Two of the top tech observers are drumming a death march for Yahoo in the wake of yesterday’s big announcement that the company had struck a search advertising deal with arch-enemy Google. Michael Arrington of TechCrunch and Om Malik of GigaOm both think the company has shot itself in the foot (or worse). Arrington:

The deal terms announced with Google appear to be fairly innocent - a non-exclusive arrangement that let’s Yahoo take Google’s ads if and when they choose to, and put them alongside their own ads, and/or other third party ads. But the truth is that this will cause even more advertisers to flee Yahoo’s platform. Which will drive auction-determined ad rates down. Which will drive Yahoo to take more Google ads. Which will…

It’s a vicious cycle and they will have no choice, as a public company, but to rely more and more on Google as time goes on.

Malik echoes Arrington’s feelings in his typically colorful way:

I think this is yet another critical blunder by a company that lost its way back three years ago when then CEO Terry Semel lost interest in the company, putting it on a path of mediocrity. Of course, as one of my gurus once said, in hindsight, everyone is an idiot (or a genius).

And while that might assuage the short term concerns Wall Streeters have, the company is shooting itself in the face with deal. It is a almost like knowing your spouse is going to divorce while standing in the aisle, waiting for the priest.

Arrington went on to argue that this deal hurts more than just Yahoo; it hurts everybody in Silicon Valley, because competition in the search space means better value for publishers. It’s hard to argue with that, but his blind spot — and frankly that of all Valleyites — is their failure to understand the potential for competing with Google at the local level. And to that, I’ll say, “We’ll see.”

For members of the Yahoo newspaper (and TV) consortium, this deal is likely creating some serious stomach churn. The long-term value prop for local media is Yahoo’s reach, which is a tricky beast that has a lot to do with brand and the fickle happiness of users. It’s hard to believe the company can keep up with the relentless pace of web development when it’s struggling with revenue problems downstream. As I have said all along, Yahoo needs the local media companies a whole lot more than the local companies need Yahoo, and this deal makes that even clearer.

So what the deal with Google means is uncertainty but probably not enough to disrupt the relationship at this point.

But the one certainty that the Web brings is change, and I’d be a fool to predict where this is all headed. I will repeat, however, that online revenue growth is guaranteed at the local level, and that the real competitor of all local media companies is Google, the company that Yahoo just snuggled up against.

This entry was posted on Friday, June 13th, 2008 at 7:53 am and is filed under Advertising, Disruptions, Reinventing Local Media, Yahoo!, Google. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.