Mobile not affected by Yahoo-Google ad deal

By Giselle Tsirulnik

June 16, 2008

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Soon after rejecting long-time suitor Microsoft's proposal for a merger, Yahoo has reached an agreement with Google that will enhance its ability to compete in the search and display advertising marketplace, supposedly advancing the company's open strategy.

The agreement lets Yahoo run ads supplied by Google alongside Yahoo's search results and on some of its Web properties in the United States 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.

"Yahoo once helped build Google and now Google is helping to re-build Yahoo," said Oliver Bishop, CEO of Steak Media, New York. "The deal highlights how, in a Google-led digital world, all companies, competitors, distribution partners and advertisers rely on Google.

"Google is the sole center of the digital ecosystem," he said.

Currently, the agreement extends only to online ads and will not affect the mobile businesses of either company.

Under the terms of the agreement, Yahoo will select the search term queries for which - and the pages on which - it may offer Google paid search results.

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.

"Both Google and Yahoo claim that this deal will facilitate and not hinder competition," Mr. Bishop said. "I'm not convinced. Yahoo has a Google dial that they can now turn up and down regarding the Google ads they choose to display.

"Should Yahoo need an influx of revenue, turning that dial up becomes increasingly attractive," he said.

Meanwhile, Yahoo and Google agreed to enable interoperability between their respective instant messaging services bringing easier and broader communication to users.

"Google ads tend to command higher bid prices, so the Yahoo dilemma will be whether to display the Google ads and get a share of the revenue from the click or display their own lower-priced ads and keep all the revenue," Mr. Bishop said.

"If Yahoo is currently an attractive option for advertisers because it offers lower bid prices than Google, the Yahoo dilemma just got even more interesting," he said.

"First, if Yahoo decides to keep turning up that dial, advertisers will benefit less and less from lower Yahoo prices. Second, does Yahoo traffic convert as well as Google traffic? That will be the key determinant in whether advertisers will sustain the higher Google bid prices on Yahoo."