Finally Yahoo! & Google Enter Non-Exclusive Search Partnership! Search Marketing Braces For Impact!

Jun 13, 2008 | 3,552 views | by Navneet Kaushal
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Finally, the much speculated Yahoo!-Google deal has been materialized. Yahoo Inc and Google have announced a non-exclusive advertising agreement. The day was filled with all sort of announcements, analysis and reviews, in regard to the Yahoo! -Google Deal.

  1. Google Press Release.
  2. Yahoo! Press Release for the Non-Exclusive Deal with Google.
  3. Yahoo! Press Release mentioning the conclusion of the Microsoft Talks.
  4. Yahoo! CEO Jerry Yang & Yahoo President Sue Decker Conference Call
  5. Yahoo! CEO Jerry Yang & Yahoo President Sue Decker 'Questions & Answers'

Google Press Release:

Google Announces Non-Exclusive Advertising Services Agreement with Yahoo! in U.S. and Canada

Companies will also Enable Interoperability Between Their Instant Messaging Services
MOUNTAIN VIEW, Calif. (June 12, 2008) – Google (Nasdaq: GOOG) today announced that it has reached an agreement that gives Yahoo! the ability to use Google's search and contextual advertising technology through its AdSense™ for Search and AdSense for Content advertising programs. Under the agreement, Yahoo! has the option to display Google ads alongside its own natural search results in the U.S. and Canada. In addition, Yahoo! can serve contextually targeted ads on its U.S. and Canadian web properties as well as on its current publisher partner sites. Yahoo will continue to operate its own search engine, web properties and advertising services.

In addition, Yahoo! and Google agreed to enable interoperability between their respective instant messaging services bringing easier and broader communication to users.

"This commercial agreement provides Yahoo! with the opportunity to deliver more relevant ads to users and provide advertisers and publishers with better advertising technology to help them succeed in their own businesses," said Eric Schmidt, Chairman and CEO of Google. "This agreement will preserve the competitive and dynamic online advertising space."

As a result of the agreement, Yahoo! will be able to complement its own advertising program with Google’s advertising technology. As a result, advertisers will be able to better reach consumers, and Yahoo! and its current publisher partners can generate more revenue. Yahoo can use Google's advertising technology on as many or as few of its search results and content pages as it chooses.

This non-exclusive agreement allows Yahoo! to enter into similar agreements with other advertising providers. In addition, Yahoo! will maintain relationships with its own advertising customers and will continue to rely exclusively on its own advertising program outside of the U.S. and Canada. The agreement has a term of up to ten years: a 4-year initial term and two 3-year renewals at Yahoo!’s option. Financial terms between the two companies were not disclosed.

Although Google and Yahoo are not required to receive regulatory approval of the arrangement before implementing it, the companies have voluntarily agreed to delay implementation for up to three and a half months to give the U.S. Department of Justice time to review the arrangement.
About Google Inc.

Google's innovative search technologies connect millions of people around the world with information every day. Founded in 1998 by Stanford Ph.D. students Larry Page and Sergey Brin, Google today is a top web property in all major global markets. Google's targeted advertising program provides businesses of all sizes with measurable results, while enhancing the overall web experience for users. Google is headquartered in Silicon Valley with offices throughout the Americas, Europe and Asia. For more information, visit www.google.com.

Yahoo! Press Release:

Yahoo! to Strengthen Competitive Position in Online Advertising Through Non-Exclusive Agreement With Google

Agreement Advances Yahoo!'s Open Strategy; Enhances Ability to
Compete in Converging Search and Display Marketplace
SUNNYVALE, Calif., Jun 12, 2008 (BUSINESS WIRE) — Yahoo! Inc. (Nasdaq:YHOO), a leading global Internet company, announced today that it has reached an agreement with Google Inc. that will enhance its ability to compete in the converging search and display marketplace, advancing the company's open strategy. The agreement enables Yahoo! to run ads supplied by Google alongside Yahoo!'s search results and on some of its web properties in the United States and Canada. The agreement is non-exclusive, giving Yahoo! the ability to display paid search results from Google, other third parties, and Yahoo!'s own Panama marketplace.

Under the terms of the agreement, Yahoo! will select the search term queries for which – and the pages on which – Yahoo! may offer Google paid search results. Yahoo! will define its users' experience and will determine the number and placement of the results provided by Google and the mix of paid results provided by Panama, Google or other providers. The agreement applies to paid search and content match and does not apply to algorithmic search. The agreement also applies to current partners in Yahoo's publisher network.

Yahoo! CEO and co-founder Jerry Yang said, "We believe that the convergence of search and display is the next major development in the evolution of the rapidly changing online advertising industry. Our strategies are specifically designed to capitalize on this convergence — and this agreement helps us move them forward in a significant way. It also represents an important next step in our open strategy, building on the progress we have already made in advancing a more open marketplace."

