REDMOND, WA — Google and Yahoo! have shaken hands on a partnership agreement that will see the world’s No. 1 and No. 2 search engines share the lion’s percentage of the lucrative online advertising market. Search-engine advertising revenues are estimated to be worth more than $40 billion annually and growing.Under the terms of the agreement, Google will sell advertising to run beside Yahoo!’s search results, in much the same way Google Ads works.
One has to imagine the two companies doing a “victory fist bump” over the deal, considering the outcome of Yahoo!’s recent tussle with Microsoft over a hostile takeover threat. Microsoft had offered to buy Yahoo for $33 a share, but recently rescinded the offer.
The deal will not be effective immediately, as observers expect it to face regulatory challenges as potentially anti-competitive. Google and Yahoo! have agreed to wait three and one-half months before implementing the plan in order to give U.S. and international agencies including the U.S. Justice Department opportunity to evaluate the deal.
The search engines say the partnership actually will strengthen global competition by strengthening Yahoo!’s bottom line enough to prevent Microsoft or other hostile suitors from acquiring it. Yahoo! may be able to increase its cash flow by as much as $250 million to $450 million annually, according to chief executive Jerry Yang. In addition, similar partnership arrangements are common in other industries.
“Toyota sells its hybrid technology to General Motors, even though they are the number one and number two car manufacturers globally,” Google Senior Vice President of Global Sales and Business Development Omid Kordestani wrote in a blog post. “Canon provides laser printer engines for HP, despite also competing in the broader laser printer market.”
Microsoft, other search engines and some advertisers are expected to object, however.
Congress, too, may take a look at the plan.
“This collaboration between two technology giants and direct competitors … raises important competition concerns,” Sen. Herb Kohl (D-WI), chairman of the Senate Antitrust Subcommittee, said in a statement. “The consequences for advertisers and consumers could be far-reaching and warrant careful review.”
The agreement has a term of up to 10 years: a four-year initial term and two subsequent three-year terms to be exercised at Yahoo!’s option.
In addition to sharing advertising, the two companies have agreed to engineer their competing instant messenger services to work together.
It is not known where Carl Icahn, the billionaire investor who initiated a proxy fight hoping to force Yahoo! to accept Microsoft’s buyout offer, stands on the partnership.
