This story was written by Joseph Weisenthal.
An old rumor resurfaces WSJ is reporting that Yahoo (NSDQ: YHOO) is in advanced talks with Google (NSDQ: GOOG) on outsourcing search ads. An announcement could come as early as today. The plan is for an initial test that would have Google's ads applied to a narrow percentage of queries, just to get a sense of the potential revenue impact. This is an idea that analysts have been flogging for some time, since well before Microsoft (NSDQ: MSFT) made its bid. A report last October from Sanford Bernstein analyst Jeffrey Lindsay estimated that by outsourcing search ads, Yahoo could achieve a 16 percent revenue increase alongside a 16 percent cost decrease, causing an immediate spike in profits.
However, at this point, it can't legitimately be called an alternative route for Yahoo, given that it doesn't do what Microsoft's offer doesnamely pay Yahoo shareholders somewhere around $31 per share. The article notes that this alone wouldn't necessarily torpedo a deal. But if Yahoo can come in with a strong Q1 and show convincengly that pulling this lever would lead to a positive revenue impact, then it could at least bring shareholders around to the idea that an independent Yahoo is the way to go.
-- A potential hurdle to such an arrangement: anti-trust issues. A report in February suggested that Google, having studied the legal implications of such an arrangement, lost interesting in pursuing such an deal.
More to come
By Joseph Weisenthal