SAN FRANCISCO - In an effort to salvage their online search deal, Yahoo! ( YHOO) and Google ( GOOG) have reportedly agreed to revise the terms in the hopes of bypassing any challenges from the U.S. Justice Department. According to a report in the Wall Street Journal, the two companies submitted a new plan to the Justice Department over the weekend, in which they reduced the number of years they would engage in the search deal to two from 10. They also agreed to limit the revenue Yahoo! can generate from the deal to 25% of its total search revenue. At the same time, Google advertisers will get to decide whether or not they want their ads to appear on Yahoo! sites. A Google spokesman would not confirm the Journal's report, and instead reiterated the company's previous statement on the issue. "We are continuing to have cooperative discussions with the Department of Justice about this arrangement and agreed to a brief delay in implementing the agreement while those discussions continue," the spokesman said. "We are confident that the arrangement is beneficial to competition, but we are not going to discuss the details of the process." A Yahoo! spokeswoman offered a similar response: "As we have said, we believe strongly that this agreement will strengthen Yahoo!'s competitive position in online advertising and will help to drive a more robust, higher quality Yahoo! marketplace for our advertisers, publishers and users." On Friday, the Journal reported that both Yahoo! and Google were considering scrapping the deal altogether, but now it seems the two sides are willing to take whatever steps necessary to ensure the agreement goes through.
In June, Yahoo! and Google announced that they would enter into an arrangement that would allow Yahoo! to outsource some of its online search ads in the U.S. and Canada to Google. The two would in turn share the revenues generated from those ads. Yahoo! expects the deal to generate $250 million to $450 million in incremental operating cash flow, as well as an $800 million annual revenue opportunity. Google has never provided an estimate as to how much money it would receive from the arrangement. Both companies agreed to delay the search deal in order to give the Justice Department more time to review it. But as more time passed, the opposition seemed to grow more vocal. Several advertising organizations have claimed that the deal would stifle competition and raise ad prices. The European Commission is also looking for any potential antitrust violations.