It’s no longer a rumor. We have inked a deal with Google in which AdSense ads can run alongside Yahoo! search results in the U.S. and Canada.

Our strategy to fully realize Yahoo!’s potential is based on the convergence of search and display — the next big opportunity in the rapidly growing online ad industry. This agreement helps us capitalize on that. We’re moving full speed ahead to execute with speed, commitment, and passion.

It’s also in keeping with our open strategy — WebMD sells their audiences on Yahoo!, Yelp can customize how their local search results appear using Search Monkey, advertisers and publishers will buy and sell in an open marketplace with our upcoming AMP! from Yahoo!, and we’re now opening our paid search results to Google.

I wanted to put this arrangement in perspective and comment on what it is and what it isn’t. First, it does not signal that Yahoo! plans to exit paid search. Quite the contrary. Through the financial benefits of better monetizing our search traffic, we’ll be investing in search services and ad platforms, including Panama. An independent search business is critical to our future. We will retain complete flexibility and will call the shots on where and how often Google ads will appear. While Google has better advertiser coverage in some query areas, we still have the ability to provide Panama ads where they are most valuable.

Second, this deal is good for competition. It may seem counterintuitive that doing a deal with a competitor would improve our competitive position. But as search and display continue their convergence, it puts Yahoo! in a better position to innovate and compete aggressively with Google and others for ad dollars. It also offers advertisers more choice and publishers gain better distribution and monetization to grow their business.

Finally, this agreement is non-exclusive. We remain completely free to display any paid search listings across our properties — whether from Yahoo!, Google, or any other third parties.

We’ve done something important today. We are directly addressing one key element in Yahoo!’s strategy to lead the way in search and display. I believe it puts us on a faster track to creating stockholder value and strengthening our advertising leadership.

It is, of course, just one step. We’ll continue to look at all of our alternatives to advance our strategies and enhance growth and profitability.

Jerry Yang
Chief Yahoo and CEO