Yahoo has just signed a deal to syndicate Google ads on Yahoo’s search, internal non-search and publisher networks, worth an annual $800 million in revenue.

Reflecting Google’s strength in growing its advertiser base (and share of advertiser budgets) and Yahoo’s continued inability to fully monetize its extensive inventory through its own platform, Panama, the deal should work well to both firms’ advantage. Google hasn’t been able to grow its inventory fast enough to match advertiser growth, and on the heels of a failed merger with Microsoft, Yahoo must demonstrate its ability to increase shareholder value through higher eCPMs.

There is also an opportunity for both to learn: Google on how its ads perform on a different search engine and set of properties, and Yahoo on how a competitive network’s ads work when integrated against its own ads. It’s not too hard to see how this deal will work to the benefit of Yahoo corporate, but to the detriment of its advertising platform.

One question comes to mind: for publishers running both AdSense and YPN on their properties (and there are a few), how will origin-AdSense ads work with AdSense-via-Yahoo ads on the same page? How Google manages its maximum-unit policy and performance optimization with this new potential wrinkle remains to be seen.

Both parties have submitted to a 3-1/2 month delay to make sure they don’t run afoul of regulators, which will give them time to sort questions like this one out.

This entry was posted on Thursday, June 12th, 2008 at 6:33 pm and is filed under Online Advertising. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.