Google is through with trying to bail out Yahoo. The search partnership that helped “save” Yahoo from being acquired by Microsoft is now officially dead.
The deal has been headed this way for months, so it’s not huge news. But Yahoo’s (YHOO) last little bit of leverage in a potential search deal with Microsoft just evaporated.
If Yahoo can get Microsoft (MSFT) back to the table to discuss a search deal, we expect the terms it gets will be significantly worse than the ones it passed on last summer. And that’s if Microsoft comes back. Microsoft might just want to see if Yahoo just completely implodes.
The impact on Google (GOOG), meanwhile, is minimal. The reason the company walked, as suspected, is that it realised that subjecting itself to litigation and/or a consent decree would hurt its business and image a lot more than barely material revenue and share gain from the Yahoo deal would help it. Top Google lawyer David Drummond:
However, after four months of review, including discussions of various possible changes to the agreement, it’s clear that government regulators and some advertisers continue to have concerns about the agreement. Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn’t have been in the long-term interests of Google or our users, so we have decided to end the agreement.
Yahoo is the big loser here.
SUNNYVALE, Calif.–(BUSINESS WIRE)–Yahoo! Inc. (Nasdaq: YHOO – News), a leading global Internet company, today announced that Google has terminated the advertising services agreement the companies announced in June. Yahoo! continues to believe in the benefits of the agreement and is disappointed that Google has elected to withdraw from the agreement rather than defend it in court. Google notified Yahoo! of its refusal to move forward with implementation of the agreement following indication from the Department of Justice that it would seek to block it, despite Yahoo!’s proposed revisions to address the DOJ’s concerns.
While the implementation of the services agreement with Google would have enabled Yahoo! to accelerate its investments in its top business priorities through an infusion of additional operating cash flow, this deal was incremental to Yahoo!’s product roadmap and does not change Yahoo!’s commitment to innovation and growth in search. The fundamental building blocks of a stronger Yahoo! in both sponsored and algorithmic search were put in place independent of the agreement.
Yahoo! continually optimizes its algorithmic and sponsored search, and we have, in 2008 alone, developed and launched hundreds of improvements all designed to enhance search quality and deliver a more relevant search experience to the company’s users. To that end, Yahoo! has benefited from strong revenue per search (RPS) gains in the U.S. as discussed on the Q3 earnings call. Furthermore, Yahoo! continues to make substantial progress against its Open Strategy and in the deployment of its game changing APT from Yahoo! display advertising platform.
Going forward, Yahoo! plans to continue to provide the cutting-edge advances in products, platforms and services that the industry needs and expects, and intends to be the destination of choice for advertisers and publishers who want to reach one of the largest and most engaged populations of consumers on the web.
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