Yahoo Testing Google's AdSense Alongside Its Search

By Clint Boulton  |  Posted 2008-04-09 Print this article Print

Yahoo, as part of its bid to test strategic alternatives that would keep it out of the clutches of Microsoft, said today that it will run Google ads alongside its own search results.

Yahoo said in a statement the test using Google's AdSense for Search service will apply only to traffic from in the United States and will not include Yahoo's affiliate or core publisher partners. The test is expected to last up to two weeks and will be limited to 3 percent of Yahoo search queries.

A Google spokesperson told me the move does not necessarily mean that Yahoo will join the AdSense program, which was one of the theories postulated shortly after Microsoft made its $31-per-share, $44.6 billion offer for Yahoo Feb. 1.

Indeed, the test confirms that Yahoo's executive leadership spoke to Google's executives about a possible partnership where Yahoo might run Google's superior search ad program in lieu of its own ad-selling services.

Such an arrangement, were it to become more formal, would do two things: help the company pad its coffers and dip into the nearly $17 billion ad well Google currently draws from and impinge a Microsoft deal for Yahoo.

If Google and Yahoo strike a binding agreement on ads, what will Microsoft do? Would Microsoft press on in its bid for Yahoo if it climbed into bed with Google? Microsoft is desperately trying to catch Google in the ad space, and buying Yahoo would help close the gap.

A Google-Yahoo union certainly mars that prospect. Also, what would such a deal mean for Yahoo's forthcoming super ad-serving platform, Amp?

Microsoft was understandably perturbed in a statement today, repeating an argument the company has made to claim any alliance between Google and Yahoo is bad for the market:

"Any definitive agreement between Yahoo! and Google would consolidate over 90 percent of the search advertising market in Google's hands," Brad Smith, Microsoft's general counsel said. "This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo."

Meanwhile, Yahoo stressed that today's news did not mean that any further commercial relationship with Google will result, and would not comment on the nature or timing of any potential relationship.

That last bit sounds particularly ominous for Microsoft; Yahoo is suggesting that it could pull the trigger on any deal that comes its way.

All's fair in business and battle: Microsoft CEO Steve Ballmer earlier this week threatened to trigger a proxy fight for Yahoo, which responded that Microsoft undervalues the company.

Moreover, a Legg Mason investor in Yahoo told the Wall Street Journal today that he did not approve of Microsoft's hostile overture.

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