While shares of Yahoo clung to some gains after Microsoft withdrew its 13-week old effort to acquire the company, a minimal agreement for search ad outsourcing may pry up those clinging fingertips.

A billion dollars a year by dropping Google AdSense into Yahoo Search results? Don’t believe it, Silicon Alley Insider said. They picked apart Citi analyst Mark Mahaney’s billion dollar cash flow prediction:

How do we know? Because that Mahaney $1 billion incremental cash flow estimate is based on the premise that Yahoo will:

Outsource 100% of its search business to Google
Fire everyone associated with its internal search business, thus savings hundreds of millions in costs.

In fact, Yahoo has stated clearly in recent days that it has no intention of getting out of the principal search business, which means that it won’t be firing everyone associated with Panama (or even anyone). Second, Yahoo and Google sources have also made clear that they are considering only a partial outsourcing deal, in which Google monetizes only a fraction of Yahoo’s search queries.

A little Google will be better than no Google for Yahoo. But there’s a bigger picture than Yahoo digging in its heels over running a search engine, for which the two companies can thank the Department of Justice, and Microsoft.

Any massive deal where Google would take over Yahoo’s search business, particularly the advertising side, would have DoJ antitrust regulators probing that deal heavily. You can be sure of the cheerleading from Microsoft on the sideline to encourage this. Microsoft has years of experience dealing with DoJ on monopoly issues, expertise they’ll likely mention publicly to helping along any investigation.

Posted on Wednesday, May 7th, 2008 at 1:29 pm. Permalink