"This agreement provides a source of funds to both deliver financial value to stockholders from search monetization and to invest in our broader strategy to transform display advertising and advance our starting point objectives with users," said Yahoo! President Sue Decker. "It enhances competition by promoting our ability to compete in the marketplace where we are especially well positioned: in the convergence of search and display."

Agreement Provides Attractive Economics and Enhances Search Monetization
Yahoo! believes that this agreement will enable the Company to better monetize Yahoo!'s search inventory in the United States and Canada. At current monetization rates, this is an approximately $800 million annual revenue opportunity. In the first 12 months following implementation, Yahoo! expects the agreement to generate an estimated $250 million to $450 million in incremental operating cash flow.

The agreement will enhance Yahoo!'s ability to achieve its goal to grow operating cash flow significantly, while at the same time providing flexibility to continue to invest in ongoing initiatives such as algorithmic search innovation and search and display advertising platforms. It gives Yahoo! complete flexibility to continue to use its Panama paid search results.

Significant Benefits Will Flow to Users, Advertisers, Publishers and Employees
Users will also benefit from Yahoo!'s ability to invest incremental operating cash flow in ongoing improvements to its search services, building upon recent major innovations such as Search Assist and SearchMonkey. Advertisers will continue to benefit from multiple marketplace alternatives including Panama, Google and others. Publishers will benefit from a winning combination of distribution, monetization and services to help them grow their businesses. The financial benefits will enable Yahoo! to broaden the scope of its investments and initiatives, enhancing Yahoo!'s ability to offer attractive career opportunities to its employees.

Terms of the Agreement

The agreement will enable Yahoo! to run ads supplied by Google's AdSense(TM) for Search and AdSense(TM) for Content services next to Yahoo!'s internally generated paid search and algorithmic search results. Yahoo may also run Google-supplied ads on non-search Yahoo web properties, as well as on current members of its partner network. The agreement has a term of up to ten years: a four-year initial term and two, three-year renewals at Yahoo!'s option. It applies to Yahoo!'s operations in the U.S. and Canada only. Advertisers will continue to pay Yahoo! directly for clicks served by Yahoo! from Yahoo!'s Panama and Content Match marketplaces. Advertisers will pay Google directly for each click on Google paid search results appearing on Yahoo! owned and operated network or certain affiliate sites. Google will share a percentage of such revenue with Yahoo!.

In addition, Yahoo! and Google agreed to enable interoperability between their respective instant messaging services, bringing easier and broader communication to users.
The agreement allows either party to terminate the agreement in the event of a change in control of either party. The agreement also requires Yahoo! to pay a termination fee if the agreement is terminated as a result of a change in control that occurs within 24 months. The termination fee is $250 million, subject to reduction by 50 percent of revenues earned by Google under the agreement.

Although Google and Yahoo! are not required to receive regulatory approval of the deal before implementing it, the companies have voluntarily agreed to delay implementation for up to three and a half months while the U.S. Department of Justice reviews the arrangement.
Goldman, Sachs & Co., Lehman Brothers and Moelis & Company are acting as financial advisors to Yahoo!. Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to Yahoo!, and Munger Tolles & Olson LLP is acting as counsel to the outside directors of Yahoo!.

Yahoo! will host a conference call to discuss the agreement with Google at 6:30 p.m. Eastern Time today. To listen to the call live, please dial 877-391-6847 (reservation number 70308474#). A live audiocast of the conference call can be accessed through the Company's Investor Relations website at http://yhoo.client.shareholder.com/index.cfm. In addition, an archive of the audiocast can be accessed through the same link. An audio replay of the call will be available following the conference call by calling 888-286-8010 (reservation number 84138579).

About Yahoo! Inc.

Yahoo! Inc. is a leading global Internet brand and one of the most trafficked Internet destinations worldwide. Yahoo! is focused on powering its communities of users, advertisers, publishers, and developers by creating indispensable experiences built on trust. Yahoo! is headquartered in Sunnyvale, California.

Non-GAAP Financial Measures

This release refers to operating cash flow (operating income before depreciation, amortization of intangible assets, and stock-based compensation expense, or OCF), which is a non-GAAP financial measure. The most comparable GAAP measure is income from operations. With respect to the OCF numbers provided in this release, the estimate of income from operations is the same as the estimated OCF, as the Company does not expect to incur any additional depreciation and amortization or stock-based compensation expense related to this agreement.

At the official Google Blog, Google has pro-actively taken efforts to explain its ' non-exclusive advertising agreement' with Yahoo! According to Google, the primary benefits of the deal would be that:

  1. Consumers will see more relevant ads when they are looking for information and browsing the web. And with interoperability between IM services, users will have easier access to even more of their contacts.
  2. Publishers currently in the Yahoo! Publisher Network will benefit from Google's advertising technology, potentially increasing the revenue they earn from their sites.
  3. Advertisers will have new ways to reach their target customers online more efficiently.

