Desperate Yahoo Inks Search, Ad Deal With Google

In the face of declining revenues and stiff competition, Yahoo cozies up to rival Google in a deal similar to the one it struck with Microsoft in April.
10 Fantastic iPhone, Android Apps For Museum Visits
10 Fantastic iPhone, Android Apps For Museum Visits
(Click image for larger view and slideshow.)

Former search giant Yahoo has all but conceded defeat to its main online advertising rival Google by making a pact with the company, now a unit of the larger Alphabet corporation. Google will now earn a percentage of revenue harvested from ads displayed on the Yahoo site, Reuters reports.

The deal was announced Oct. 20 as part of Yahoo's third-quarter earnings report, which failed to impress investors, since the company's stock dropped 1.6% following the announcement.

"In October, the Company reached an agreement with Google that provides Yahoo with additional flexibility to choose among suppliers of search results and ads," Yahoo explained in its third-quarter earnings report. "Google's offerings complement the search services provided by Microsoft, which remains a strong partner, as well as Yahoo's own search technologies and ad products."

The announcement is not completely unexpected. In July, Yahoo confirmed that it is running tests to see if it should use Google's search results on its websites, a practice that it previously limited to Microsoft's Bing search engine.

In April, Microsoft and Yahoo announced plans to strengthen their search partnership in an effort to improve the search experience across platforms, create value for advertisers, and increase stability for partners.

Under the terms of the deal, Microsoft became the sole sales force for advertisements delivered by its Bing Ads platform.

Yahoo will no longer handle Bing search ads, but it will continue to manage sales for its Gemini Ads platform.

A March report from eMarketer forecast that Microsoft and Yahoo combined would own 6.5% of the $81 billion search market globally in 2015, while Google, the search leader, was expected to take a 54.5% of the global market this year.

Revenue for Yahoo's native advertising business fell to $1 billion from $1.09 billion. Yahoo conceded it expects that number to fall further, to between $920 and $960 million in the fourth quarter.

The company said it expects its fourth quarter revenue would top out around $1.2 billion, significantly below analyst estimates of $1.3 billion.

"We are also experiencing continued revenue headwinds in our core (advertising) business, especially in the legacy portions," the company's CEO, Marissa Mayer said on a call with analysts, Reuters reported.

There was one bright spot in the report. The revenue from the Mavens group, the businesses surrounding, mobile, video, native advertising, and social advertising, which represented 29% of traffic-driven revenue in the third quarter of 2014, increased to 38% in the third quarter of 2015.

[Read about the FCC waiver that allows AT&T WiFi calling on iPhones.]

Meanwhile, mobile revenue, which represented 20% of traffic-driven revenue in the third quarter of 2014, increased to 24% in the third quarter of 2015.

Gross mobile revenue for the third quarter of 2015 was approximately $424 million. That indicates Yahoo is seeing growth in the all-important mobile space.

"As we move into 2016, we will work to narrow our strategy, focusing on fewer products with higher quality to achieve improved growth and profitability," Mayer said in a statement. "In addition to sharpening focus within core business growth, our top priority is the planned spinoff of Aabaco Holdings. This is an important moment for the company, and we continue to strive to complete the spin as quickly as we can."