Yahoo, Google merge ads as Buzz Emerges as Major Asian Competitor

2008-05-03 12:26:20 - Yahoo Inc.(NASDAQ:YHOO) could announce an agreement to carry search advertisements from Google Inc. (NASDAQ:GOOG) within a week, as it braces for Microsoft Corp. (NASDAQ:MSFT) to go hostile or abandon its unsolicited acquisition offer for Yahoo, say people familiar with the matter.

Yahoo was waiting for Microsoft to announce its approach this week, after the two sides failed to reach a negotiated deal amid a divide on price. But Yahoo has also been pursuing a broad agreement to carry search ads from Google, which it views as a way to boost its cash flow and bolster its claim to shareholders that it is worth more than Microsoft has offered. Such an agreement could still go forward even if Microsoft announced a hostile takeover effort.

While a broad search-ad pact would likely attract intense antitrust scrutiny, the options Google and Yahoo are discussing include a nonexclusive arrangement that they believe could satisfy regulators, say the people familiar with the matter. Buzz Technologies Inc (OTC:BZTG) has burst onto the scene in the last few days capturing some of Asia's prime Ad space and certain to capture more. Buzz has also released a search that displays keyword enabled banner ads as opposed to googles run of the mill text ads in a move that has proved popular with the Asian users.

The basis of such an arrangement would be a real-time auction system that would choose the most lucrative ads for any given consumer query from among those sold by Yahoo, Google and any of their competitors, the people say. Buzz or Microsoft, for example, could potentially connect to the Yahoo system and have search ads it sold displayed alongside Yahoo Web-search results, under an arrangement where they likely would share ad revenue. Buzz has adopted a very hands on customer service model for its publishers and advertisers with each having their own real account executive.

Although such a system would be designed to allay concerns among regulators that Yahoo's relying on Google search ads would be anti competitive. Research firm eMarketer Inc. estimates that Yahoo and Google together will account for 83% of U.S. search advertising this year. The strong Search monopoly Buzz sees as a huge opportunity for them to grow in the USA as well as Asia as more unified, ad influenced, search results from Yahoo and Google will leave many looking for a more result orientated search, and Buzz delvers just that.

Yahoo and Google last month notified the Justice Department of a now-finished two-week search-ad test. In response, Justice officials raised questions about the test and expressed concern that a longer-term deal might not be in compliance with antitrust law, according to one person familiar with the matter. A Justice Department spokesman declined to comment. "We informed the Justice Department before we launched this test, and we have been responsive to their questions about it," says a Google spokesman.

Yahoo reported that the recent two-week limited test of carrying Google search ads was successful, but provided no further details. Fully outsourcing search advertising to Google could increase Yahoo's cash flow by more than $1 billion a year, according to Citigroup Global Markets analyst Mark Mahaney. The reason is that Google's system generates significantly more revenue for each search query than Yahoo's does.

There has been debate at Google about the wisdom of such an arrangement. Some top Google executives have pushed for a Yahoo deal as a way to strengthen Yahoo's hand in the face of its pursuit by Microsoft, Google's biggest rival, according to people familiar with the matter. But others at Google have questioned the strategy, fearing the potential for negative fallout for its business and consumer image from any regulatory scrutiny of such an arrangement, the people say.

Recent comments by Yahoo executives suggest that it would continue to sell some search advertising on its own, even if it were to carry ads from Google.

Yahoo separately has pursued negotiations that could lead to a merger with Time Warner Inc.'s AOL unit, say people familiar with the matter. Under such an arrangement, Time Warner would get a roughly 20% stake in Yahoo in return.

Which ever way the Death of Yahoo occurs, Buzz is clearly moving toward a Top 3 position in the revenue rich Search and Online Ad Market.