Desperate Yahoo Inks Search, Ad Deal With Google - InformationWeek

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10/21/2015
10:19 AM
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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.

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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.

(Image: Kurt Drubbel/iStockphoto)

(Image: Kurt Drubbel/iStockphoto)

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."

Nathan Eddy is a freelance writer for InformationWeek. He has written for Popular Mechanics, Sales & Marketing Management Magazine, FierceMarkets, and CRN, among others. In 2012 he made his first documentary film, The Absent Column. He currently lives in Berlin. View Full Bio

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Michelle
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Michelle,
User Rank: Ninja
10/21/2015 | 11:04:24 AM
Googlehoo
Wow, this isn't something we would have expect several years ago. I wonder what will happen next for Yahoo. Will Alphabet eventually acquire Yahoo?
jagibbons
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jagibbons,
User Rank: Ninja
10/21/2015 | 11:08:48 AM
Re: Googlehoo
I think that's probably fairly likely. Or maybe Microsoft Bing will buy them up. Yahoo's glory days appear to be firmly fixed in the past. I think we're seeing a slow fade into obscurity. The internet has changed a lot since Yahoo dominated in the late 90s and early 2000s.
mejiac
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mejiac,
User Rank: Ninja
10/21/2015 | 1:05:24 PM
Re: Googlehoo
@jagibbons,

" I think we're seeing a slow fade into obscurity."

This says it all. Yahoo was just not able to keep up when Google started picking up momentum, which in my mind was when gmail launched (it was for me at least, that's when I switched from my yahoo mail to my gmail). I see Yahoo going down the same path as blackberry and Nokia... they'll either be absorbed by another company, or will shrink there business scope further... but I don't think they'll be able to keep the lights on for much time.

IMHO, the reason bing is finding success is because of Internet Explorer...it's set up as the default browser, and many folks (including me) like using it (althought many times I'll switch between Google and Bing depending on what I'm looking for, but 8 times of out 10 bing I get similar results). Yahoo right now doesn't have anything specifically driving business to them (aside from the annoying "set yahoo as your defaul search provider" checkbox when installing programs)
jagibbons
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jagibbons,
User Rank: Ninja
10/21/2015 | 2:13:24 PM
Re: Googlehoo
Yahoo isn't going to win search. To survive, Yahoo needs to find some other differentiator. Or, just decide to cash out and shop for buyers.
Ariella
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Ariella,
User Rank: Author
10/21/2015 | 2:14:36 PM
Re: Googlehoo
@jabgibbons but who would want to buy it? What benefit would it deliver to a company that it can't build up on its own? 
jagibbons
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jagibbons,
User Rank: Ninja
10/21/2015 | 2:17:20 PM
Re: Googlehoo
I'm not an investor in Yahoo, so I can only speculate. Even though they are losing marketshare, they still have a sizable business in ad-based revenue. They may have some other contractual partnerships that could be attractive, or even some intellectual property. If there isn't anything of value, I hope all those investors and decent folks working at Yahoo get out before the proverbial house of cards collapses.
Ariella
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Ariella,
User Rank: Author
10/21/2015 | 2:23:53 PM
Re: Googlehoo
@jagibbons the market is not seeing much value now. I looked it up and found this headline "Yahoo stock slips as analysts forecast 'little hope' for near term"
jagibbons
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jagibbons,
User Rank: Ninja
10/21/2015 | 2:30:11 PM
Re: Googlehoo
The slide may happen pretty quickly. There's still a lot of equity there right now, but that can change quickly if someone starts a sell off.
Joe Stanganelli
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Joe Stanganelli,
User Rank: Author
10/21/2015 | 7:08:14 PM
Re: Googlehoo
I think if not for Marissa Mayer taking over and the tech media watching her every move (and outfit) for her first year or two, Yahoo would have already faded into obscurity.
soozyg
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soozyg,
User Rank: Ninja
10/21/2015 | 7:31:47 PM
Re: Googlehoo
Even though they are losing marketshare, they still have a sizable business in ad-based revenue. 

This is interesting because I hate the ads on Yahoo for two big reasons: 1) they're not targeted to me and 2) they cause all kinds of big delays in email reception. When my Yahoo email gets stuck and doesn't refresh and I can tell new emails are not coming in, it's always because some ad was loading and until it does, everything on Yahoo stops. Is this because they're behind in technology or because the ad file sizes have just gotten so big? So annoying.

 
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