Winners and Losers in the Google-Yahoo! Rift

Yahoo! (YHOO - commentary - Cramer's Take) shares closed up more than 4% Wednesday (in an overwhelmingly down market, no less) on the news that Google (GOOG - commentary - Cramer's Take) terminated efforts to start an outsourcing advertising agreement with the company. Given that the Google ad deal could have provided $800 million in annual high-margin incremental revenue to Yahoo!, why were shares up on the news? In short, investors are now expecting that Yahoo! has limited options and that a transaction with Microsoft (MSFT - commentary - Cramer's Take) must now occur.

Let's take a look at the winners and losers from Wednesday's news.

No. 1 Winner: Microsoft

The company had been lobbying hard in Washington to prevent this deal from happening. The reality is that a Google-Yahoo! outsourcing deal would essentially consolidate the market down to Google. Running a performance-based advertising campaign takes effort, and search marketers would consolidate over time toward just using the Google platform. Search marketers would welcome the simplicity and ease of analytics that comes from using one platform to purchase inventory -- particularly if that platform included Yahoo!.

Microsoft now has all the leverage in any discussion regarding taking over Yahoo!'s search. While some investors may still hope for an outright acquisition, the barriers that made a transaction difficult earlier in the year still remain. These include

1. regulatory -- with approvals likely needed in the U.S., Europe and China;
2. time -- closing the deal could easily exceed a year even if regulatory approvals were granted; and
3. employee culture -- but this last point is less of an issue as many Yahoo! employees may welcome the stability of the Microsoft platform.

No. 2 Winner: Search Engine Marketing Firms

There are multiple start-ups built around managing the complexity of search marketing. Companies such as Clickable, Efficient Frontier, Kenshoo, Marin Software, DidIt and a host of others make a living trying to drive cross-platform results for advertisers. A Google consolidation of the market could remove the reason for their existence.

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At time of publication, Gillis had no positions in the stocks mentioned, although holdings can change at any time.

Colin Gillis is a managing partner at Click Capital -- a specialized research and consultancy targeting the Internet sector. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.