As Expected, Yahoo Announces “10 Year” Google Paid Search Deal

This afternoon Yahoo confirmed that it had entered into a paid search deal with Google. That deal is described by Yahoo in its press release and by Google in a related blog post. Google takes pains in the post to insulate the deal against anti-trust claims.

The renewable 10-year deal goes beyond paid search results on Yahoo and includes contextual advertising on the Yahoo network and, potentially, on Yahoo partner sites. In a little bit of a surprise, the two companies have thrown in IM interoperability for good measure.

Here are the main points as made on the conference call that just happened:

Yahoo sees an $800 million annual revenue opportunity, based on search queries where it’s not currently monetizing them well or efficiently.

Yahoo retains control over when it shows Google ads and when it doesn’t. Yahoo president Sue Decker emphasized that this was largely about “the tail” – showing ads where Yahoo doesn’t have inventory. It basically makes Google “backfill” for Yahoo. Yahoo will show its own ads when it has them and Decker repeatedly reaffirmed the company’s commitment to its own paid search ad platform, which will eventually be folded into AMP (to begin its “friends and family” implementation next week).

Yahoo CEO Jerry Yang said that the two companies didn’t need regulatory approval for this deal because it’s open and non-exclusive, but that they would voluntarily delay implementation for three months to allow the US Department of Justice to review it. Here’s the rationale laid out in the Google blog post for why the agreement doesn’t implicate anti-trust considerations:

It is important to say what this agreement is not:

* This is not a merger. Rather, we are merely providing access to our advertising technology to Yahoo! through our AdSense program.

* This does not remove a competitor from the playing field. Yahoo! will remain in the business of search and content advertising, which gives the company a continued incentive to keep improving and innovating. Even during this agreement, Yahoo! can use our technology as much or as little as it chooses.

* This does not prevent Yahoo! from making similar arrangements with others. This arrangement is not exclusive, meaning that Yahoo! could enter into similar arrangements with other companies.

* This does not increase Google’s share of search traffic. Yahoo! will continue to run its own search engine and advertising programs, and the agreement will not increase Google’s share of search traffic.

* This does not let Google raise prices for advertisers. Google does not set the prices manually for ads; rather, advertisers themselves determine prices through an ongoing competitive auction. We have found over years of research that an auction is by far the most efficient way to price search advertising and have no intention of changing that.

The deal will apparently extend to Yahoo publisher partners who can elect to participate (no details provided). New partners would get access only to Panama, however, Decker explained.

Decker also dangled the idea that there could be a reciprocal element to this deal in the future, with Yahoo providing ads to Google – presumably display.

Questions after the formal part of the call were largely addressed to the ongoing viability of Panama: “Why would advertisers still want to advertise with Yahoo?” Decker and Yang repeated that Yahoo still had control over what ads to show when and implied that it would be favoring its own ads.

At the top of the call Yang briefly addressed Microsoft and the “conclusion” of talks. He said they had ended with no deal. The last meeting between the companies was apparently on June 8. He explained that Microsoft had withdrawn its offer for Yahoo as a whole and was now only interested in the paid search portion of the business. Yahoo declined to pursue that deal because it considered paid search too strategic to sell.

Yang said, however, that the Google deal still leaves open the possibility of other future transactions. He added that other third parties could well participate in this new more open search marketplace that the company was creating. (But the only company with any scale beyond Google and Yahoo is Microsoft, somewhat ironically.) Indeed, Yahoo said that this deal with Google was entirely consistent with its new “open” strategy.

But regarding Microsoft, Yang said, “Clearly it’s time to move on.”

Postscript: This morning U.S. Senator Herb Kohl, chairman of the Senate Antitrust Subcommittee, issued the following statement:

“We will closely examine the joint venture between Google and Yahoo announced today. 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.”