Regulators in Japan have okayed the agreement between Yahoo Japan and Google Inc. (GOOG), which enables the former to use Google technology to power its search services in the country.
What this means is that Yahoo Japan would basically be licensing Google’s search technology and touching it up with its own personalized products to serve its customers better search results and ads.
The advantage to Yahoo Japan, in which Yahoo Inc. (YHOO) of the U.S. has a 35% stake, would be better customer satisfaction. The advantage to Google is additional revenue generated from a competitor’s offerings. This advantage, which will be based on the amount of searches generated, may not be meager, since Yahoo Japan already holds in excess of a 50% market share. Moreover, the Japanese Internet market is developed, with Yahoo Japan serving 2.5 billion queries in June alone (Google handled 1.6 billion queries in June).
Microsoft Corp.’s (MSFT) Bing has a very small share (less than 3%) of the Japanese Internet market. The company’s global agreement with Yahoo meant that it should have been chosen by Yahoo in Japan as well. However, Yahoo Japan, now led by former Yahoo CEO, Jerry Yang, determined that Google technology was more advanced, not to mention more experienced in handling Japanese language queries. It is therefore no surprise that Microsoft was peeved at the announcement, as was local online shopping site Rakuten, both of which made applications to regulators claiming that the deal was anti-competitive.
As expected, regulators have set aside these concerns, although they will no doubt keep an eye on things.
While we await further details of the financial impact on Google, we cannot help but see it as a feather in its cap. It will be interesting to see how Yahoo conducts its search business in other Asian markets that do not have a strong English influence, although as things stand now, Yahoo will be bound by its agreement with Microsoft.
Yahoo shares have a Zacks #3 Rank (short term Hold recommendation), while Google shares have a Zacks #2 Rank (short term Buy recommendation).
GOOGLE INC-CL A (GOOG): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis Report
YAHOO! INC (YHOO): Free Stock Analysis Report
Zacks Investment Research