Last month, I had put up a post, about the possibilities of U.S. Anti-trust policies bursting the bubble of joy for the Yahoo!-Google deal. Google has also tried to clear the misconceptions that are edged in the minds of anti-trust officials and a lot of other people. In an effort towards putting to rest, the doubts of the Department of Justice, this is what Google had to say, as to what the deal is not supposed to be:

  1. This is not a merger. Rather, we are merely providing access to our advertising technology to Yahoo! through our AdSense program.
  2. 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.
  3. 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.
  4. 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.
  5. 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.

In a later Press Release, Yahoo! has put an end to any further speculations about renewed Microsoft efforts towards a bid by stating that, the Microsoft talks have concluded and that in no manner what so ever, is either party interested in any sort of bid, whether for Yahoo! Search Technologies or Yahoo! Inc on the whole. The Press Release is as follows:

Yahoo! Press Release:

“SUNNYVALE, Calif., Jun 12, 2008 (BUSINESS WIRE) — Yahoo! Inc. (Nasdaq:YHOO), a leading global Internet company, today announced that discussions with Microsoft regarding a potential transaction — whether for an acquisition of all of Yahoo! or a partial acquisition — have concluded. The conclusion of discussions follows numerous meetings and conversations with Microsoft regarding a number of transaction alternatives, including a meeting between Yahoo! and Microsoft on June 8th in which Chairman Roy Bostock and other independent Board members from Yahoo! participated. At that meeting, Microsoft representatives stated unequivocally that Microsoft is not interested in pursuing an acquisition of all of Yahoo!, even at the price range it had previously suggested.

With respect to an acquisition of Yahoo!'s search business alone that Microsoft had proposed, Yahoo!'s Board of Directors has determined, after careful evaluation, that such a transaction would not be consistent with the company's view of the converging search and display marketplaces, would leave the company without an independent search business that it views as critical to its strategic future and would not be in the best interests of Yahoo! stockholders.
Yahoo! remains focused on maximizing value for stockholders by continuing to execute on its strategy of being the "starting point" for the most consumers on the Internet and a "must buy" for advertisers. The online advertising industry is projected to grow from $40 billion in 2007 to approximately $75 billion in 2010 and the company believes it has the right assets, strategic plan, Board of Directors and management team to capitalize on this growth opportunity.

Forward Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties concerning Yahoo!'s projected financial performance as well as Yahoo!'s strategic and operational plans. Actual results may differ materially from those described in this release due to a number of risks and uncertainties. The potential risks and uncertainties include, among others, the implementation and results of Yahoo!'s ongoing strategic initiatives; Yahoo!'s ability to compete with new or existing competitors; reduction in spending by, or loss of, marketing services customers; the demand by customers for Yahoo!'s premium services; acceptance by users of new products and services; risks related to joint ventures and the integration of acquisitions; risks related to Yahoo!'s international operations; failure to manage growth and diversification; adverse results in litigation, including intellectual property infringement claims; Yahoo!'s ability to protect its intellectual property and the value of its brands; dependence on key personnel; dependence on third parties for technology, services, content and distribution; general economic conditions and changes in economic conditions; and potential continuing uncertainty arising in connection with the withdrawal of Microsoft's unsolicited proposal to acquire Yahoo! and the announced intention by a stockholder to seek control of our Board of Directors, the possibility that Microsoft or another person may in the future make another proposal, or take other actions which may create uncertainty for our employees, publishers, advertisers and other business partners, and the possibility of significant costs of defense, indemnification and liability resulting from stockholder litigation relating to the Microsoft proposal. More information about potential factors that could affect Yahoo!'s business and financial results is included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Yahoo!'s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, which are on file with the Securities and Exchange Commission ("SEC") and available at the SEC's website at www.sec.gov. All information in this press release is as of June 12, 2008, unless otherwise noted, and Yahoo! does not intend, and undertakes no duty, to update or otherwise revise the information contained in this letter.

About Yahoo! Inc.

Yahoo! Inc. is a leading global Internet brand and one of the most trafficked Internet destinations worldwide. Yahoo! is focused on powering its communities of users, advertisers, publishers, and developers by creating indispensable experiences built on trust. Yahoo! is headquartered in Sunnyvale, California.

Yahoo! and the Yahoo! logos are trademarks and/or registered trademarks of Yahoo! Inc. All other names are trademarks and/or registered trademarks of their respective owners.”

