Yahoo Signs Search And Ads Deal With Google, But Microsoft Is Still In The Picture

YahooGoogleSearchYahoo is entering into a search pact with Google that will allow it to power its Internet search and ad services with some non-Microsoft juice.

According to Yahoo, the agreement with Google provides Yahoo with “additional flexibility to choose among suppliers of search results and ads.”

Google’s offering will complement the services already provided by Microsoft. It will also enhance Yahoo’s own search and ad tech products, particularly Gemini, its native ads/search marketplace.

Because the deal is nonexclusive, Yahoo has the discretion to decide which ad service it uses to monetize its search queries.

But Yahoo CEO Marissa Mayer warned investors on the company’s Q3 earnings call Tuesday to expect the investment in Gemini to suppress revenue in the short term. With the hope that there will be better results and monetization in the long term, of course.

That suppressed revenue is also responsible for the roughly 2% YoY decline that Yahoo saw in its price per click in Q3.

Rather than making a capital expense with Gemini, Mayer said Yahoo will sacrifice some of its revenue in order to test its system, learning how to serve more relevant ads over time by gathering user feedback and interactions on search queries and optimizing results over time.

“Each interaction with a user teaches us something,” Mayer said. “And over the course of learning we can improve our performance.”

But if Gemini is so important to Yahoo, why the search deal with Microsoft and now Google?

“Having partnerships with both of the leading search providers provides for better competition and improved search in terms of user experience,” said Mayer, noting that the extra support supplied by the relationships with Google and Microsoft will help Yahoo “evolve our search to build and invest in differentiating our product, particularly in mobile.”

OK, but how will Yahoo funnel various search queries and how much will the agreement with Google help improve search monetization?

Mayer answered that with a bit of a tease.

“Expect to see a lot of our mobile traffic move to Yahoo Gemini and for us to develop technology that does a good job competitively balancing both Google and Bing traffic for monetization,” she said.

Yahoo will also be working to transition more of its advertisers over to Gemini, moving through its advertiser list vertical by vertical. Roughly 1,000 advertisers are using the Gemini search platform now. It will take each vertical around two or three quarters to optimize results, after which Mayer promised increased monetization and a boost in margins.

According to IgnitionOne in its Q3 digital marketing, the company said it expected for advertisers to slowly adopt Gemini as “the amount of shifted traffic from Yahoo/Bing to Yahoo Gemini increases.” When Yahoo feels more confident in Gemini’s search viability, the same will likely be true for Google.

The three-year partnership with Google will only be implemented following a voluntary regulatory review by the Department of Justice.

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