Update: And it’s official. Yahoo (NSDQ: YHOO) will begin a limited test of AdSense for Search
– The test will only apply to US searches off of Yahoo.com, and will not affect affiliates in any way.
– It will just run for two weeks, and will be limited to 3 percent of search queries, underscoring the fact that this is all about gaging the impact of such a move.
– The announcement maintains that the company has not made a decision to permanently join the AdSense for Search program, and that it’s all part of an ongoing effort to pursue commercial business relationships that enhance shareholder value.
Update 2: Microsoft (NSDQ: MSFT) is already throwing cold water on the news. The company claims, via MarketWatch, that an ad tie-up would give Google (NSDQ: GOOG) 90 percent of the market — a clear nod to regulators (see below). And it adds that it continues to assess all of its options
Original post: An old rumor resurfaces… WSJ is reporting that Yahoo is in advanced talks with Google on outsourcing search ads. An announcement could come as early as today. The plan is for an initial test that would have Google’s ads applied to a narrow percentage of queries, just to get a sense of the potential revenue impact. This is an idea that analysts have been flogging for some time, since well before Microsoft made its bid. A report last October from Sanford Bernstein analyst Jeffrey Lindsay estimated that by outsourcing search ads, Yahoo could achieve a 16 percent revenue increase alongside a 16 percent cost decrease, causing an immediate spike in profits.
However, at this point, it can’t legitimately be called an alternative route for Yahoo, given that it doesn’t do what Microsoft’s offer does — namely pay Yahoo shareholders somewhere around $31 per share. The article notes that this alone wouldn’t necessarily torpedo a deal. But if Yahoo can come in with a strong Q1 and show convincingly that pulling this lever would lead to a positive revenue impact, then it could at least bring shareholders around to the idea that an independent Yahoo is the way to go.
– A potential hurdle: anti-trust issues. A report in February suggested that Google, having studied the legal implications of such an arrangement, lost interesting in pursuing such an deal.