The move follows the definitive closure of takeover talks between Microsoft and Yahoo! and is seen as a way for Yahoo! to bolster support that has flagged in recent months due to boardroom acrimony and negative publicity.
The deal is non-exclusive, with Google ads served alongside those produced by Yahoo!’s internal Panama ad system and those from third pary providers, and Yahoo! says it expects the agreement to pass regulatory hurdles as it does not create an anti-competitive entity.
Yahoo! says the deal is expected to bring in between USD250-USD450m in the first year of operation, with up to USD800m a year in revenue expected once it is established.
The agreement will see Yahoo! will select the search term queries and pages for which Google may acquire paid search results, with the selection balanced by the results served from Panama and other advertisers, and will only apply to paid search and content match results, not algorithmic searches.
Yahoo! chief executive Jerry Yang says the deal is the first step in Yahoo!’s new ‘open’ strategy and will provide revenues to invest in other areas of expansion.