Technology giants Yahoo! Inc. YHOO and Google Inc. GOOGL are working on a collaboration, as confirmed by the companies to The New York Times.
Yahoo is testing search results and ads results powered by the search giant, which means Google could become the search and ads results supplier to Yahoo.
Background
Microsoft Corp.’s MSFT Bing currently provides search results to Yahoo. The two companies extended and revamped their 6-year old original search alliance, in which Microsoft offers the tools for web search results and shares ad revenues with Yahoo!.
Under the amended agreement, Yahoo gained more control over the presentation of search results on desktops and mobile devices and the liberty to work with other partners in search on its own websites. It is no longer bound to use Microsoft to serve all the ads on desktop searches.
Yahoo is therefore utilising this flexibility to enhance the search experienceby partnering with others. So who could be better than the seach giant, given its existing dominance and humongous market share in search.
comScore’s May 2015 U.S. desktop search report, revealed that Google still owned 64.1% of market share (down 0.1% from April), Bing held 20.3% (0.1% above April’s 20.2%) share, Yahoo was flat at 12.7% while Verizon's VZ AOL gained 0.1% to 1.2% in May. Moreover, Google still owns three times more market share than Bing.
Will they reach an agreement?
In 2008, Google and Yahoo attempted to get into a search-ad deal, which would enable Google to place its ads on Yahoo search results. But the deal could not materialize due to months of regulatory inquiry and opposition from competitors, including Microsoft.
But the competitive landscape has changed a lot in the last few years and Yahoo no longer holds as large a slice of the search and online ad share as it did back then.
At present Google remains very strongly positioned and Microsoft remains a strong number two.
If a deal comes to fruition, it's possible it could overcome regulatory barriers, especially in light of the fact that the search market is evolving and Microsoft itself is now a much stronger player.
Both Yahoo and Google have a Zacks Rank #3 (Hold).
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