Back To The Drawing Board: Google, Yahoo Redo Ad Pact


The original deal came under scrutiny from the Department of Justice when the search companies proposed a pact partnering Google and Yahoo for 10 years and bringing nearly 80 percent of Web advertising under the combined Google and Yahoo umbrella.

The Department of Justice took notice and as recently as last week it seemed as if the deal would fall apart, with Google threatening to walk away from the bargaining table.

Today, however, the two companies have reworked their proposal to reduce the number of years the partnership would last from 10 to two and capped the amount of revenue Yahoo can garner at 25 percent. In addition, Google would let advertisers opt out of being placed on Yahoo's ads, Reuters reports.

Yahoo spokeswoman Tracy Schmaler said in an e-mail statement that Yahoo continues to work with the Justice Department in hopes of finding a favorable resolution, Reuters reports. Google declined to comment on the talks.

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Analysts, however, seem to think that Google and Yahoo are taking steps that may eventually help get the deal past regulators. But they also question whether or not a knee-capped deal would be financially beneficial to Yahoo which, after all, is looking to expand its revenue stream.

It was projected in the first year of the Yahoo-Google ad deal that Yahoo would reap between $250 million and $450 million in profit.

But with a hard cap of 25 percent, it seems fair to ask whether or not the revenue Yahoo would lose still makes the deal worth it for the company. One analyst pegs the amount of money Yahoo would receive from the rejiggered deal at between $80 million and $100 million, according to Reuters.

The revised terms of the deal were first reported by The Wall Street Journal.

The new terms of the proposed ad sharing deal is just the latest twist in the story. Most advertisers—as voiced by the World Federation of Advertisers—have decried the deal as unfair, thinking that combining Yahoo and Google's ad services into one would raise prices and unfairly restrict competition in the market. After the WFA's complaint, Sen. Herb Kohl, a democrat from Wisconsin, wrote a letter to the Department of Justice in which he echoed the sentiment that the deal could restrict competition.

As scrutiny intensified, Google and Yahoo seemed resigned to the fact that the deal would be delayed, at first thinking it would take about a month longer than expected and hoping for a resolution sometime in October.

Late last week, however, it was reported that Google was threatening to walk away from the deal, even though Yahoo was hoping to use the pact to increase revenue it desperately needs. Now it seems that the Google-Yahoo ad deal might still squeak by regulators, albeit in a completely different form than originally intended.