Excerpts of the proposed advertising partnership deal between the Internet search giant Google Inc. (GOOG) and web portal Yahoo! (YHOO) were released on Friday. However, according to the U.S. Securities and Exchange Commission filing, while both companies seem to disclose in detail the contract governing the partnership, Google and its chief rival Yahoo have kept secret the pact’s financial terms - including compensations and revenue split. The extent of other ties between the two companies were not disclosed as well.
Both Yahoo and Google have teamed up in a ten year deal, struck in June of this year, where Google would provide Yahoo with ad services to run alongside Yahoo’s own Web search system. Yahoo may also run Google-supplied ads on non-search Yahoo web properties, as well as on current members of its partner network. This deal will affect almost 90% percent of all search advertisements sold in U.S.
Despite the criticism and antitrust concerns, Yahoo views the agreement with Google as an avenue which will help the co. become a stronger competitor. Yahoo has also stated that the partnership - represents a substantial revenue opportunity of as much as $800 million a year, and $250 million to $450 million in annual operating cash flow after the agreement goes into effect.
However, rivals such as Microsoft Corp. (MSFT) warn that Google has become the Internet’s dominant force and under a ‘permitted-to-proceed scenario’ from the U.S. Justice Department, a Yahoo deal will severely limit search ad options, granting Google an effective monopoly in search advertising and subsequently reducing innovation. (I’d say it’s rather ironic if not hypocritical to have Microsoft make such statements given its own antitrust history.)
Google and Yahoo continue to characterize their partnership as ‘non-exclusive’ , which according to them reduces the pact’s anti‐competitive effect. Additionally, they believe their agreement does not require regulatory approval. Nevertheless, in June U.S. Senator Herb Kohl, chairman of the Senate Antitrust Subcommittee said in a statement:
This collaboration between two technology giants and direct competitors for Internet advertising and search services raises important competition concerns. The consequences for advertisers and consumers could be far-reaching and warrant careful review, and we plan to investigate the competitive and privacy implications of this deal further in the Antitrust Subcommittee.
Yahoo! and Google have also agreed to enable interoperability between their respective instant messaging [IM] services, bringing easier and broader communication to users.