More Speculation On Yahoo-Microsoft Ads Deal

Yesterday on the Yahoo Q1 earnings call, CEO Carol Bartz sent a mixed message of sorts. She said at the outset that Yahoo was going to focus on key areas of the business and was open to “outsourcing” some functions if that made sense. Like me, many people listening must have immediately thought “search.” But later in the call she seemed to reaffirm the strategic value of search to Yahoo’s overall business, calling it “critical.” She spoke at some length about innovations in the user experience and on the advertising side as well, especially about the combination of search and display.

She said that advertiser reaction to the use of search queries to inform display ad serving on the Yahoo network was very postive. She anonymously quoted one advertiser who called the results “freakin’ awesome.” In all, she didn’t sound like a CEO ready to “outsource” search to Microsoft.

However both Bloomberg and AllThingsD report that Microsoft-Yahoo negotiations over an ads deal of some sort are proceeding favorably. AllThingsD calls the state of talks between the companies “hot and heavy.” Here’s my sense about what’s to come; this is a bit of pure speculation:

• There will be a deal between the companies; it will not outsource paid or consumer search to Microsoft
• The deal will provide access to Yahoo search (reach) for Microsoft PPC advertisers
• Yahoo will probably gain additional display ad distribution through Microsoft sites
• There may or may not be a search revenue guarantee (MSFT –> Yahoo) of any kind

Such a deal will probably be good for both companies, especially Yahoo. If announced we’ll see an uptick in Yahoo’s stock price, but reaction and gains will be muted until analysts can determine whether the deal will be “material.” There will also be some disappointment if the scope of the deal isn’t huge or somehow game changing for one or both companies.

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An article this morning in the Wall Street Journal, based on Carol Bartz remarks in the Yahoo earnings call, cites her “repositioning” of APT, Yahoo’s relatively new advertising platform (display only right now). Perhaps in a bit of “truth telling,” Bartz described it as an ongoing project rather than a finished and polished piece of technology.