Yahoo and Google see new model in ad partnership

By Michele Gershberg and Eric Auchard

NEW YORK/SAN FRANCISCO (Reuters) - A partnership between archrivals Google Inc (GOOG.O: Quote, Profile, Research, Stock Buzz) and Yahoo Inc (YHOO.O: Quote, Profile, Research, Stock Buzz) to sell search advertising could expand over time, though some experts wonder whether Yahoo hasn't handed over its own house keys in the deal.

In announcing the agreement on Thursday, Yahoo and Google executives described it as a new, more open model for selling online advertising even while they remain competitors. They said that other industries have built islands of cooperation in some markets while vying for revenue in others.

"This deal in many ways reflects an emerging and new structure for the industry," Google Chief Executive Eric Schmidt said on a conference call. "Certainly we'd like to do more business with Yahoo over time."

Under the agreement, Yahoo can run ads supplied by Google alongside its own search results and on some of its websites in the United States and Canada. Each placement will be a mini-auction run by Yahoo in which Yahoo and Google bid to sell the ad.

Schmidt also said he would consider expanding the agreement overseas, but expects the current deal in North America would be "very successful."

At the heart of the deal is Yahoo's effort to remain in control of its business after sidestepping a $47.5 billion buyout attempt by Microsoft Corp.

Just hours before unveiling the Google partnership, Yahoo said talks with Microsoft over a proposal to buy its search business had failed. But some analysts question whether Yahoo hasn't tacitly given up its own claim to search.

"Google basically just got a great way to make money off its chief competitor," said Forrester's Shar VanBoskirk. "The grander strategic question for me is why turn down one competitor and let your other, bigger competitor actually into your house so they have visibility into what you are doing?"