Yahoo and Google have amended their search partnership proposal and resubmitted it to the Justice Department, the WSJ says. The duration of the deal has been shortened to two years from 10, and revenue contribution capped at 25% of Yahoo’s overall search revenue.
This new deal will likely have a far smaller impact on Yahoo’s cash flow than the prior one. It is also, however, probably designed just to get the ball rolling–with the assumption that it can be extended at a later date once the companies demonstrate that it won’t kill the industry. WSJ:
Yahoo Inc. and Google Inc. have sent the Justice Department a revised version of their search-advertising agreement, adding a number of new provisions designed to limit the scope of the deal as they scramble to get it past regulators, according to people familiar with the matter.
The new plan, which the companies submitted over the weekend, shortens the original agreement to two years from 10 years and caps the revenue Yahoo can generate from the deal to 25% of Yahoo’s search revenue, according to these people. Previously, there was no revenue cap. It also specifies that Google advertisers can opt out of having their ads displayed on Yahoo sites.
Despite Yahoo’s assertions to the contrary, the real potential value of the original deal was the possibility that Yahoo might eventually be able to get out of the search engineering and serving business altogether. Google already owns this business, and Yahoo will never have the scale or resources to compete, so it doesn’t make sense for Yahoo to try (and fail) to reinvent Google’s wheel.
The amended deal would obviously eliminate Yahoo’s ability to outsource search to Google altogether. We suspect, however, that the companies are just banking on the ability to extend the deal under better terms in a year or so. (Also, Yahoo still apparently believes that it should continue to develop its own search platform, so it might not view the 25% cap and two-year term as giving up much).
Will these amendments be enough for the Justice Department to rubber stamp the deal without forcing the companies to sign a consent decree (which is probably a deal killer for Google)? We don’t know. We assume the new proposal is designed to address specific concerns, so there’s certainly a possibility that it will now pass muster.
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