Yahoo, Google match-up may cause shift in search world

Yahoo and Google have entered into a non-exclusive ad services agreement which will give Yahoo the ability to use Google’s AdSense for Search and AdSense for content advertising programs in the US and Canada. Essentially, Yahoo will be able to display Google ads next to its own search results. The companies will also enable interoperability between Google’s and Yahoo’s instant messaging programs.

The news may not have any direct benefits to online marketers, according to Forrester Research principal analyst Shar VanBoskirk. “I think this gives Google more control than it currently has over search, which will lead to less flexibility and likely higher keyword ad prices for advertisers,” she said, in an e-mail to DMNews.

“I think the search war will shift from being between Google, Microsoft and Yahoo to being Google/Yahoo vs. everyone else,” VanBoskirk added. “All the smaller guys (including Microsoft) will fight the combined Google/Yahoo business with offerings to try to appeal to advertisers seeking a Google alternative.”

According to ComScore’s April 2008 report, Google ranks first in search engine market share with a 61.6% share of searches. Yahoo places second with 20.4%.

The agreement has a term of up to 10 years. Neither company disclosed the financial terms of the agreement. However, Yahoo expects the move to generate an estimated $240 million to $450 million in incremental operating cash flow.
In this agreement, Yahoo will be able to use Google’s ad technology on any of its search result and content pages.

“We believe that the convergence of search and display is the next major development in the evolution of the rapidly changing online advertising industry,” said Yahoo’s CEO and co-founder Jerry Yang, 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.”

However VanBoskirk said that the real winner is the already established search giant. “Google. Hands down,” she said. “ Google – which already has about 60% of consumer searches and its own vast paid search and contextual network – now has access to and will make money off of its primary rival’s inventory.”

Despite the fact that the companies are not required to receive regulatory approval of the agreement, Google and Yahoo are volunteering to delay the commencement of the services for up to three and a half months while the Department of Justice reviews the venture.

The arrangement has come under scrutiny from numerous lawmakers.

“We will closely examine the joint venture between Google and Yahoo,” said Senator Herb Kohl (D-WI), chairman of the Senate Antitrust Subcommittee, in a statement. “This collaboration between two technology giants and direct competitors for Internet advertising and search services raises important competition concerns. The consequences for advertisers and consumers could be far-reaching and warrant careful review, and we plan to investigate the competitive and privacy implications of this deal further in the Antitrust Subcommittee.”

Google’s chairman and CEO said in a statement that the agreement will preserve the competitive and dynamic online ad space.

However, Jeff Chester, executive director of the Center for Digital Democracy, agrees with Kohl. “This combination potentially threatens user privacy, as more data (including behavioral and mobile) about consumers are shared or pooled by the two leading online giants,” he said in a statement. “Competition in the online ad sector—already weakened by a series of takeovers and acquisitions—is seriously threatened.”

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