WSJ: After Considering It, Yahoo Declines To Outsource Paid Search Business To Google

According to an article in the Wall Street Journal today, discussing the “no sacred cows” pledge by Yahoo CEO Jerry Yang, the company actively considered — and decided against — what some institutional shareholders are calling for: outsourcing its paid search advertising business to Google (or Microsoft).

The article says:

The people familiar with the matter say that over the summer, Mr. Yang did actively assess one major sacred cow: the Web-search-advertising business it built up at great expense in recent years. Under the scenario discussed by top executives, Yahoo would have outsourced that search-advertising activity — which places small text ads next to Web search results — to either Google or Microsoft Corp., the people say. One of these people says Yahoo raised the idea with Google …

But one of the people familiar with the matter says Mr. Yang concluded that Yahoo needed to be the “marketing operating system,” providing advertisers with a full menu of online-ad options. Yahoo would have a hard time doing so if it outsourced search advertising, which represents roughly 40% of the U.S. online-ad market, one person says. Any discussion of outsourcing search ads has now cooled, the people familiar with the situation say.

The article suggests that no dramatic moves (beyond the recent reorg) are coming in the near future, which is frustrating to some investors. It’s almost certain, however, that if Yahoo doesn’t show gains and momentum in the next couple of quarters, the pressure will be on to do something dramatic.

Postscript From Danny: Just another reason to read All Things D, the Wall Street Journal-backed blog headed by writers Walt Mossberg and Kara Swisher. Kara put out the news about this a month before the WSJ itself caught up. I posted in response to those then rumors that I thought Yahoo would be crazy to give up paid search, which got a kind call out in a follow-up post on the site.