Yahoo-Google Deal, Redux

It is fitting that yesterday, on the eve of the Back to the Future II day, the search marketing industry received news of yet another tie-up between Yahoo and a previously prime competitor.

To recap, if you haven’t already heard: On its earnings call, Yahoo announced that they entered into a three-year deal with Google that gives them the option to display Google’s search results – paid ads and organic listings – on both desktop and mobile devices. If that sounds somewhat familiar, that’s because it’s almost exactly the same deal Yahoo has with Microsoft – struck back in 2010 and renewed earlier this year – with the difference being that Microsoft’s search results are limited to desktop. Furthermore, while Microsoft is guaranteed to have its ads shown on 51% of desktop searches, there is no such guarantee in place in the Google deal.

Great Scott, indeed! Not only does Yahoo have deals with their two biggest competitors in search, but this is also the second time Yahoo’s partnered with Google to power its search results.

So, what does this mean? What should we expect on both desktop and mobile in terms of competitor-derived search results on Yahoo, and what should we make of this for Yahoo’s Gemini platform?

Microsoft Will Get Its Share, but Google May End Up Winning

Firstly, Yahoo acknowledged their testing of Google search results at the beginning of the summer. Based on information received from various sources, we were led to believe that testing involved only 1% of traffic. However, back in September, our teams noticed the volume being tested seemed significantly higher. Now we have confirmation why.

Simple deduction would tell us that the economics of showing Google’s search results – be they from the revenue share cut, or simply higher ad CTR leading to more monetized clicks, or some other reason(s) – is delivering greater value to Yahoo than whatever Microsoft’s providing. After all, the deal with Microsoft guarantees a minimum of 51% of desktop searches, but it allows for Yahoo to do more. It appears that Yahoo believes it can get more money from the other 49% of desktop searches with other partners.

So, back to expectations. We see the following as being likely to inevitable:

Microsoft ads will show against 51% of desktop searches on Yahoo, and no more.

Google will power a significant portion of the remaining 49% on desktop, if not eventually all of it. After all, Yahoo’s Gemini is meant to be a pure play for mobile and native. Yahoo has no viable technology of its own on the desktop front. (A 40 was just poured for you, Panama.)

Google will also get a good portion of Yahoo’s mobile searches, though whether that subjective description means a majority or less remains to be determined. (Side note: Ironically, if Google ends up powering a fair amount of Yahoo’s mobile searches, then SEOs can rejoice since Yahoo’s mobile SERPs won’t be as cluttered as Google’s in terms of paid units usurping organic listings.)

Gemini’s Horoscope

The more open questions revolve around Gemini’s future, as well as how mobile searches will be handled.

The deal with Google can mean one of two things: either Yahoo is hedging its faith in Gemini, or factors are causing Gemini to not deliver as they expected/need it to. Those factors could include slow advertiser adoption, or, inferior performance.

That suggests to us that Yahoo will continue to test both Gemini ad results and Google ads on mobile. Gemini is still relatively new, so Yahoo may not want to give up on it so quickly. That said, Yahoo does not have a good history in terms of paid platforms, so having learned from past lessons, they may be quicker on the trigger now.

If only there was a time machine we could take to the future that will reveal to us how it all plays out… anyway, we digress.

Verdict: Yahoo’s Search for Optimal Monetization Continues

Ultimately, this deal confirms one thing – Yahoo still hasn’t figured out what it’s doing in search. It’s been that way for years, and it probably will be so for many more. At least they learned from their Microsoft deal, making the duration of this deal only three years. After all, 10 years in digital is practically an eternity. Hopefully for them (and for marketers), by the end of this deal, “buying” search on Yahoo will be a more straightforward proposition.

As we conclude this, we do want to call out that there are several outs written into this deal, making this exercise moot. The deal covers U.S. searches only, and in addition to being subject to U.S. regulatory approval, it can also be scuttled if Google thinks officials in the E.U. or India (places where Google is battling antitrust reviews) will raise a stink about it. Yahoo also technically has the option to not show any listings from Google, as there is no minimum. However, our take is that may be a ploy to put regulators at ease and increase the chances of approval.