Yahoo! Inc.
announced that it has reached an agreement with Google Inc. that
will enhance its ability to compete in the converging search and
display marketplace, advancing the company's open strategy. The
agreement enables Yahoo! to run ads supplied by Google alongside
Yahoo!'s search results and on some of its web properties in the United
States and Canada. The agreement is non-exclusive, giving Yahoo! the
ability to display paid search results from Google, other third
parties, and Yahoo!'s own Panama marketplace.
Under the terms of the agreement, Yahoo! will select the search term
queries for which - and the pages on which - Yahoo! may offer Google
paid search results. Yahoo! will define its users' experience and will
determine the number and placement of the results provided by Google
and the mix of paid results provided by Panama, Google or other
providers. The agreement applies to paid search and content match and
does not apply to algorithmic search. The agreement also applies to
current partners in Yahoo's publisher network.f
.
Yahoo! CEO and co-founder Jerry Yang said, "We believe that the
convergence of search and display is the next major development in the
evolution of the rapidly changing online advertising industry. Our
strategies are specifically designed to capitalize on this convergence
-- and this agreement helps us move them forward in a significant way.
It also represents an important next step in our open strategy,
building on the progress we have already made in advancing a more open
marketplace."
"This agreement provides a source of funds to both deliver financial
value to stockholders from search monetization and to invest in our
broader strategy to transform display advertising and advance our
starting point objectives with users," said Yahoo! President Sue
Decker. "It enhances competition by promoting our ability to compete in
the marketplace where we are especially well positioned: in the
convergence of search and display."
Agreement Provides Attractive Economics and Enhances Search Monetization
Yahoo! believes that this agreement will enable the Company to
better monetize Yahoo!'s search inventory in the United States and
Canada. At current monetization rates, this is an approximately $800
million annual revenue opportunity. In the first 12 months following
implementation, Yahoo! expects the agreement to generate an estimated
$250 million to $450 million in incremental operating cash flow.
The agreement will enhance Yahoo!'s ability to achieve its goal to
grow operating cash flow significantly, while at the same time
providing flexibility to continue to invest in ongoing initiatives such
as algorithmic search innovation and search and display advertising
platforms. It gives Yahoo! complete flexibility to continue to use its
Panama paid search results.
Significant Benefits Will Flow to Users, Advertisers, Publishers and Employees
Users will also benefit from Yahoo!'s ability to invest incremental
operating cash flow in ongoing improvements to its search services,
building upon recent major innovations such as Search Assist and
SearchMonkey. Advertisers will continue to benefit from multiple
marketplace alternatives including Panama, Google and others.
Publishers will benefit from a winning combination of distribution,
monetization and services to help them grow their businesses. The
financial benefits will enable Yahoo! to broaden the scope of its
investments and initiatives, enhancing Yahoo!'s ability to offer
attractive career opportunities to its employees.
Terms of the Agreement
The agreement will enable Yahoo! to run ads supplied by Google's
AdSense(TM) for Search and AdSense(TM) for Content services next to
Yahoo!'s internally generated paid search and algorithmic search
results. Yahoo may also run Google-supplied ads on non-search Yahoo web
properties, as well as on current members of its partner network. The
agreement has a term of up to ten years: a four-year initial term and
two, three-year renewals at Yahoo!'s option. It applies to Yahoo!'s
operations in the U.S. and Canada only. Advertisers will continue to
pay Yahoo! directly for clicks served by Yahoo! from Yahoo!'s Panama
and Content Match marketplaces. Advertisers will pay Google directly
for each click on Google paid search results appearing on Yahoo! owned
and operated network or certain affiliate sites. Google will share a
percentage of such revenue with Yahoo!.
In addition, Yahoo! and Google agreed to enable interoperability
between their respective instant messaging services, bringing easier
and broader communication to users.
The agreement allows either party to terminate the agreement in the
event of a change in control of either party. The agreement also
requires Yahoo! to pay a termination fee if the agreement is terminated
as a result of a change in control that occurs within 24 months. The
termination fee is $250 million, subject to reduction by 50 percent of
revenues earned by Google under the agreement.
Although Google and Yahoo! are not required to receive regulatory
approval of the deal before implementing it, the companies have
voluntarily agreed to delay implementation for up to three and a half
months while the U.S. Department of Justice reviews the arrangement.
Goldman, Sachs & Co., Lehman Brothers and Moelis & Company
are acting as financial advisors to Yahoo!. Skadden, Arps, Slate,
Meagher & Flom LLP is acting as legal advisor to Yahoo!, and Munger
Tolles & Olson LLP is acting as counsel to the outside directors of
Yahoo!