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Google, Yahoo back out of ad deal

updated 11:10 am EST, Wed November 5, 2008

Google and Yahoo Back Off

Google and Yahoo on Wednesday said they would end their controversial ad agreement and go their separate ways. The move is friendly but leaves Yahoo without a major third-party to show ads on certain search results, potentially cutting into Yahoo's overal results. Google describes the departure as being on amicable terms but also as the result of pressure from US government officials, which had forced revisions after concerns that it would create an unfair web monopoly.

"It's clear that government regulators and some advertisers continue to have concerns about the agreement," Google chief legal officer David Drummond says. "Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn't have been in the long-term interests of Google or our users."

Yahoo has seen the deal as useful to its revenue but now says the absence of the deal won't be significantly damaging to its core business; the deal was always to provide extra revenue rather than core revenue. The company's search ad code has also reportedly improved to help generate more money on its own.

Regardless, the absence of a deal is potentially troublesome for Yahoo, whose investors have criticized the company for the lack of a definite plan to regain share in the search field from either Google or smaller competitors.

Yahoo is widely thought to have struck its deal with Google as part of a last defensive gesture against the threat of a possible Microsoft takeover of some or all of its business. Yahoo at the time believed Microsoft was knowingly underbidding on its buyout and is believed to have used Google as a "poison pill" that would discourage Microsoft from making a deal involving its arch-rival.

Both the Google-Yahoo and Microsoft-Yahoo deals had both been characterized as potentially revolutionary by shifting the web heavily in favor of a single company, although the Google deal has technically been open to ads from other Internet ad providers.

Microsoft has yet to comment on whether the cancellation of the Google-Yahoo deal changes its own stance.

By Electronista Staff
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