Yahoo! might announce an agreement to display search ads from Google.
Yahoo! has been pursuing a broad agreement to carry search ads from Google, which it views as a way to boost its cash flow and bolster its claim to shareholders that it is worth more than Microsoft has offered. Such an agreement could still go forward even if Microsoft announced a hostile takeover effort.
While a broad search-ad pact would likely attract intense antitrust scrutiny, the options Google and Yahoo are discussing include a nonexclusive arrangement that they believe could satisfy regulators, say the people familiar with the matter.
The basis of such an arrangement would be a real-time auction system that would choose the most lucrative ads for any given consumer query from among those sold by Yahoo, Google and any of their competitors, the people say.
Such a system would be designed to allay concerns among regulators that Yahoo’s relying on Google Adwords would be anticompetitive.
Yahoo reported that the recent two-week limited test of carrying Google Adwords was successful, but provided no further details. Fully outsourcing search advertising to Google could increase Yahoo’s cash flow by more than $1 billion a year, according to Citigroup Global Markets analyst Mark Mahaney. The reason is that Google’s system generates significantly more revenue for each search query than Yahoo’s does.
There has been debate at Google about the wisdom of such an arrangement. Some top Google executives have pushed for a Yahoo ads deal as a way to strengthen Yahoo’s hand in the face of its pursuit by Microsoft, Google’s biggest rival, according to people familiar with the matter. But others at Google have questioned the strategy, fearing the potential for negative fallout for its business and consumer image from any regulatory scrutiny of such an arrangement, the people say.
Recent comments by Yahoo executives suggest that it would continue to sell some search advertising on its own, even if it were to carry ads from Google.
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