Google Signs Global Advertising Deal with Yahoo!

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Yahoo! (NASDAQ: YHOO) and Google (NASDAQ: GOOG) have hooked up in a global deal that results in Google ads appearing on some of Yahoo!’s websites. The global, non-exclusive agreement will put Google’s Adsense ads on Yahoo!’s network with the ultimate purpose of showing better targeted and relevant ads for the Yahoo! visitors. In exchange, Google acquires extra visibility with this new deal.

On the corporate blog of Yahoo!, they don’t disclose much information about their deal with Google:

At Yahoo!, we’re focused on doing everything we can to make the user experience inspiring and engaging. One way we do that is by providing relevant and well-targeted content -- whether that be editorial or advertising content.

Yahoo! users won’t note anything different in how and where the ads appear. It’s really a back-end deal that works on getting the right ad to the right user at the right time. This relevant and holistic experience of editorial content and advertorial content is what Google’s contextual advertising is great at, or at least better than others.

Google’s contextual advertising

I had the opportunity to do a massive amount of Google’s contextual ad buying for an ex client of mine five years in a row. This gave me a pretty good view of the developments in Google’s contextual advertising business.

It’s really an interesting sub-segment of paid advertising. Search advertising is true pull marketing, showing ads that only appear when a user is looking for something on that specific subject. Contextual advertising, on the other hand, is push marketing in an integrated way. When someone is reading about a city where he or she might potentially go on vacation, contextual ads will appear that focus on that specific city. That way, the web property is creating a holistic experience, benefiting from Google’s advertisers and network, which basically means a plug-and-play system for the web property.

Contextual advertising results vary more, because the intention is not known from the user.  Is the user simply searching for information, or does he want to book a vacation? This is where the complexity kicks in and where Google is great at providing good results to advertisers and web property owners.

In those five years the enhancements and relevancy of Google’s contextual advertising has increased a lot, but it’s still a challenging business. It’s all about natural language, behavior, intention and so on, so it requires continuous tweaking in “understanding” content on webpages and intention of users.

What does this mean for the Bing Yahoo! deal

Microsoft (NASDAQ: MSFT)'s Bing has an exclusive deal with Yahoo! to serve their ads on Yahoo! search queries, a deal that is running until 2019.

At this point in time Yahoo! is already showing Bing contextual ads on their web properties, due to the deal the closed last year with Bing and, resurrecting their Publisher Network.

I don’t know the exact performance of Bing’s contextual ads, but when compare the effectiveness of Bing’s search engine ads and Google ads, it’s again Google that “wins” this battle, meaning more pressure and challenges for Microsoft’s online business. If Yahoo! sees a better return per web property through Google than through Bing served ads, Microsoft could end up on its own again.

This won’t be a good scenario as Microsoft invested billions in its search initiatives to gain momentum in the sector. Critical mass is what Google has in relation to search queries, and now gets extra visibility through the Yahoo! network and what Yahoo! has with content platforms. Microsoft keeps on innovating and experimenting, and Bing needs to keep innovating in niches where they have advantages over Google and Yahoo!

Yahoo! made a smart move by partnering with Google and allowing that company to excel in what it does best. This way Yahoo! can focus even more on the content whilst Google can show Yahoo! what their algorithm is worth.

All-in all this is a very interesting development that will create additional pressure and challenges for Microsoft.

GLCuccureddu has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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