Yahoo, Google Team Up on Search Ads

June 12, 2008 — -- On the heels of a failed takeover bid by Microsoft, Yahoo announced a joint agreement today with search engine leader Google that would allow the beleaguered company to run search ads supplied by its biggest longtime competitor.

"We believe that the convergence of search and display is the next major development in the evolution of the rapidly changing online advertising industry," Yahoo CEO and co-founder Jerry Yang said in a statement. "Our strategies are specifically designed to capitalize on this convergence and this agreement helps us move them forward in a significant way."

Under the non-exclusive agreement, which applies only in North America and Canada, Yahoo will choose under which search queries and on what pages the Google ads will appear. Yahoo will still use ads provided by its in-house ad service Panama, as well as ads from other providers. Ultimately, the cash-strapped company expects the agreement to generate an extra $800 million in revenue annually.

"I believe [the deal] puts Yahoo on a faster track to creating value," Yang said on a conference call today.

Yahoo President Susan Decker declined to outline how much revenue it would split with Google as a result of the deal.

The announcement came mere hours after Microsoft and Yahoo both said that the Seattle-based company would no longer be pursuing Yahoo, either in whole or partially. In its latest bid, Microsoft offered to buy Yahoo for $33 per share, or $47.5 billion. In the conference call, however, Yahoo stressed that the deal with Google did not rule out any future acquisition deals with Microsoft or other companies.

Although Yahoo and Google said that they would allow the Department of Justice to review the ad deal for three months before implementing it, Yang stressed that because the deal is not a merger, there were no antitrust issues.

"We see this as a really good, open, flexible deal for Yahoo," Yang told investors. "It helps Yahoo be strengthened as a long-term competitor."