Parks Associates Blog

Friday, June 13, 2008

Yahoo in A Limited Search Ad Outsourcing Deal with Google

Yesterday, Yahoo announced that it ended talks with Microsoft about selling/integrating some of its ad assets with Microsoft’s. Today, it signed a deal with Google to allow the latter to deliver ads next to some of Yahoo!'s search results and supply ads on certain of its sites in the U.S. and Canada. Yahoo! claimed that the move will bring between $250 million to$450 million cash to the company in the first year.

It is an open secret that Google has a much better monetization rate on search-based ads than any other search ad companies. That’s the reason Yahoo had spent almost two years on the so-called “Panama Project” trying to enhance its search ad platform and raise ad conversion rate. Although the company’s executives on public occasions said that “Panama” worked, today’s deal is almost an acknowledgement that “Panama” does not match up to Google’s capability. After undergoing a protracted anti-Microsoft-acquisition campaign, Yahoo’s management are eager to show some money to shareholders in order to defend itself against yet another corporate raider Carl C. Icahn and to appease some swing shareholders who are still upset about Yahoo’s rejection of Microsoft’s bid. Will the deal salvage Yahoo’s sagging stock price? Unlikely, as investors are expecting more dramatic measures. It is a typical management dilemma that their long-term business strategy does not quench the thirst of short-term investors who are pressing for immediate changes. Now the Microsoft’s door is closed (even though we believe the merger is no guarantee of weakening Google’s market share in the search business), absent of any new businesses to boost its outlook, Jerry Yang & Co. will have to focus on execution of the plan that they promised to investors in the road show back in February. Solid execution is the best answer to quiet critics.

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