Yahoo! recently confirmed that it had entered into a renewable 10 year paid search deal with Google, a move that both companies hope will strengthen their competitive positions in online advertising.The new paid search deal will see Google providing Yahoo access to its AdSense for search and AdSense for content advertising programs on it's US and Canadian web properties. The agreement also includes contextual advertising on the Yahoo network and, potentially, Yahoo partner sites, with IM interoperability thrown in for good measure. The recently inked deal is also non-exclusive, allowing Yahoo the ability to display paid search results from Google, other third parties and Yahoo's own Panama marketplace.
Yahoo! stated that the new deal could generate up to $800 million in annual revenue based on search queries that the company is not currently monetising well or efficiently. Under the terms of the agreement, Yahoo! will select the search term queries for which it may offer paid search results, determining the number and placement of the results provided by Google and the mix of paid results supplied by Panama and other providers.
In a press release published by Yahoo!, CEO and co-founder of the company, Jerry Yang said: ""We believe that the convergence of search and display is the next major development in the evolution of the rapidly changing online advertising industry. Our strategies are specifically designed to capitalize on this convergence -- and this agreement helps us move them forward in a significant way."
The biggest question is probably why Google would enter into such an agreement with its competitors, especially after recent news that the long running talks between Microsoft and Yahoo! had broken down again. AdSense revenue must be a factor and the deal may well offer Google the chance to gain a better insight into Yahoo! users that would be beneficial in future strategies.
Richard Waters of the Financial Times voiced his concerns in a recent blog that this paid search deal with Google could come back to haunt Yahoo!, suggesting that if advertisers can buy Yahoo! inventory through Google, why wouldn't they abandon Yahoo's Panama system and just feed everything through Google's AdSense network? But the search engine must have taken the possibility of lost traffic to Panama into consideration when evaluating the deal - Yang stated that the deal would leave Yahoo! in a financially strong position that would allow them to invest more in Panama. And the fact that it's non-exclusive allows the recently courted search engine to enter into similar agreements with other companies.
Positive noises are also coming from the Google camp, with Omid Kordestani, Google's Senior VP of Global Sales and Business Development, suggesting in a blog published after the deal was confirmed that, all in all, the deal was simply good for competition, offering many benefits to all consumers, publishers and advertisers.
What impact this paid search deal between Google and Yahoo! will have on online advertising in the long term remains to be seen - but the next few months for both companies should be interesting times indeed.
