Google Flaunts Deep Pockets

Google's(GOOG Quote - Cramer on GOOG - Stock Picks) latest linkup deals another setback to search also-rans Yahoo!(YHOO Quote - Cramer on YHOO - Stock Picks) and Microsoft(MSFT Quote - Cramer on MSFT - Stock Picks).

New York's News Corp.(NWS Quote - Cramer on NWS - Stock Picks) says it considered other search partners for its MySpace and related Web sites before formalizing Monday's landmark agreement with Mountain View, Calif.-based Google. Those alternatives included incumbent Yahoo!, Microsoft's MSN and IAC/InterActiveCorp's(IACI Quote - Cramer on IACI - Stock Picks) Ask.com.

But given Google's aggressive defense of its search engine leadership and the company's deep pockets, there was little doubt among investors about who would end up getting the deal.

"The general betting line was that Google would get it and Yahoo! wouldn't," says Martin Pyykkonen, an analyst with Global Crown Capital, who rates Google and Yahoo! shares as overweight and doesn't cover Microsoft. "It was already baked into expectations."

The News Corp. partnership highlights how the Google is moving beyond search. Rupert Murdoch's media empire gave Google the right of first refusal to sell display advertising on its Web sites through third parties.

The ties between Google, the No. 1 search engine, and MySpace, one of the Web's most popular sites, were already pretty strong. Hitwise estimates that about 10.8% of Google's traffic came from MySpace during the week ended July 29. Google was so intent on cementing its relationship with News Corp. that it included guaranteed payments in its bid -- payouts so big that none of its rivals could afford to play.

"One thing is certain: Yahoo and MSN would have loved to sign News Corp. but could not make sense of a $900 million guarantee," writes RBC Capital Markets analyst Jordan Rohan, who rates Google shares as a buy, in a note to clients Tuesday. "The company's monetization advantage over MSN and Yahoo clearly played an important role, as the $900 million guarantee would likely be a loss generator for either competitor."

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