Making Sense of the Googlehoo Announcement

By Aaron Goldman, VP, Marketing & Strategic Partnerships

Big news out of Mountain View and Sunnyvale tonight -- Google Announces Non-Exclusive Advertising Services Agreement with Yahoo! in U.S. and Canada.

It's still unclear just what the implications are as the press release is a bit ambiguous. I counted no less than 6 instances of non-commital language telling us what may happen as a result of this deal. Note the italics in the excerpts below are mine.

1. "Yahoo! has the option to display Google ads..."
2. "Yahoo! can serve contextually targeted ads..."
3. "...provides Yahoo! with the opportunity to deliver more relevant ads"
4. "Yahoo can use Google's advertising technology on as many or as few of its search results and content pages as it chooses..."
5. "This non-exclusive agreement..."
6. "The agreement has a term of up to ten years..."

And to top it all off, "...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."
So, after waiting all day for the news to break, we have some vague ideas of what Google and Yahoo can do with this partnership and no firm timeline for implementation.

Clearly there are more questions than answers at this point. The one that immediately comes to mind is how will they reconcile reporting and billing?

Let's say we're running a PPC campaign on both Yahoo and Google and buying the word "computer" across both engines. Yahoo decides to return a Google result for that keyword and it generates a click. How is that click attributed? Does that show up within our Yahoo campaign or our Google campaign?

More to come as we dig in here.

UPDATE: The Official Google Blog clarifies what this deal is NOT:

-"This is not a merger."
-"This does not remove a competitor from the playing field."
-"This does not prevent Yahoo! from making similar arrangements with others."
-"This does not increase Google's share of search traffic."
-"This does not let Google raise prices for advertisers."

UPDATE 2: Spoke with one of our Yahoo reps who confirmed that Yahoo is not outsourcing all its paid search to Google and remains very much committed to the paid search space. It will still be serving Yahoo ads via Panama targeted to queries and content and, in some cases, will supplement those with ads from Google.

UPDATE 3: The Yahoo press release provides some actual concrete information. And it answers the question I raised earlier...

"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!."

UPDATE 4: Jerry Yang's quote in this New York Times article sheds light on how Yahoo is positioning this deal and confirms what our rep said about Yahoo not throwing in the towel on paid search -- "We think of it as backfilling with Google monetization, rather than outsourcing."

UPDATE 5: I'm quoted in today's New York Times blog coverage as having this to say about the deal…

“There’s an appeal in terms of ease of management and optimization” of online campaigns, said Aaron Goldman, vice president for marketing and strategic partnerships at Resolution Media, an Omnicom agency that does search marketing. “Of course the downside is, in that environment, what is Google’s motivation to continue innovating, to be more transparent with data, which is something that’s been a big knock on them for a while? What are you going to do, not use them?”

I suppose this comes off a bit harsh on Google. What I meant was that, in general, competition breeds innovation and keeps all parties honest. I don’t think Google will stop innovating -- it’s just that it doesn't have to keep pushing the envelope now that has access to ~85% of US search queries.

UPDATE 6: Confirmed with both Google and Yahoo that, although the Google press release refers to this deal as pertaining to Google AdSense, the partnership will have Yahoo syndicating both Google sponsored search (aka AdWords) and content listings (aka AdSense).

UPDATE 7: Time for some speculation. See my post: Will the Google/Yahoo Deal Lead to Increaased Pricing?

UPDATE 8 - 7/2: Looks like the Microhoo talks are back on again. The WSJ reports that, this time around, MSFT is gunning for Yahoo's search business and has had dialogue with Time Warner and News Corp about a 3-way deal that would send Yahoo search to MSFT and combine the rest of Yahoo with one of those other companies. This would clearly put the kibosh on the Google/Yahoo deal -- not to mention put a cool $250 mil. in Google's pocket due to a provision in the agreement that called for financial consideration in the event of a Yahoo acqusition. More in this post -- Another Day, Another Microhoo Rumor.

UPDATE 9 - 9/2: Per Media Post, "Yahoo and Google's paid search deal is officially on, according to Google CEO Eric Schmidt. Schmidt said that Google would likely start serving some of the sponsored listings on Yahoo's search pages by early October."

UPDATE 10 - 9/7: The WSJ has coverage of the ANA's letter opposing the Google-Yahoo deal.

UPDATE 11 - 9/9: According to the WSJ, "The Justice Department has quietly hired one of the nation's best-known litigators, former Walt Disney Co. vice chairman Sanford Litvack, for a possible antitrust challenge to Google Inc.'s growing power in advertising."

UPDATE 12 - 9/15: The World Association of Newspapers (WAN) has come out in opposition of the deal based on 3 key points:

1. Less Competition Means Less Revenue
2. Less Competition Means Higher Costs
3. Less Competition Means Even Greater Dependence On Google

Update 13 - 9/19: Dave Gould is quoted in this ClickZ article investigating the claims being made by Google and Yahoo that the deal won't impact pricing and will result in more relevant ads.

Update 14 - 9/22: The World Federation of Advertiers (WFA) weighs in against the deal saying that "Although Google and Yahoo insist this agreement is limited to North America, WFA believes that the effects will be global. One reason for this is that the substantial benefits for both parties in the US and Canada will almost certainly reduce their incentive to compete in other markets as they do today."

Update 15 - 9/25: Google launches reiterating its key points:

  • "This is a non-exclusive deal that will strengthen Yahoo!.
  • Ad prices will continue to be set by competitive auction.
  • The deal is win-win for consumers, advertisers and publishers: more and better ads."

Update 16 - 9/26: Sue Decker gives the Yahoo official response on the Yodel Anecdotal blog, or as she calls it "myth-bustsing." Her "bottom line:"

  • "Yahoo! will use this agreement to help us become a stronger competitor in all aspects of online advertising; and
  • Yahoo! is not exiting the sponsored search business. We plan to remain a strong player in sponsored search."

Update 17 - 10/5: Bloomberg covers yesterday's news that Yahoo and Google will "postpone implementing their Internet-advertising partnership until U.S. regulators complete a review on whether the deal will hurt competition."

Update 18 - 11/4: The Wall Street Journal details revisions to their agreement, designed to satisfy the DOJ. "The companies agreed to cap the revenue Yahoo can generate from the deal to 25% of Yahoo's search revenue and to shorten the length of the agreement to two years from up to 10 years, according to the people familiar with the situation. Previously, there was no revenue cap. The new plan also specifies that Google advertisers can opt out of having their ads displayed on Yahoo sites."

Update 19 - 11/5: The deal is officially DOA. The Google blog has the announcement. Bottom line: "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."


dgouldo said...

It would be interesting to understand Yahoo!'s model and philosophy on where and when to place Google ads so as not to cannabilize their own ad revenue. When does it become more profitable to display a Google ad that captures revenue share versus displaying their own ad which captures the full revenue. No doubt a complicated analysis.

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