Google: Ad Deal Will Make Yahoo Strong (If It Doesn't Kill It First)

In an effort to justify its ad deal with Yahoo (YHOO), Google (GOOG) is making some very public statements defending it from antitrust critics. Yesterday, Google’s advertising president Tim Armstrong tried to argue, unconvincingly, that advertisers would not see increased prices as a result of the deal. Today, he tackles the anti-competitive issues. In the same Q&A style he used yesterday, Armstrong addresses one of the big fears behind the deal:

Question: Over time, will Yahoo! just outsource more and more of its ads to Google and cease to exist as an independent ad platform?
Answer: Yahoo! has made clear that it will still use its own system to serve ads, and it will use extra revenue from this deal to improve its ad platform. The arrangement only covers the U.S. and Canada, and does not cover the fast-growing mobile segment. Yahoo! also has a strong economic incentive to keep serving as many of their own ads as possible, since they get to keep all of the revenue from those ads, while Yahoo! will only receive a part of the revenue from ads served by Google. In addition, Yahoo! has a leading position in display advertising, and will be able to offer advertisers a unique combination of advertising opportunities.

Essentially, Google’s argument here is that the deal will make Yahoo stronger because it will give it more money to reinvest in its own ad platform. But what if it doesn’t make Yahoo stronger? What if Yahoo takes that money and throws it down a rat hole? There is no guarantee that by simply spending more money on its ad platform Yahoo can make it serve more relevant ads. The problem so far has not been a lack of funds.

Well, you know what they say about things that don’t make you stronger. That’s what ends up killing you.

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Comments

[andyn:]

YHOO is a dead man walking.
Anecdotally, I can tell you of 2 friends who have quit the firm and tell me intellectual capital is bleeding out of the firm at a rather fast rate. Check their attrition rate which is rather high now.
This company is a slow-motion trainwreck which can only be saved if someone ponies up the money again.
GOOG was brilliant in proposing this deal which stalled BOTH YHOO and MSFT & even if Justice blocks that deal, I think they achieved their goal.
If 1 company comes out of this mess as a winner, its GOOG (buy it now at under $450...its a steal given all the market share they are winning)

2008 Sep 20 10:22 AM

[Sugiarto Se...:]

FTC has approved Carl Icahn to increase his stake at Yahoo to 2.5 Billions USD.
Yahoo still valuable commodity.

2008 Sep 21 06:41 AM

[Sugiarto Se...:]

FTC has approved Carl Icahn to increase his stake at Yahoo to 2.5 Billions USD.

Yahoo is still valuable commodity.

2008 Sep 21 06:52 AM