Understandably, many people are disappointed that Yahoo is outsourcing some of its search advertising business to Google. The very fact that Yahoo can reasonably expect to make more money by doing this is testament to the fact that Google does search advertising better than Yahoo does. To some, any partnership with a direct competitor is a capitulation. I don't quite see it like that. Unlike any deal offered to Yahoo by Microsoft, this partnership with Google lets Yahoo keep both its search business and its advertising business. It lets Yahoo be more profitable in the short term which should please the stock market. Perhaps most importantly, it lets Yahoo focus on the things it does best.
While Microsoft seems to be realigning itself to focus on search, Yahoo would be wise to concentrate on content. In many content areas, Google is not a competitor to Yahoo. There is no Google Games or Google Sports or Google Autos, for instance. As long as Microsoft is concentrating on search and closing other services, Yahoo faces no real competition from that corner either. Microsoft does have a decent chance to overtake Yahoo in terms of search share, but even that is iffy as I think Yahoo's search engine is currently better than Windows Live Search. There's certainly no reason why Yahoo cannot continue to carve niches for itself when it comes to content. Of course, Yahoo will still have to compete with all of us independent publishers, but it's got the resources to win that fight. (I'm already surrendering!)
Meanwhile, Yahoo can try to quietly resuscitate its advertising business. It will still be selling advertising on some of the most visited pages on the planet: its own! It will also be handling long-tail and international search ads while Google maximizes profits on the most lucrative searches. This is a time for Yahoo to experiment and build a strong worldwide advertising base. One of the most neglected of Yahoo's properties, the Yahoo Publisher Network, should be a given a much needed shot in the arm. It is time for it to move firmly out of beta territory, accept international publishers, and become the AdSense alternative people thought it would become. This is stealth stuff, though, that should be done in the background. Plenty of people think that Yahoo is essentially finished in the advertising business; they think of it as being just a really big AdSense publisher now. That's not such a bad thing to be, but Yahoo doesn't need to forsake its advertising ambitions just because it's trying to boost its short-term revenues. Although advertiser interest will be tough to reignite, I think Yahoo could eventually find itself in a stronger position to handle search and content advertising sans Google a few years down the line. A lot of house cleaning needs to be done, though, or history will simply repeat itself.
In short, the rumors of Yahoo's demise are greatly exaggerated. There's a lot Yahoo can still accomplish on the Web. It will find it challenging to hold on to advertisers and its workforce over the next few months, but I predict that once the Google deal is put into practice (barring governmental interference) and revenue starts rolling in the pressure will be off and the rebuilding and renewal can begin in earnest.
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