position as CEO undoubtedly played a major role in the decision to reach the deal.
Despite the magnitude of the deal, Yahoo maintains its users won’t see much of a noticeable difference as they use the search provider.
The goal, in the words of a blog post released by Yahoo, was really to “More options simply mean greater flexibility. We look forward to working with all of our contextual ads partners to ensure we’re delivering the right ad to the right user at the right time.”
A Premonition of Things to Come?
While there are some concerns about violations of anti-trust regulations, what’s really interesting about this story is the fact that Yahoo CEO Marissa Meyer, long a Google spokesperson, is actually building this deal with the search leader. It’s pretty clear Yahoo stands no chance on its own of actually challenging Google for a significant market share of search, although it remains fairly competitive with Bing.
Is she simply conceding the fact Yahoo won’t be able to compete with Google, and is instead doing what she can just to stay in business? Will the relationship grow further, helping Yahoo stay alive, or is this just a temporary band-aid solution? Will the two companies work together to push Bing out of the marketplace?
On the one hand, it could be beneficial to Yahoo to push out Bing, the primary company with which it really competes. On the other, the eventual elimination of a competitor, or a merger, put Google in a position where it could become the victim of an anti-trust suit, much like AT&T in the 1980s.
It’s clear, though, that the structure of the deal was created to benefit both Google and Yahoo, while at the same time not formidably growing Google’s strength in the marketplace. As a powerful corporation, Google can be expected to continue to do everything it can to grow and maintain that power. It currently hovers around 10th place as one of the companies with the largest market capitalizations, at around $210 billion.
How, or if, the relationship between Yahoo and Google grows will be interesting to watch. Whatever happens, you can be sure Google will tread very carefully.
Tom Bates | President
Absolute Placement Today, Inc.