When asked how Yahoo would compete in the tech industry without a mobile strategy, operating system, and Internet browser, Yahoo CEO Marissa Mayer told employees the company will "partner," according to sources. So on Wednesday, Yahoo announced a non-exclusive display ad agreement with Google amid the deafening reaction to Enhanced Campaigns, Google's AdWords tool that now combines desktop and mobile paid-search ad creation, targeting and reporting.
Adding Google to the list of contextual ad partners will enable Yahoo to expand its network. The agreement to display ads on Yahoo properties and some co-branded sites using Google's AdSense for Content and Google's AdMob services follows Yahoo's strategy to partner with those who have specific competencies.
J.P. Morgan Analyst Doug Anmuth believes that allowing Google to sell unsold "Class 2 inventory" should improve pricing while enabling Yahoo to focus sales efforts on large advertisers. It also enables the company to focus more on content and products to drive greater overall engagement. He explains that Google brings significant scale benefits to Yahoo's inventory, such as a broad base of advertisers, strong targeting capabilities, and valuable pricing insights across 2 million publishers.
Partnerships, under CEO Marissa Mayer's watch, will become very important. During Yahoo's Q4 2012 earnings call last month, Mayer said: "Yahoo has always excelled at partnerships, and in Q4, we were excited to establish a partnership between Yahoo Sports and NBC Sports. This strategic alliance brings together their broadcast expertise with our reach and best-in-class fantasy products."
Mayer also explained how Yahoo's partnership with CBS brings Yahoo to millions of nightly viewers with six prime-time airings weekly. Early ratings show viewership rose more than 20% in key demographics.
Partnerships were used in the early 2000s in the electronics industry, as companies wanted to become the one-stop-shop for all, but didn't have the expertise to become the expert or jack of all trades. Capital also became an issue. How do companies with limited resources allocate funds to build out all sectors of their business? They don't. Google shut down several projects last year to regroup and regain its focus.