Thursday, April 17, 2008

Yahoo Set to Expand on Two-Week Ad Trial With Google

Yahoo Inc. moved closer to outsourcing its search advertising to Google Inc. after an initial test of the system yielded what the two firms deemed positive results, people familiar with the matter said. A partnership could give Yahoo some needed leverage as it tries to ward off an unwelcome $42 billion bid from Microsoft Corp. Some view the potential pact as mere gamesmanship, particularly in light of antitrust concerns that a Google-Yahoo linkup would likely raise. Still, a Yahoo partnership with Google is now increasingly likely, the people said. Yahoo and Google said last week they would undertake the preliminary test in order to evaluate the potential of a broader search-ad outsourcing arrangement. Such a deal could increase Yahoo's cash flow by more than $1 billion a year, according to Citigroup Global Markets analyst Mark Mahaney. The reason is that Google's system generates significantly more revenue for each search query than Yahoo's does.

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