Posted by Tim Armstrong, President, Advertising and Commerce, North America

Yesterday I wrote about the impact of our recent advertising agreement with Yahoo! on advertising prices. There have also been some questions posed about the deal's impact on competition in the online advertising industry. Here are the facts:

Question: Is this agreement bad for competition?
Answer: Just the opposite. This agreement - unlike Microsoft's proposed acquisition of Yahoo! - means that Yahoo! will remain an independent company in the business of search and advertising. Yahoo! has stated that it will reinvest the additional revenue from this agreement into improving its user services and competing vigorously against Google, Microsoft and other companies. This is similar to other standard business practices where competitors share components. In addition, the agreement is non-exclusive, meaning Yahoo! could make a similar deal with another company.

Question: Some claim that Google and Yahoo! will have a combined 90% of the search advertising market. Is this true?
Answer: No. This agreement is not a merger. This is about expanding the pie, not dividing it differently. Yahoo! will continue to run its own search engine and advertising system. Yahoo! will benefit from Google ads in areas where they have low ad inventory and maintain control over how much and what inventory they make available to Google. Yahoo! will invest additional revenue in remaining a viable competitor in advertising.

Question: Will Google benefit from access to Yahoo!'s user data?
Answer: No. We have taken steps in the Yahoo! agreement to make sure that neither company has access to personally identifiable user information from the other company.

Question: Over time, will Yahoo! just outsource more and more of its ads to Google and cease to exist as an independent ad platform?
Answer: Yahoo! has made clear that it will still use its own system to serve ads, and it will use extra revenue from this deal to improve its ad platform. The arrangement only covers the U.S. and Canada, and does not cover the fast-growing mobile segment. Yahoo! also has a strong economic incentive to keep serving as many of their own ads as possible, since they get to keep all of the revenue from those ads, while Yahoo! will only receive a part of the revenue from ads served by Google. In addition, Yahoo! has a leading position in display advertising, and will be able to offer advertisers a unique combination of advertising opportunities.

Question: Once the deal is implemented, why would advertisers keep advertising on Yahoo!?
Answer: Yahoo! will make the sole decisions about when to use Google ads. They have stated that their plan is show them primarily on pages where few or no ads currently appear. The only way for an advertiser to guarantee placement for their ads on Yahoo! is to advertise through the Yahoo! platform itself.

The online advertising space is a competitive environment, and we believe that this agreement only furthers that competition. Consumers will see more relevant ads, advertisers will have new ways to reach customers more efficiently, and website publishers will benefit from our ad matching technology.

Update (9/19): This post was updated to remove an analogy that we have learned is incorrect.