Yahoo Partners with Google for Contextual Ads

In a blog post yesterday, Yahoo announced that it will be partnering with Google to display contextual ads on several Yahoo properties. These ads, which scan the content around them to determine which ads would be most relevant to the reader, could help increase clicks on Yahoo pages and, as a result, increase the company’s ad sales revenue.

Contextual advertising is one of Google’s specialties. Since the company launched AdWords back in 2000, it has been one of the most popular search and website advertising channels in existence. Website owners large and small frequently make use of Google’s Adsense product, which displays AdWords ads on a website and pays the site’s owner for each click the ads receive. It appears that Yahoo may be the next major site to begin utilizing Adsense units to provide contextual advertising to its users.

In addition to using Adsense, it appears Yahoo will also display other forms of Google advertising; specifically, Yahoo’s mobile apps might take advantage of Google’s AdMob service to serve targeted ads to mobile users. AdMob was specifically mentioned (along with Adsense) as a Google service Yahoo planned to implement.

Could this arrangement lead to something more? Possibly. Yahoo currently works with Microsoft’s Bing search engine for its search advertising business, but that deal was put into place two Yahoo CEOs ago when Carol Bartz ran the company. Rumor has it that current Yahoo CEO Marissa Mayer is less than enamored with the Microsoft partnership and the revenue it’s generating. Bing has only a small fraction of the search market, and doesn’t have the kind of contextual ad inventory that Google boasts. The problem with a Yahoo/Google search ad partnership is competition — if Yahoo partners with Google for search ads, Google inches its way toward a monopoly, and federal regulators won’t want that.

It’s an overall good sign for Yahoo, though, as it shows that Marissa Mayer is not content with sitting tight and letting things play out. She’s identifying issues within the company and making moves to put Yahoo in better situations. If I had to guess which partnership would be next out the door, I’d have to go with the Yahoo/Microsoft search ads partnership. The two companies struck a 10-year deal in 2010, but there are options Yahoo has for getting out of bed with Microsoft. Specifically, this section of the deal’s “Termination Provisions” (hat tip to Search Engine Land):

Yahoo! may terminate the Search Agreement if the trailing 12-month average of the RPS in the United States (the “U.S. RPS”) of Yahoo! and Microsoft’s combined queries falls below a specified percentage of Google Inc.’s (“Google”) estimated RPS measured on a comparable basis or if the combined Yahoo! and Microsoft query market share in the United States falls below a specified percentage.

Long story short, if Microsoft’s ads fail to come close to earning what Google’s ads earn, Yahoo can walk away. March 31 is the date when the deal’s revenue guarantees end, so we might find out sooner rather than later.

We’ll keep you up to date on any new developments in this story.