12 August 2008

Google and Yahoo partially disclose terms of advertising deal

Google and Yahoo! on Friday 8 released excerpts of their search advertising partnership contract in a filing with the U.S. Securities and Exchange Commission, but omitted any financial ties and the extent of other ties between the two.

This is an unusual move for both parties, as typically Internet companies try to guard the terms of such contracts with the aim of being able to aggressively negotiate pricing at variable terms with other customers.

Critics of the Yahoo! advertising have suggested that the deal threatens competition for advertising that runs alongside search engine results, appearing next to and above the results as Sponsored Links or a similar term. The agreement is limited to the United States and Canada, but congressional leaders have conducted hearings to investigate what impact the partnership could have on the global marketplace.

Yahoo! entered the deal while warding off pressure to merge with Microsoft. Under the deal, due to take affect after a waiting period to help smooth regulatory approval, Google will supply Yahoo! with advertising services to run alongside Yahoo!'s own search system. The deal will originally last for three years, but could last up to 10 if Yahoo! decides to renew.

Rivals, including Microsoft, have protested that Google already controls 70% of the search advertising market and that the deal with Yahoo! would leave the search giant with over 90% of the market.

Google and Yahoo! executives, meanwhile, are saying that the deal will not dissuade the search engines from competing aggressively in other areas. Upon its announcement, Google counsel Kent Walker was quoted as calling the deal "pro-competitive", while Yahoo! President Susan Decker argued that the deal "enhances competition" by making Yahoo! a stronger player in the marketplace.

In essence, they are trying to portray the partnership as a non-exclusive arrangement in which Yahoo! is effectively contracting with Google to sell ads alongside a portion of its search results. This in turn can allow Yahoo to focus on other aspects of its business where it is more strongly positioned.

But the contract is heavily redacted in an area that covers "other business opportunities" and is worryingly silent about how sharing user data between the partners could affect the privacy of Yahoo! users. In response to the latter, Yahoo announced last week that it would allow users to opt out of behavioural targeting to its network and site.

While the exact financial terms of the deal remain as unclear as ever, Yahoo! has said it expects to generate an additional $250 million to $450 million in additional cash flow in the first 12 months after the agreement goes into effect, and that the deal could be worth up to $800 in additional revenue every year.

Home | Careers | RSS | Contact Us | Newsletter

International sites: