Yahoo Angers Microsoft by Proposing Google Ad Test

• By Kurt Mackie
• 04/09/08

Yahoo issued an announcement today that it plans to conduct a limited test of Google's ad search solution. Even though no commercial deal with Google has actually been made, Yahoo's announcement has already drawn the ire of Microsoft.

Microsoft responded today to the proposed Yahoo deal with Google with a prepared statement, which was attributed to Brad Smith, Microsoft's general counsel.

"Any definitive agreement between Yahoo! and Google would consolidate over 90% of the search advertising market in Google's hands," Microsoft's statement read. The statement reiterated Microsoft's position that its acquisition bid is the best deal for Yahoo's shareholders, a position that the Yahoo management and board has thus far rejected.

Yahoo plans to test Google's "AdSense for Search" service over a two-week period. The test will tap just three percent of Yahoo's search queries from yahoo.com in the United States.

Yahoo had been careful to point out in its press release that the test with Google "does not necessarily mean that Yahoo! will join the AdSense for Search program or that any further commercial relationship with Google will result."

At stake, in terms of the online search ad-generated revenues, is an estimated $25.9 billion in 2008, according to marketing analyst firm eMarketer, in a March 19 estimate. The firm expects that online ad revenues will continue to grow to reach $51 billion by 2012.

Microsoft didn't provide a source for its estimate that a Google-Yahoo definitive agreement would lead to 90 percent control of the search ad market. However, Google and Yahoo are No. 1 and No. 2, respectively in terms of online search use, according to Nielsen Online. According to that company's research, Google led in February of this year with 58.7 percent of searches. Yahoo's share in that same month was 17.6 percent, and MSN/Windows Live had an 11.2 percent share.

Microsoft has been engaged since the end of January in an acquisition bid for Yahoo. That bid took a particularly hostile turn this week after Microsoft CEO Steve Ballmer threatened to tilt Yahoo's board by packing it with members sympathetic to Microsoft's proposed acquisition bid.