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Seeking to improve its ability to compete in converging search and display marketplace, Yahoo! Inc., today reached an agreement with Google (News - Alert) Inc., officials say.

 

Under the agreement, Yahoo can run ads supplied by Google with its search results and on some of its Web properties in the United States and Canada. With a four-year initial term and two, three-year renewals at Yahoo!’s (News - Alert) option, the agreement has a term of up to 10 years, according to the companies.

 

The agreement applies to Yahoo!’s operations in the United States and Canada only, according to the companies. While advertisers will pay Google directly for each click on Google paid search results appearing on Yahoo! owned and operated network or certain affiliate sites, they will pay Yahoo! directly for clicks served by Yahoo! from Yahoo!’s Panama and Content Match marketplaces, company officials say.

 

According to the agreement, run-ads supplied by Google’s AdSense for Search and AdSense for Content services next to Yahoo!’s internally generated paid search and algorithmic search results. Google-supplied ads may also be found on non-search Yahoo Seb properties, as well as on current members of its partner network, according to the companies.

 

After turning down the Microsoft (News - Alert) offer, Yahoo officials say their looking to better monetize the company’s search inventory in United States and Canada. The agreement with Google provides a perfect platform for the company as at current monetization rates, they say, this is an approximately $800 million annual revenue opportunity. Yahoo! expects the agreement to generate an estimated $250 million to $450 million in incremental operating cash flow once the agreement is implemented.

 

Yahoo! chief executive officer and co-founder Jerry Yang (News - Alert) said, “We believe that the convergence of search and display is the next major development in the evolution of the rapidly changing online advertising industry. Our strategies are specifically designed to capitalize on this convergence -- and this agreement helps us move them forward in a significant way. It also represents an important next step in our open strategy, building on the progress we have already made in advancing a more open marketplace.”