According to Tech Crunch, after the announcement of the Yahoo!-Google deal, Yahoo! CEO Jerry Yang and Yahoo! President Sue Decker, spoke and took questions via a conference call. Here are the excerpts from the conference call:

Conference Call:

“Jerry Yang: Our discussions with MSFt have concluded, after a number of meetings, including a meeting on June 8 in which chairman Roy Bostock and management participated. Discussed a number of transaction options. Microsoft stated unequivocally it didn’t want to buy all of Yahoo. Microsoft’s search offer is not in best interest of Yahoo stockholders.
The agreement with Google does not preclude a change of control agreement with a third party.

Clearly it is time to move on.

Deal with Google strengthens competitiveness. The strategy is to capture the growth opp in the online ad market. Core to this strategy is the convergence search and display. We view an open strategy as the key to future success.

We have taken a number of steps already down this path. The commercial agreement with Google promotes growth and profitability.
We entered into a commercial agreement—yahoo will serv paid search ads from Google along Yahoo search results.

Panama continues to operate.

The deal is non exclusive. Paid listings can come from anyone else.
It is a 10 year deal, with a 4-year initial term, and two 3-year renewals at yahoo’s option. US and Canada only.
Both companies voluntarily agreed to delay implementation for 3 and a half months while Dept. of Justice reviews.

Expect $250 to $450 million in incremental operating cash flow. We believe there is $800 million revenue upside opportunity in US and Canada for search queries where upside opportunity exists.
See this as a natural extension of Right Media acquisition, and the upcoming ad management platform launch. Part of natural efforts to pursue an open marketplace. We believe an open marketplace is critical.
Sue Decker: We are really excited about the potential of what we are announcing. It allows us to do what we do best. And it gives Yahoo full control over all aspects of its business.

Hallmark of this agreement is its flexibility. It also enhances our options. Lets us determine whether and how we display Google’s paid search ads alongside ads from our own Panama marketplace. We will display Google paid search results where they deliver better value. We decide how much of our search inventory will display those ads. We keep unfettered control over the user experience.

Advertisers pay Google directly, Google will then pay us TAC for clickthroughs. Our advertisers continue to pay us for our ads.

AMP, new display ad platform, will be available next week. Recent announcements such as SearchMonkey, Search Assist, Buzz and others are showing success with consumers. We remain strong in algorithmic search.

Agreement also includes interoperability between Yahoo and Google’s instant messaging platforms.

Jerry Yang: Talks about how this will maximize stockholder value.

Q: Will advertisers still want to buy Yahoo when they can get on Yahoo pages through Google’s advertising system? Why learn two systems? Any interest in serving yahoo ads on Google pages?

Sue: One thing we learned is that GOOG monetizes well for query ads, but not as competitive in the tail. So we want control in segments where we are comparable in terms of performance. So with this we get the best of both worlds.

We might look into helping them with display ads on Google.

Q: What percentage of search queries do you expect to show google ads?
Sue: There is a considerable amount we think we can continue to monetize in the head of the curve. [Doesn't answer].

Q: How much was the TAC split debated?
Sue: It is competitive.

Q: Do you think there are opportunities where partner sites will go to GOOG and bypass Yahoo, and are there minimum guarantees?
Sue: Yahoo Partner network is included in this deal. That will be an option. The deal does not extend to new partners that join our Publisher network. I can’t comment on financial terms in terms of guarantees.

Q: Is this a different set of advertisers, and is the $800 million annual?
Sue: The revenue opportunity is annual, based on current monetization numbers not future. We are open to third party networks in displayin the way we are now with Google. We think an open approach will assure scale and the best advertising rates and the best match for consumers.

Q: What will be the biggest regulatory hurdle?
Yang: Given it is a commercial agreement, no regulatory hurdle. But we agreed with the Dept. of Justice on a voluntary basis to a 3 and half month review. We have engaged with Google to backfill our ad inventory.

Q: What revenue might you be cannibalizing?
Jerry: The ramp towards full implementation, we won’t be talking about that. We want to leverage this relationship to build a sustainable marketplace around Yahoo. As we learn of ways to create benefits for Yahoo advertisers, we will understand more as we get into it.

Sue: What we saw from testing was consistent. When we contemplate incremental cash flow as we ramp up, we contemplate how we may ramp that up in various verticals or queries where Google is strong and we don’t have a strong position now.”

4.thumbnail Finally Yahoo! & Google Enter Non Exclusive Search Partnership! Search Marketing Braces For Impact!

Navneet Kaushal

Navneet Kaushal is the founder and CEO of PageTraffic, an SEO Agency in India with offices in Chicago, Mumbai and London. A leading search strategist, Navneet helps clients maintain an edge in search engines and the online media. Navneet's expertise has established PageTraffic as one of the most awarded and successful search marketing agencies.
4.thumbnail Finally Yahoo! & Google Enter Non Exclusive Search Partnership! Search Marketing Braces For Impact!
4.thumbnail Finally Yahoo! & Google Enter Non Exclusive Search Partnership! Search Marketing Braces For Impact!