Microsoft's plan to establish a strong footing in online advertising suffered a big blow on Thursday as merger talks with Yahoo finally, formally failed and Yahoo said it would let Google sell search ads on its site.
it had agreed to let Google put search ads -- advertisements placed next to search results -- on its site in what it called an $800 million annual revenue opportunity that would boost cash flow by $250 million to $450 million in the first 12 months.
The process is nonexclusive, meaning others could join in the bidding to place ads, a factor that could make a deal easier to pass regulatory approval. The companies agreed to wait 3-1/2 months for regulatory approval and to offer a way to end it if Yahoo is taken over.
Yahoo! CEO and co-founder Jerry Yang said, "We believe that the convergence of search and display is the next major development in the evolution of the rapidly changing online advertising industry. Our strategies are specifically designed to capitalize on this convergence -- and this agreement helps us move them forward in a significant way. It also represents an important next step in our open strategy, building on the progress we have already made in advancing a more open marketplace."
"This commercial agreement provides Yahoo! with the opportunity to deliver more relevant ads to users and provide advertisers and publishers with better advertising technology to help them succeed in their own businesses," said Eric Schmidt, Chairman and CEO of Google. "This agreement will preserve the competitive and dynamic online advertising space."
Yahoo! today announced that discussions with Microsoft regarding a potential transaction -- whether for an acquisition of all of Yahoo! or a partial acquisition -- have concluded.
Yahoo simply said that an alternative Microsoft proposal to buy only its search business did not fit into its plan to grow search and display advertising.
Microsoft's released the following statement:
"In the weeks since Microsoft withdrew its offer to acquire Yahoo!, the two companies have continued to discuss an alternative transaction that Microsoft believes would have delivered in excess of $33 per share to the Yahoo! shareholders. This partnership would ensure healthy competition in the marketplace, providing greater choice and innovation for advertisers, publishers and consumers."
"As stated on May 3rd and reiterated on May 18th Microsoft was not interested in rebidding for all of Yahoo!. Our alternative transaction remains available for discussion."
Today's news could mean the end of discussions between Microsoft and yahoo!. Analysts said they did not expect that Yahoo and Microsoft would try another round of negotiations.
Icahn, who has waged a proxy battle to remove Yahoo's board at its August 1 annual meeting, had urged Yahoo to secure a higher price from Microsoft. Icahn has said a partnership with Google should only be a second choice.