Yahoo Tests Google Search Ads: A Search Rivalry

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A Monthlong Magnification of Google: the Company, the Technologies, and the Extracurricular Activities

With over 66% of US search volume (1), Google is clearly the dominant player in search. And, though Google has more than three times the search volume of Yahoo, their closest competitor has managed to hang on to their competitive status despite Google’s enormous growth. On April 9, 2008, Yahoo announced that it will be testing Google’s web search ads on Yahoo’s own search service (2). So, what does this mean for Google, Yahoo, Microsoft and users?

The Yahoo-Google Test

In what has been discussed as an attempt to push Microsoft to raise its bid to purchase Yahoo, Yahoo has agreed to a two-week test of Google’s search ads. Yahoo will serve Google search ads to approximately 3% of the users on Yahoo’s own search services. Though there is no comment from Google or Yahoo on the likelihood of this becoming a larger scale or longer term deal, analysts and sources seem to think a more permanent agreement would be good for Yahoo:

A full-scale deal with Google would boost Yahoo’s cash flow by reducing spending on rival technology and allow it to redirect staff and resources into its larger business selling corporate brand advertising such as banner ads(3)

Google stands to benefit from the deal as well. First, stalling Microsoft in its attempted purchase of Yahoo keeps Google from having to deal with a much more powerful and diversified competitor that would threaten Google’s stronghold. Second, Google stands to “make more money from the alliance” with Yahoo. (4) And third, it is likely that Google has seen an opportunity to expand its user data collection into competitor’s territory—a priceless opportunity for Google.

Microsoft is already letting Google know there is no escaping the realities of competition if it comes to a long-term deal with Yahoo. If Yahoo decided to allow Google to serve ads to a greater percentage of searchers and/or made this test a more permanent deal, it is likely that Microsoft will raise anti-trust issues.(5) Members of the US senate are also watching this short-term Google/Yahoo alliance closely to assure that it does not have an effect on market competition. And, the long term possibilities are being monitored as well: Senator Herb Kohl from Wisconsin said,”[s]hould there be moves to make this agreement permanent, we will examine it closely in the Antitrust Subcommittee to ensure that it does not harm competition.”(6)

Food For Thought

As we learned from our series, Google’s Users are the Real Commodities – Parts 1, 2, and 3, there doesn’t seem to be much information Google can’t learn about you. Email contents, cell phone numbers, habits and hobbies—a user’s personal details are constantly being collected. But, there is one major exception to Google’s seemingly limitless data gathering potential—until now, Google didn’t have access to search and other data about users of competing search engines. This deal could give Google access to user data from its biggest competitor.

Not only is this testing period an opportunity for Google to gather search data from a new set of searchers, it’s also an opportunity to see how their competition operates from the inside. Will the inside look at Yahoo’s search ad strengths and weaknesses give Google the advantage it needs to start tearing away at Yahoo’s search share and bottom line, while simultaneously collecting Yahoo user data? This test, and a long term deal with Google, may be one of the only options for Yahoo to remain independent, but should Yahoo take the chance?

Update: This was our most popular blog post for the week of April 7th. Listen to the author discuss this topic on the StraightUpSearch Podcast.

1. Hitwise US – Leading Search Engines, February, 2008.

2. Reuters, Yahoo to test Google ads as defense vs. Microsoft, April 9,2008.

3. Reuters, Yahoo to test Google ads as defense vs. Microsoft, April 9,2008.

4. Michael Liedtke, The Associated Press, Yahoo-Microsoft Battle Bolsters Google, Friday, April 11, 2008.

5. Reuters, Yahoo to test Google ads as defense vs. Microsoft, April 9,2008.

6. Reuters, US antitrust panel senator watching Yahoo/Google link, April 9, 2008.

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