Yahoo-Google pact seen likely after "brilliant" trial

May 9, 2008, 17:39 GMT

San Francisco - An advertising alliance between Yahoo and Google was viewed as increasingly likely Friday after Google CEO Eric Schmidt said a two-week test had been a 'brilliant' success.

Expanding the test, which involved Google serving ads on Yahoo's search pages, could increase Yahoo's revenues by over 1 billion dollars a year, since Google's algorithms are 70 per cent more successful at generating revenue-bearing click-throughs.

'We have had a brilliant test which was two weeks long,' said Schmidt at the company's annual shareholder meeting Thursday. Asked to comment on the scuttling of Microsoft's bid for Yahoo he replied: 'Obviously we are pleased that it's not going to happen.'

Google founder Sergey Brin amplified on the close ties between the two companies, which were both founded by graduate students at Stanford University.

'We were a big partner of Yahoo a few years ago,' Brin said. 'It's great to be working with them again.'

Brin implied that the companies were in advanced talks towards cementing an alliance. He said executives believed that they could circumvent antitrust concerns since the ads were allocated on an auction model which would prevent price fixing by what would be by far the most dominant advertising platform on the web.

Google and Yahoo started the test as a way to foil Microsoft's unsolicited bid for the company.

'We really believe in companies having choices in their destiny,' Brin said. 'They were under hostile attack and we wanted to make sure they had as many options as possible.'

Microsoft Chief Executive Steve Ballmer cited Google's test with Yahoo as one of his reasons for terminating negotiations with Yahoo's board. Microsoft formally withdrew its bid for Yahoo on May 3 after raising its offer from 31 dollars a share to 33 dollars a share. At the time, Yahoo said it would not consider a price below 37 dollars a share.