Yahoo Inc. moved closer to outsourcing its search advertising to Google Inc. after an initial test of the system yielded what the two firms deemed positive results, people familiar with the matter said.
A broader partnership between the companies is now increasingly likely, the people said. Yahoo and Google said last week that they would undertake the test to evaluate the revenue potential of a broader search-ad outsourcing arrangement.
A deal might increase Yahoo’s cash flow by more than $1 billion a year, according to Citigroup Global Markets analyst Mark Mahaney.
But a partnership also might serve as needed leverage for Yahoo as it tries to ward off an unwelcome $44.6 billion bid from Microsoft Corp., of Redmond, Wash. Some view the potential combination as gamesmanship, particularly in light of antitrust concerns of a Google-Yahoo linkup.
A broad partnership between Google, based in Mountain View, Calif., and Yahoo could complicate Microsoft efforts but doesn’t derail it immediately. Yahoo could simply pull out of the partnership should it agree to a takeover by Microsoft.
Nevertheless, a deal with Google might make it easier for Yahoo, of Sunnyvale, Calif., to do a separate deal it has been deliberating with Time Warner Inc’s AOL. Yahoo has been in talks with New York-based Time Warner about merging with AOL. Time Warner would receive a stake of about 20% in the merged entity in return.
By: Matthew Karnitshnig
Wall Street Journal; April 17, 2008
