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FAQ: What We Know About The Yahoo-Google Search Deal — So Far

Consummating a long flirtation, Yahoo said yesterday that it had reached a search deal with Google. Here’s the official statement:

In October, the Company reached an agreement with Google that provides Yahoo with additional flexibility to choose among suppliers of search results and ads. Google’s offerings complement the search services provided by Microsoft, which remains a strong partner, as well as Yahoo’s own search technologies and ad products.

This announcement comes after several months of Yahoo testing Google search results and ads. As a practical matter, what does this mean, when will it be implemented and how will it impact Yahoo’s relationship with Microsoft? Here’s what we know so far.

Why Is Yahoo Doing This?

It may seem obvious but Yahoo is under tremendous investor pressure to increase revenue. Google wants to grow search revenue as well.

Yahoo told investors yesterday that it’s going to use Google results/ads to improve monetization in the US and abroad. According to Yahoo CEO Marissa Mayer, Yahoo is:

[G]oing to be investing in understanding how to balance the marketplace of our search queries in terms of how to provide the best results as well as the best monetization, and so we see some opportunities in terms of providing coverage of more ads on more queries. We also see some opportunities in different international regions to just achieve a different blending.

Mayer said that Yahoo effectively now has “three different search marketplaces” to choose from in serving ads.

When Does The Deal Take Effect?

The agreement between the two companies went into effect on October 1, 2015. The term of the contract runs through December 31, 2018, and is presumably subject to renewal.

The implementation of the agreement won’t happen until after “regulatory review,” the timing of which is somewhat uncertain. Yahoo and Google are allowing the US Department of Justice a “reasonable period of review.”

Assume then that nothing will happen formally until sometime next year. There’s also a chance that it will not happen at all. More on that below.

What’s The Scope Of The Deal?

It covers both organic or algorithmic search and paid search advertising. It also spans the desktop and mobile results. However Yahoo has near total control over when or whether or not to use Google results on either platform.

What Countries Are Included?

North America is obviously included but Europe is expressly excluded from the deal for reasons I’ll get to below. Explicitly mentioned in the agreement are the following countries:

United States, Canada, Hong Kong, Taiwan, Singapore, Thailand, Vietnam, Philippines, Indonesia, Malaysia, India, Middle East, Africa, Mexico, Argentina, Brazil, Colombia, Chile, Venezuela, Peru, Australia and New Zealand.

Is Yahoo Dumping Bing Ads Or Search Results?

No. Yahoo CEO Marissa Mayer explained that the Google partnership “will be supplementary to [the] existing relationship with Microsoft.” It’s non-exclusive “and does not have minimum volume commitments.”

Earlier this year Yahoo and Microsoft renegotiated their search relationship. Under the new terms Yahoo gained more flexibility to serve its own search ads or ads from third parties. Yahoo guaranteed Microsoft that 51 percent of desktop search ads would come from Bing. The other 49 percent could come from Yahoo or somebody else.

On mobile, Yahoo can do whatever it wants; there are no guaranteed minimums to Microsoft.

Could The Deal Collapse Or End?

Yes. There are many scenarios in the agreement that allow either Google or Yahoo to terminate. Here’s the verbatim language from the Yahoo 8-K filing:

Either party may terminate the Services Agreement (1) upon a material breach subject to certain limitations; (2) in the event of a change in control (as defined in the Services Agreement); (3) after first discussing with the other party in good faith its concerns and potential alternatives to termination (a) in its entirety or in the U.S. only, if it reasonably anticipates litigation or a regulatory proceeding brought by any U.S. federal or state agency to enjoin the parties from consummating, implementing or otherwise performing the Services Agreement, (b) in part, in a country other than the U.S., if either party reasonably anticipates litigation or a regulatory proceeding or reasonably anticipates that the continued performance under the Services Agreement in such country would have a material adverse impact on any ongoing antitrust proceeding in such country, (c) in its entirety if either party reasonably anticipates a filing by the European Commission to enjoin it from performing the Services Agreement or that continued performance of the Services Agreement would have a material adverse impact on any ongoing antitrust proceeding involving either party in Europe or India, or (d) in its entirety, on 60 days notice if the other party’s exercise of these termination rights in this clause (3) has collectively and materially diminished the economic value of the Services Agreement. Each party agrees to defend or settle any lawsuits or similar actions related to the Services Agreement unless doing so is not commercially reasonable (taking all factors into account, including without limitation effects on a party’s brand or business outside of the scope of the Services Agreement).

What does all that mean in English? It means that if a governmental or regulatory body in the US threatens to take action or takes action, either party could terminate. Even in Europe, where the deal doesn’t apply, the European Commission could still kill it:

[I]f either party reasonably anticipates a filing by the European Commission to enjoin it from performing the Services Agreement or that continued performance of the Services Agreement would have a material adverse impact on any ongoing antitrust proceeding involving either party in Europe or India . . . .

This clause is intended to give Google an out given the ongoing antitrust case in Europe. India could also kill it; there’s an antitrust investigation against Google in that country as well.

It’s quite possible that the Europeans might rattle some sabers and thwart the deal — just because they can. There’s a very punitive mood in Europe toward Google and regulators might see this as an opportunity to punish the company for its alleged abuse of market position. (If Europe was one of the territories contemplated within this deal there’s zero chance that it would be allowed.)

We have submitted some questions to Yahoo and will update this post with more information if we receive any new information or insights.

via Marketing Land


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