Here are our notes from Yahoo’s conference call today discussing it’s new search advertising partnership with Google. CEO Jerry Yang and President Sue Decker spoke and took questions
Jerry Yang: Our discussions with MSFt have concluded, after a number of meetings, including a meeting on June 8 in which chairman Roy Bostock and management participated. Discussed a number of transaction options. Microsoft stated unequivocally it didn’t want to buy all of Yahoo. Microsoft’s search offer is not in best interest of Yahoo stockholders.
The agreement with Google does not preclude a change of control agreement with a third party. Clearly it is time to move on.
Deal with Google strengthens competitiveness. The strategy is to capture the growth opp in the online ad market. Core to this strategy is the convergence search and display. We view an open strategy as the key to future success.
We have taken a number of steps already down this path. The commercial agreement with Google promotes growth and profitability.
We entered into a commercial agreement—yahoo will serv paid search ads from Google along Yahoo search results.
Panama continues to operate.
The deal is non exclusive. Paid listings can come from anyone else.
It is a 10 year deal, with a 4-year initial term, and two 3-year renewals at yahoo’s option. US and Canada only.
Both companies voluntarily agreed to delay implementation for 3 and a half months while Dept. of Justice reviews.
Expect $250 to $450 million in incremental operating cash flow. We believe there is $800 million revenue upside opportunity in US and Canada for search queries where upside opportunity exists.
See this as a natural extension of Right Media acquisition, and the upcoming ad management platform launch. Part of natural efforts to pursue an open marketplace. We believe an open marketplace is critical.
Sue Decker: We are really excited about the potential of what we are announcing. It allows us to do what we do best. And it gives Yahoo full control over all aspects of its business.
Hallmark of this agreement is its flexibility. It also enhances our options. Lets us determine whether and how we display Google’s paid search ads alongside ads from our own Panama marketplace. We will display Google paid search results where they deliver better value. We decide how much of our search inventory will display those ads. We keep unfettered control over the user experience.
Advertisers pay Google directly, Google will then pay us TAC for clickthroughs. Our advertisers continue to pay us for our ads.
AMP, new display ad platform, will be available next week. Recent announcements such as SearchMonkey, Search Assist, Buzz and others are showing success with consumers. We remain strong in algorithmic search.
Agreement also includes interoperability between Yahoo and Google’s instant messaging platforms.
Jerry Yang: Talks about how this will maximize stockholder value.
Q&A
Q: Will advertisers still want to buy Yahoo when they can get on Yahoo pages through Google’s advertising system? Why learn two systems? Any interest in serving yahoo ads on Google pages?
Sue: One thing we learned is that GOOG monetizes well for query ads, but not as competitive in the tail. So we want control in segments where we are comparable in terms of performance. So with this we get the best of both worlds.
We might look into helping them with display ads on Google.
Q: What percentage of search queries do you expect to show google ads?
Sue: There is a considerable amount we think we can continue to monetize in the head of the curve. [Doesn’t answer].
Q: How much was the TAC split debated?
Sue: It is competitive.
Q: Do you think there are opportunities where partner sites will go to GOOG and bypass Yahoo, and are there minimum guarantees?
Sue: Yahoo Partner network is included in this deal. That will be an option. The deal does not extend to new partners that join our Publisher network. I can’t comment on financial terms in terms of guarantees.
Q: Is this a different set of advertisers, and is the $800 million annual?
Sue: The revenue opportunity is annual, based on current monetization numbers not future. We are open to third party networks in display in the way we are now with Google. We think an open approach will assure scale and the best advertising rates and the best match for consumers.
Q: What will be the biggest regulatory hurdle?
Yang: Given it is a commercial agreement, no regulatory hurdle. But we agreed with the Dept. of Justice on a voluntary basis to a 3 and half month review. We have engaged with Google to backfill our ad inventory.
Q: What revenue might you be cannibalizing?
Jerry: The ramp towards full implementation, we won’t be talking about that. We want to leverage this relationship to build a sustainable marketplace around Yahoo. As we learn of ways to create benefits for Yahoo advertisers, we will understand more as we get into it.
Sue: What we saw from testing was consistent. When we contemplate incremental cash flow as we ramp up, we contemplate how we may ramp that up in various verticals or queries where Google is strong and we don’t have a strong position now.
[That’s it. Conference call is over].
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