Yahoo! has effectively surrendered in the online race to win advertisers PPC dollars, with the signing of an agreement to allow them to syndicate Google ads within their search results. So if you can’t beat em, then join em! The Yahoo!/Google agreement means that Google’s dominant position in the Pay Per Click market, is now even more dominant.

There is no doubt that Yahoo! was under pressure from shareholders, after rejecting Microsoft’s outright takeover bid, or the alternative proposal to work with Microsoft on search. Several high profile share holders are calling for major management changes while others have filed lawsuits due to the rejection. The deal is meant to assist Yahoo!’s under performing revenues.

Putting aside the details of the deal (or even the no deal with Microsoft) Yahoo! has abandoned the PPC market, its users and advertisers. Google have increased their already dominant position and bought even more market share which has the effect of stifling competition.

Competition breeds innovation - for both search consumers and also the advertiser. The paid search market is still relatively young and going through rapid changes and growth. The incentive for Google to “win at all costs” by outgunning their competitors with product innovation is gone. Microsoft may very well have the deep pockets, and ownership of the enterprise desktop but they lack search traffic to be a true competitor - at least in the short to medium term.

A lack of competition also means that advertisers are likely to pay more for each click. Advertisers will be forced to pay for Google, rather than the cheaper Yahoo! rate. Whilst this is great for Yahoo! and their shareholders, it is not great for anyone who is already struggling to make PPC ROI effective.

Whilst a combined Yahoo!/Microsoft might not have been perfect, it at least would’ve provided competition for Google, benefiting advertisers and searchers alike.