The fog of war has lifted from Yahoo: Microsoft has walked away, Yahoo claims victory and Google ends up with the spoils. In response to the failed Microsoft bid Yahoo announced a “Non-Exclusive Search Agreement” with Google. In short, this means that Yahoo will outsource a portion (whatever that means) of its search and display advertising business to Google in exchange for a lot of cash.

Some people seem to think this is a good deal but from a search marketer’s perspective, it is not. At first sight I would welcome a standard advertising platform that allows marketers to target specific search engines. But the terms of the deal are half-baked. Yahoo will not abandon its Panama platform in exchange for Adwords but do they really think advertisers are going to bother to use 2 different systems to achieve the same goal? I really can’t see that happening and unless Yahoo is prepared to over time outsource all its advertising to Google it should realise it just rolled in the Trojan horse.

The deal also stifles competition in the market even further. The Big Three (Google, Yahoo, MSN) have distinct characteristics and different users. Most marketers for instance will tell you that MSN has much better converting traffic than the other two and that Google is definitely the most expensive to advertise on. By effectively swallowing Yahoo, Google gives marketers even less choice of where to spend their budgets.

Perhaps, if Microsoft plays its cards right, it could gain something from this after all. Now that Yahoo has made itself irrelevant in terms of search advertising, marketers only need to distribute their budget between Google and MSN. A much easier decision to make than having to split a budget three ways.

Your thoughts?