Yahoo has thumbed its nose at Microsoft by announcing that it will test the use of Google search ads in a small number of its search engine.
The move follows growing impatience by Microsoft over its offer to acquire Yahoo, and comes as the US business paper, the Wall Street Journal, suggests that a merger between Time Warner’s AOL and Yahoo is being contemplated.
The test, expected to last up to two weeks and be limited to up to 3 percent of Yahoo search queries in the U.S., is specifically for Google's AdSense for Search service. In other words, Yahoo would be acting as one of the Web publishers that carry pay-per-click text ads from Google. The ads will appear only in Yahoo.com.
Yahoo noted that "the testing does not necessarily mean that Yahoo will join the AdSense for Search program or that any further commercial relationship with Google will result." Yahoo will not comment on the nature or timing of any potential relationship with Google.
Microsoft, whose acquisition offer was rejected by Yahoo's board in February, on Saturday said it will launch a proxy fight to attempt a hostile takeover if Yahoo doesn't agree to the acquisition in the next three weeks.
On Wednesday, Microsoft blasted the Google-Yahoo announcement, saying that a broad outsourcing deal would inevitably run into regulatory trouble because it would give Google more than 90 percent of the search advertising market.
"This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo. We will assess closely all of our options," said Brad Smith, Microsoft’s general counsel, in a statement.
Google has a share of between 70 percent and 75 percent of U.S. search ad spending, and Yahoo has about 15 percent, said Karsten Weide, an IDC analyst. If Yahoo fully outsourced its search ads, Google would have a monopoly in this segment of the market, but such a deal wouldn't give Google a monopoly on overall ad spending, he said.
With Yahoo's search business, Google's share of the U.S. online ad spending would have been around 36 percent in 2007's fourth quarter, Weide said.
This could be an argument against antitrust concerns, along with the fact that Yahoo would likely get most of the money per click, and that while Google rules search advertising, it is a minor player in other online ad segments, like display ads such as banners, he said. Still, it's clear that a search ad outsourcing deal would attract a lot of regulatory attention.
Beyond the regulatory issue, this deal wouldn't be good for Yahoo in its attempts to compete broadly against Google, he said. Yahoo should have its own search ad business, Weide said.
"The question is: Is this real? Is Yahoo seriously considering replacing [its search ad system] with Google's?" Weide said. "Or is Yahoo doing this merely to annoy Microsoft and drive Microsoft away from its acquisition attempt? It's not clear."
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