Pressured by Microsoft, Yahoo Announces Partnership with Google

Yahoo! will give part of its advertising space to Google in a test that, in practice, reinforces its position against Microsoft’s unsolicited proposal. Under the agreement, announced this Wednesday (9th), Google will be able to display ads on about 3% of searches made in the United States via Yahoo. The experiment is expected to last two weeks; after that, results will be evaluated before any decision about expanding the partnership.

The move happens in the middle of the acquisition dispute. Microsoft had put on the table an offer of US$ 31 per share and was pressing for an agreement, while Yahoo judged the value low and sought alternatives. By turning to Google, Yahoo sends a clear message to the market that it can increase ad revenue without necessarily accepting the purchase.

On the regulatory side, the proposal triggers alerts. Combined, Google and Yahoo would reach close to 81% of the US search market, according to numbers from that time, while a possible Microsoft + Yahoo merger would be around 31%. The concern is that the combination with Google consolidates even more a single player in online advertising, something that was already being discussed because of the DoubleClick acquisition for US$ 3.2 billion.

Microsoft reacted quickly. Brad Smith, responsible for the company’s legal affairs, summarized the point of view:

This would make the market much less competitive, something that contrasts with our proposal to acquire Yahoo!

In Congress, Senator Herb Kohl, from the antitrust committee, also signaled reservations and said he rejects any permanent agreement that excessively increases industry concentration. Regulators’ assessment will be determinant for the future of this partnership.

In the market, the 2008 picture showed Google with about 59% of searches, Yahoo in second position and Microsoft chasing. A test like this can improve Yahoo’s monetization in the short term, but, if it advances, it also reduces independent alternatives for advertisers and publishers, pressuring prices and conditions in an already concentrated ecosystem.

In technological terms, integration requires aligning auction systems, relevance criteria and performance metrics, without sacrificing user experience. Even being a small pilot, the experience is significant and can redefine the balance of forces between the three companies.

Source: Folha Online.