Finally Yahoo decided to cave in and has decided to partner with Google to display relevant alongside its search results in the US and Canada. This surely is the beginning of the end of the ambitious Panama project.

If you remember Yahoo had announced a similar deal a couple of months back that was more of a test to see the returns from the ads by Google. From what I’ve heard, Yahoo was extremely satisfied with the returns and that’s why this deal is happening today.

Yahoo has spent a lot on Panama, the advertising platform that was built to compete with Google Adwords. But somehow Google managed to stay on, and Yahoo has seen less ad dollars compared to Google on its search advertising front.

You can read the Google blog post about the deal, but here is the main gist of the deal.

• The deal is non-exclusive. Yahoo will be able to run Google ads alongside Yahoo ads or other ad providers.
• The deal is expected to add $800 million a year in revenues and $250 million to $450 million in operating cash flow.
• The deal only applies to paid search and contextual ads, not to algorithmic search.

On a related note, Yahoo also has concluded all talks with Microsoft and decided to focus on its core business. I have no idea who’s going to benefit in this race of Internet domination that Microsoft, Yahoo and Google are vying for.

At the end of the day its Google who is playing the smart moves. Simply put this deal will start the decay of Yahoo Search, and who knows one day they might even outsource search to Google. Who wins? Google obviously.

As someone said, this deal is more like Ford signing a deal to have its cars built by Honda. By any means its an admission of failure, a failure by Yahoo to monetize its assets effectively and a complete failure in the search game.

I now wonder what does Microsoft get by buying a sinking Yahoo? Simply put Microsoft is a sinking ship too, and two sinking ships don’t make a cruise that is Google.

I have virtually have no interest in this deal, since this is the beginning of another round of internet domination by Google. But even otherwise I’d never want Yahoo to go into Microsoft’s hands. The big three are BIG only when they are left on their own, not when Yahoo becomes a mouse to Google or Microsoft.

On a slightly retarded note, I love the press release headline of Yahoo. “Yahoo! to Strengthen Competitive Position in Online Advertising Through Non-Exclusive Agreement With Google”

Really? Yahoo

Google’s press release is a better read though. Sound off your opinions of the deal in the comments.

Hot on the heels of the 3days ultimatum given to Yahoo by Microsoft, Yahoo is doing everything it can to subvert the deal. Yesterday it acquired analytics startup Indextools and today it has announced a search advertising deal with Google.

Here’s the press release :

Yahoo! Inc. , a leading global Internet company, announced today that it will begin a limited test of Google Inc.’s AdSense for Search service, which will deliver relevant Google ads alongside Yahoo!’s own search results. The test will apply only to traffic from yahoo.com in the U.S. and will not include Yahoo!’s extended network of affiliate or premium publisher partners. The test is expected to last up to two weeks and will be limited to no more than 3% of Yahoo! search queries.

Looks like Yahoo has finally given up on Panama. A report from last year shows Google’s RPS (Revenue Per Search) at $25, versus $16 for Yahoo. So if the RPS has remained more or less the same for the past year, this deal could mean more cash in Yahoo’s registers. Google’s earning atleast 30% more than Yahoo, and considering that Yahoo’s major source of income is from advertising, this deal could help the company deliver a better than expected Q2 earnings call.

Microsoft’s reaction to this deal was on the expected lines, saying that it would give Yahoo+Google an unprecedented market share of nearly 90% in online advertising, which it thinks isn’t good for the internet.

Eventhough Yahoo has mentioned that this is a test run and will last for only two weeks, at the moment it looks like Yahoo is looking for a long term relationship with Google rather than being acquired by Microsoft.

The evil side of me thinks that, Google will give higher quality ads than usual so that it could win the confidence of Yahoo, and in turn stop the Yahoo – Microsoft merger from happening.

What do you reckon will be the implications of this deal in the trilogy of Google-Yahoo-Microsoft?