Google has ended its ad partnership with Yahoo, a deal that would have given Yahoo $800 million in annual revenue. This after the companies failed to get support from the U.S. government.
“It’s clear
that government regulators and some advertisers continue to have
concerns about the agreement. Pressing ahead risked not only a
protracted legal battle but also damage to relationships with valued
partners,” according to a Google statement.
Google stepped in with this search partnership to save Yahoo from a Microsoft offer of $47.5 billion.
Now that it’s terminated, one option for Yahoo is to sell its search business to Microsoft.
Microsoft had previously offered $1 billion for Yahoo’s search business, according to Imran Khan, an Internet analyst at JP Morgan.
Yahoo could gain an additional $725 million in annual operating cash flow through a Microsoft deal, according to Khan.
And, if Yahoo sold its search business, it may have cash to make acquisitions, Khan added.
According to Google:
In June we announced an advertising agreement with Yahoo!
that gave Yahoo! the option of using Google to provide ads on its
websites (and its publisher partners’ sites) in the U.S. and Canada. At
the same time, both companies agreed to delay
implementation of the agreement to give regulators the chance to review
it. While this wasn’t legally necessary, we thought it was the right
thing to do because Google and Yahoo! have been successful in online
advertising and we realized that any cooperation between us would
attract attention.
We feel that the agreement would have been
good for publishers, advertisers, and users — as well, of course, for
Yahoo! and Google. Why? Because it would have allowed Yahoo! (and its
existing publisher partners) to show more relevant ads for queries that
currently generate few or no advertisements. Better ads are more useful
for users, more efficient for advertisers, and more valuable for
publishers.
However, after four months of review, including
discussions of various possible changes to the agreement, it’s clear
that government regulators and some advertisers continue to have
concerns about the agreement. Pressing ahead risked not only a
protracted legal battle but also damage to relationships with valued
partners. That wouldn’t have been in the long-term interests of Google
or our users, so we have decided to end the agreement.
We’re of
course disappointed that this deal won’t be moving ahead. But we’re not
going to let the prospect of a lengthy legal battle distract us from
our core mission. That would be like trying to drive down the road of
innovation with the parking brake on. Google’s continued success
depends on staying focused on what we do best: creating useful products
for our users and partners.
Yahoo! Inc. (Nasdaq: YHOO), a leading global Internet company, today
announced that Google has terminated the advertising services agreement
the companies announced in June. Yahoo! continues to believe in the
benefits of the agreement and is disappointed that Google has elected
to withdraw from the agreement rather than defend it in court. Google
notified Yahoo! of its refusal to move forward with implementation of
the agreement following indication from the Department of Justice that
it would seek to block it, despite Yahoo!’s proposed revisions to
address the DOJ’s concerns.
While
the implementation of the services agreement with Google would have
enabled Yahoo! to accelerate its investments in its top business
priorities through an infusion of additional operating cash flow, this
deal was incremental to Yahoo!’s product roadmap and does not change
Yahoo!’s commitment to innovation and growth in search. The fundamental
building blocks of a stronger Yahoo! in both sponsored and algorithmic
search were put in place independent of the agreement.
Yahoo!
continually optimizes its algorithmic and sponsored search, and we
have, in 2008 alone, developed and launched hundreds of improvements
all designed to enhance search quality and deliver a more relevant
search experience to the company’s users. To that end, Yahoo! has
benefited from strong revenue per search (RPS) gains in the U.S. as
discussed on the Q3 earnings call. Furthermore, Yahoo! continues to
make substantial progress against its Open Strategy and in the
deployment of its game changing APT from Yahoo! display advertising
platform.
Going forward, Yahoo! plans to continue to provide
the cutting-edge advances in products, platforms and services that the
industry needs and expects, and intends to be the destination of choice
for advertisers and publishers who want to reach one of the largest and
most engaged populations of consumers on the web.
