Another shot has been fired in the increasingly bitter battle between Microsoft and Yahoo.
The Internet company said it would begin a limited test of Google’s search advertising technology as part of efforts to remain independent from Microsoft. The test is designed to show whether or not the company could extract more revenue if it outsourced its search advertising system to Google, a person briefed on the plan said.
The test will involve using Google’s search advertising system, called AdSense for Search, to deliver ads that appear alongside Yahoo’s search results. The test will involve searches conducted in the United States on Yahoo.com, not on any of
the company’s search affiliates, and will be limited to no more than 3 percent of all search queries, Yahoo said in a press release.
“As previously announced, Yahoo!’s board of directors is exploring strategic alternatives to maximize stockholder value, including exploration of potential commercial business arrangements. The Company noted that the testing does not necessarily mean that Yahoo! will join the AdSense for Search program or that any further commercial relationship with Google will result. The Company further stated that it would not comment on the nature or timing of any potential relationship.
The move is the latest salvo in the two-month battle for control of Yahoo, as the ailing Internet pioneer seeks to thwart Microsoft’s bid – or at least force the software giant to raise its $42 billion price.
Microsoft immediately blasted the possibility of a search advertising partnership between Google and Yahoo saying it would be anticompetitive.
“Any definitive agreement between Yahoo! and Google would consolidate over 90% of the search advertising market in Google’s hands,” Microsoft said in a statement. “This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo! We will assess closely all of our options. Our proposal remains the only alternative put forward that offers Yahoo! shareholders full and fair value for their shares, gives every shareholder a vote on the future of the company, and enhances choice for content creators, advertisers, and consumers.”
Depending on the results of the experiment, Yahoo hopes that it may be able to use it as proof that it can generate additional revenue that would justify a higher bid.
In recent months, Yahoo has discussed possible partnerships or combinations with Google, Time Warner’s AOL and the News Corporation in attempts to fend off Microsoft. The conversations with AOL continue, people familiar with the matter previously told The New York Times.
Google has long generated far more revenue for every search than competitors like Yahoo and Microsoft. Last year, Yahoo unveiled a new search advertising system, called Panama, which was intended to close the gap with Google. While the system has helped bolster Yahoo’s search revenues, it is not as effective as Google’s.
Some investors have urged Yahoo to outsource its search and search advertising system to Google for years, as it could help Yahoo increase revenues and cut costs. Yahoo executives, however, have resisted the move, saying that search was an essential piece of the company’s business.
After Microsoft made its offer, Eric Schmidt, Google’s chief executive called his Yahoo counterpart, Jerry Yang, to offer his help in fending off the Microsoft bid. A search or search advertising partnership has been an important part of their discussion, according to people familiar with the situation. Mr. Yang and Yahoo president Susan Decker visited Google in the past two weeks, said a person briefed on their visit.
While the test is intended to show how much Yahoo could earn from such a partnership, legal experts have warned that a broader search or search advertising pact with Google could pose antitrust issues, as it would expand Google’s already dominant position in those businesses.
