Yahoo gets in bed with Google

What?? Yeah, you read right, Yahoo jumped into bed with Google this afternoon and announced an advertising partnership with Google, just hours after declaring an end to Microsoft negotiations. Under the deal, ads from Google's popular and money-machine system will appear next to Yahoo search results, in both the U.S. and Canada.

Jerry Yang, Yahoo's CEO comments during a conference call today, "Clearly it is time to move on,"adding that Yahoo believes the Google deal will help it do that. Yang says the agreement will be non-exclusive and will make it a stronger competitor.

Another interesting note, buried in the agreement, Google and Yahoo will make their instant messaging systems work with one another. The Yahoo and Microsoft instant messaging systems already work together.

Yahoo said the Google ad deal represents an annual revenue opportunity of as much as $800 million a year, and $250 to $450 million in annual operating cash flow. Yang said the companies don't believe the agreement requires regulatory approval, but the companies are waiting 3 1/2 months to allow the U.S. Justice Department to review it.

The deal doesn't, close the door on a future Yahoo acquisition. The news release:

"The agreement allows either party to terminate the agreement in the event of a change in control of either party. The agreement also requires Yahoo! to pay a termination fee if the agreement is terminated as a result of a change in control that occurs within 24 months. The termination fee is $250 million, subject to reduction by 50 percent of revenues earned by Google under the agreement."

You can listen to the webcast here.

Update, : This statement was released on the Google-Yahoo deal by U.S. Senator Herb Kohl, chairman of the Senate Antitrust Subcommittee:

"We will closely examine the joint venture between Google and Yahoo announced today. This collaboration between two technology giants and direct competitors for Internet advertising and search services raises important competition concerns. The consequences for advertisers and consumers could be far-reaching and warrant careful review, and we plan to investigate the competitive and privacy implications of this deal further in the Antitrust Subcommittee."