source:News.blog: Yahoo, Google agree to ad deal, News at CNET.co.uk
Yahoo announced a nonexclusive partnership on Thursday under which rival Google will supply it with some search ads, a move that could increase Yahoo search revenue but that also gives Google even more power in the market.
Yahoo expects the highly-anticipated deal to raise revenue by $800m (£400m) in its first year and to provide an extra $250-450m in incremental operating cash flow. That's a major potential boost, given that Yahoo reported revenue of $1.53bn in its most recent quarter, after ad commissions are subtracted.
"We see this as a good, open, flexible deal and (one that) helps Yahoo be strengthened as a good longer-term competitor," chief executive Jerry Yang said in a conference call on Thursday.
Some saw more urgent motives at work, though.
"They're using this as a tool to boost short-term cash flow," said Canaccord Adams analyst Colin Gillis. "They're trying to keep the wolves at bay."
Yahoo expects the revenue to help the company invest in its dual-pronged advertising strategy that's designed to offer advertisers an easy ability to buy text ads on search results and to buy graphical 'display' ads elsewhere on Yahoo's considerable Internet properties.
"This agreement provides a source of funds to both deliver financial value to stockholders from search monetisation and to invest in our broader strategy to transform display advertising and advance our starting-point objectives with users," Yahoo president Sue Decker said in a statement. "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."
Shareholders looking for a quick payback should be prepared for a wait, though. The companies are voluntarily delaying implementation of the partnership for up to three and a half months to let the Justice Department review the deal, Yahoo said, a nod to antitrust concerns raised about the deal.
"We believe, given that it's a commercial agreement, there's not formal regulatory approval" required, Yang said. "We agreed with the Department of Justice on a voluntary basis to have them review this deal."
Under the deal, Yahoo will select the search terms for which Google will supply ads, the companies said. The ads will be displayed in the United States and Canada, and Decker took pains to say how Yahoo controls which Google results are displayed and when.
The partnership also extends beyond advertising. The two companies will make their instant-messaging services interoperable, lowering a barrier that separated two communities of users at the sites.