Yahoo and Google form ad alliance

13-06-2008

by Emmet Ryan

The merry dance between Microsoft and Yahoo has come to an end, while a new hook-up between Yahoo and Google takes shape.

Anyone walking into Microsoft's Redmond headquarters on Friday should be wary of approaching Steve Ballmer. Ballmer is likely to be seething after Yahoo announced that it was ending talks with Microsoft over a possible takeover or partial buyout of Yahoo by the Redmond giant. Instead the search engine firm is allying itself with Google, a firm Ballmer is alleged in a Washington Court to have said he would "kill".

In a statement, Yahoo said the conclusion of discussions follows a number of meetings with Microsoft, including one on 8 June in which Yahoo Chairman Roy Bostock and other Yahoo Board members 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," said Yahoo.

So, Yahoo has moved on to form a partnership with Google. Under the proposed deal Google will supply some of the advertising on Yahoo, providing Yahoo with a boost of around USD800 million in additional annual revenue to bolster its slumping business. News of the alliance came shortly after the departure of two senior executives from Yahoo was revealed. Jeff Weiner, executive vice president of Yahoo's network division, and Usama Fayyad, Yahoo's chief data officer, are both leaving the troubled search firm.

"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," 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."

It's interesting that Decker mentioned competition as the anti-trust alarm bells rang loudly as soon as the deal was signed. Google and Yahoo working together would see the top two firms in the search market playing for the same team, something US regulators might not find appealing.

The US Department of Justice will be given three and a half months to review the deal before it is finalised. The arrangement will undoubtedly be the source of much scrutiny by the department as a pact between firms with such a dominant share of the market will ruffle more than a few feathers.

This examination by regulators gives Microsoft a glimmer of hope. The IT giant may yet succeed in its bid to get its hands on Yahoo. For Ballmer and Co. the war never truly ends.