Google-Yahoo! Advertising Deal Dies

Posted Nov 5, 2008

Google Inc. (NASDAQ:GOOG) has officially decided not to get into the advertising partnership with Yahoo! Inc. (NASDAQ:YHOO).  Both companies decided to delay the implementation of the deal to see if regulators would approve it.  Due to pressure, regulators did not approve of the deal.  It was still being reviewed and it was even rumored that both companies sent a revised proposal that implied Yahoo! was willing to cap how much revenue they made from the partnership.

David Drummond, SVP of Corporate Development and Chief Legal Officer at Google made the following statement on the Google Blog.

However, after four months of review, including discussions of various possible changes to the agreement, it’s clear that government regulators and some advertisers continue to have concerns about the agreement. 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, so we have decided to end the agreement.

We’re of course disappointed that this deal won’t be moving ahead. But we’re not going to let the prospect of a lengthy legal battle distract us from our core mission. That would be like trying to drive down the road of innovation with the parking brake on. Google’s continued success depends on staying focused on what we do best: creating useful products for our users and partners.

This is the first time that Google has backed out of a deal that would extend their advertising reach, stated Rebecca Arbogast, analyst with Stifel Nicolaus & Co.

What Will This Do To Yahoo!?
Yahoo! has been put in a very difficult position.  Yahoo! refused the acquisition offer from Microsoft Corporation (NASDAQ:MSFT) and now Google has turned their back on them.  What’s left to do?  Perhaps the talks between Yahoo! and AOL will intensify.

Yahoo! won’t be ready to launch their advertising platform, APT for all publishers until early 2009.  AOL has a solid advertising subsidiary called Platform-A.  This could be a good fit considering that Yahoo!’s competitors Google and Microsoft recently made major advertising acquisitions (aQuantive and DoubleClick) with a combined value of about $9.1 billion.

Yahoo! sent out a press release a few minutes ago regarding the deal cancellation.