The End of Yang's Yahoo: Smaller and Still Looking For a Search Deal

(MoneyWatch)  Jerry Yang's demise as Yahoo CEO was signaled almost two week ago, when Google backed out of its planned search ad partnership with the struggling Internet giant. When antitrust concerns in Washington doomed the deal, Yang had no arrows left in his quiver. Even though Yang still believes in a Microsoft acquisition of Yahoo -- he said so on the day the Google deal fell through -- it still seemed doubtful that such a thing could ever happen on his watch, particularly after Yang managed to stiff-arm Microsoft earlier this year. (Yang is returning to the role of Chief Yahoo, a strategic post which hearkens back to the days when life at Yahoo was full of whimsy. Those were the days.)

Even if Yang is currently seen as a failure, however, you have to feel badly for how the rise of search advertising -- enjoyed, of course, mostly by Google -- backed crowd-favorite Yahoo into a corner. Yahoo has tried for years to gain just a little of the search mojo that Google has so long enjoyed. But when it finally decided that its best recourse was to partner with Google, the outcry that followed doomed the deal.

It wasn't just the government -- organizations such as the powerful Association of National Advertisers also objected. In a letter to the Justice Department, the ANA complained:

[T]he Google-Yahoo collaboration will likely lead to an increased concentration of market power that will adversely impact the marketing community. The impact of higher market concentration could result in reduced competition and leave advertisers with limited choices and alternatives to secure high-quality, affordable online advertising.

In other words, even if advertisers way prefer Google search ads to Yahoo search ads, they still need the Yahoo alternative around just to make sure that prices on Google don't spiral out of control. At this point, Yahoo will do a deal with either Microsoft or AOL; whether that means merger, partnership, or selling off its search-engine business is anyone's guess. It can't, though, simply fall back on what has long been its strength: online display advertising. In an increasingly bottom-line driven economy, marketers are demonstrating that they want to be able to prove what their advertising does for the bottom line. And that's what search does.

See also Yahoo Problems Belong to Board, Not Just Jerry Yang in the BNET Technology blog.