Google Backs Out of Yahoo Deal

Written by Ryan Lawler

Wednesday, November 5. 2008 at 11:55 AM EST Post a comment

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Google (Nasdaq: GOOG) dealt a huge blow to Yahoo Inc. (Nasdaq: YHOO) this morning, with an announcement that the search giant is backing out of the advertising deal the two companies had struck back in June. 

Today's news comes after the companies spent the last four months trying to sell the deal to government regulators and advertisers. However, despite Google's claims that "the agreement would have been good for publishers, advertisers, and users," the companies were unable to assuage concerns about the deal.

So, rather than risk a "protracted legal battle" with regulators or the possibility of damaging relationships with its ad partners, Google decided that it was better to end the agreement before it truly began.

While Google will lose a potentially lucrative new avenue for its advertising, Yahoo remains the big loser with the end of the agreement. When the deal was announced, Yahoo said it could contribute up to $800 million in additional revenues every year.

In its own statement, Yahoo said it "continues to believe in the benefits of the agreement and is disappointed that Google has elected to withdraw from the agreement rather than defend it in court." 

Complete text of the Google and Yahoo statements below.

Google statement:

Ending Our Agreement With Yahoo

In June we announced an advertising agreement with Yahoo! that gave Yahoo! the option of using Google to provide ads on its websites (and its publisher partners' sites) in the U.S. and Canada. At the same time, both companies agreed to delay implementation of the agreement to give regulators the chance to review it. While this wasn't legally necessary, we thought it was the right thing to do because Google and Yahoo! have been successful in online advertising and we realized that any cooperation between us would attract attention.

We feel that the agreement would have been good for publishers, advertisers, and users -- as well, of course, for Yahoo! and Google. Why? Because it would have allowed Yahoo! (and its existing publisher partners) to show more relevant ads for queries that currently generate few or no advertisements. Better ads are more useful for users, more efficient for advertisers, and more valuable for publishers.

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.

Posted by David Drummond, Senior Vice President, Corporate Development and Chief Legal Officer

Yahoo statement:

Yahoo! Announces Termination of Services Agreement by Google

SUNNYVALE, Calif., Nov 05, 2008 (BUSINESS WIRE) -- Yahoo! Inc. (Nasdaq: YHOO), a leading global Internet company, today announced that Google has terminated the advertising services agreement the companies announced in June. Yahoo! continues to believe in the benefits of the agreement and is disappointed that Google has elected to withdraw from the agreement rather than defend it in court. Google notified Yahoo! of its refusal to move forward with implementation of the agreement following indication from the Department of Justice that it would seek to block it, despite Yahoo!'s proposed revisions to address the DOJ's concerns.

While the implementation of the services agreement with Google would have enabled Yahoo! to accelerate its investments in its top business priorities through an infusion of additional operating cash flow, this deal was incremental to Yahoo!'s product roadmap and does not change Yahoo!'s commitment to innovation and growth in search. The fundamental building blocks of a stronger Yahoo! in both sponsored and algorithmic search were put in place independent of the agreement.

Yahoo! continually optimizes its algorithmic and sponsored search, and we have, in 2008 alone, developed and launched hundreds of improvements all designed to enhance search quality and deliver a more relevant search experience to the company's users. To that end, Yahoo! has benefited from strong revenue per search (RPS) gains in the U.S. as discussed on the Q3 earnings call. Furthermore, Yahoo! continues to make substantial progress against its Open Strategy and in the deployment of its game changing APT from Yahoo! display advertising platform.

Going forward, Yahoo! plans to continue to provide the cutting-edge advances in products, platforms and services that the industry needs and expects, and intends to be the destination of choice for advertisers and publishers who want to reach one of the largest and most engaged populations of consumers on the web.