• by Wendy Davis , Staff Writer @wendyndavis, June 13, 2008

As rumored, Yahoo and Google last night announced they had forged a 10-year pact allowing Yahoo to outsource some of its paid search ads to Google.

The deal is not exclusive, meaning that Yahoo also can outsource paid search ads to Microsoft or other rivals. It's also not ironclad. An SEC filing lists several scenarios under which the parties can back out, including antitrust lawsuits. But, while the companies are certain to face antitrust questions, the deal seems to stand a good chance of going through.

Microsoft and other opponents will undoubtedly point to Google's large share of search, arguing that the company already powers more than 60% of paid search ads. But an increase in that number alone won't render the deal anticompetitive. First of all, any bump in Google's share as a result of this deal will be small. If Yahoo currently accounts for less than 20% of the search market, and is outsourcing only a limited portion of its own paid search ads, Google's total share might not grow by much.

Even if this deal gives Google the ability to power significantly more search ads, there's still a real question about whether search advertising is its own marketplace or a part of the larger online advertising industry. Google executives have made the argument that search should not be considered a marketplace for antitrust purposes. Yahoo yesterday tried to support that assertion, stating that one reason why it declined to sell its search business to Microsoft was because it believes that search and display ultimately will be interconnected. Yahoo's stance -- that it intends to retain an independent search business -- also appears meant to signal that the company will not allow its search business to be swallowed by Google.

Google also argues that it doesn't control the price of search ads, because marketers bid on them. That's largely true, though the reality is more complex: Despite the auction platform, Google sets minimum bids and also rejects certain ads if the landing pages don't meet relevance.

Still, all things considered, this particular arrangement with Yahoo doesn't seem like the type of transaction that raises a huge anticompetitive threat.