growing roster of rivals may be boosting its closest competitor of all:
On Tuesday, Yahoo! announced a
new multiyear partnership with
. Under the terms of the arrangement, Yahoo! will power the sponsored and contextual searches for 33 of Viacom's online sites.
The deal is hardly an immediate windfall for Yahoo!. Annual revenue will come in at only about $24 million to begin with, Merrill Lynch analyst Justin Post estimated in a research note Tuesday. Merrill Lynch makes a market in Yahoo! shares.
Though shares of Yahoo! slipped 1.6% to $31.17 on Wednesday, the Sunnyvale, Calif., company has rallied roughly 25% since the beginning of the year. Investors await the company's first-quarter earnings announcement next week. Viacom dropped 1.4% to $40.08 Wednesday.
But a Viacom relationship is rife with potential. In a statement, the companies said that the deal has the possibility of expanding to another 140 Web sites Viacom operates across the globe. Over time, those numbers could start adding up.
While the party line made sure to plug Yahoo!'s recently launched Panama -- "Yahoo! has made impressive strides with its new search-marketing system," Viacom CEO Philippe Dauman said -- the move has as much to do with Google as with Yahoo!'s new technology.
Viacom is embroiled in a bitter high-profile battle with Google. At the same time, it needs to find a way to make more money from its Web presence. Almost by default, and even without Panama, this makes Yahoo! the go-to partner. And as Google encroaches on an increasing amount of turf, the pattern may play out across a number of different industries.
$1 billion lawsuit Viacom has filed against Google and the acrimonious exchanges between the two companies, a deal seems out of the question. Viacom, in the interim, is striving to make the most of its popular online Web destinations.
The company, which bills itself as "the No. 1 online entertainment destination and the 11th most-popular overall destination on the Web," in February alone claimed 90 million unique visitors to its Web sites.
With its hefty audience, Viacom is reportedly hoping to bring in $500 million in revenue attributable to its digital efforts for the year. While products ranging from video to mobile advertising will contribute to this, putting click-through ads on its popular Web properties is an obvious step toward that goal. According to Post's estimates, the Yahoo! deal should bring in $136 million.
Still, Viacom will likely be leaving money on the table compared with what it could have earned had it gone with Google. While click-through rates may be improving thanks to Panama, Yahoo!'s still lag behind Google's. Bids for keywords tend to be higher on Google's ad network as well.
But with Google out of the picture, Yahoo! becomes the next-best alternative.
MSN engine, the other big option, packs even less punch than Yahoo!.
Additionally, Viacom, though wary of Google encroaching on its turf, isn't the only company hoping to take advantage of the growing power and reach of Internet search engines.
, for example, may find itself in the same conundrum.
While the auction giant is one of Google's largest customers, it is also cautious of the checkout service Google announced in 2006. Google Checkout allows consumers to pay for items over the Internet and competes with eBay's PayPal service.
This puts eBay in a dilemma. On the one hand, eBay can shift its budget to less-effective search engines and watch the number of customers brought to its site drop. Or, it can help line Google's pockets further, knowing full well that part of those proceeds will help the search giant continue to offer the aggressive promotions it has to its Checkout users.
For eBay, this could make Yahoo!, with which it also has a partnership, that much more attractive.
Given the scope of Google's ambitions, even some phone companies may face a similar trade-off. Take
, which made headlines recently when
it threatened to walk from a deal that it had with Yahoo!.
But while Google could likely pay the company a tidy sum for its role in routing its broadband customers to its search engine -- under the current scenario, AT&T actually pays Yahoo! -- AT&T might be looking at a partial competitor in the search giant as well.
That's because, starting in San Francisco, Google is thinking about rolling out a free Wi-Fi broadband network in major metro areas. For the broadband access companies that spent fortunes laying out these networks, this essentially amounts to Google giving away one of its hottest and most expensive products.
As Yahoo! and AT&T renegotiate terms, this is likely to weigh in Yahoo!'s favor.
Indeed, Viacom may not be the first company threatened by Google that winds up benefiting Yahoo!. In March,
NBC Universal and
announced a partnership to stream their video libraries over the Internet.
Yahoo!, along with other prominent Internet media companies, was slated as a distribution partner. The deal will result in free content and traffic for Yahoo!, even as old media companies give away their most precious content.
As fears about Google's power continue to grow, so will Yahoo!'s attractiveness as a partner.