Yahoo! Corporate building. - Photo courtesy Yahoo image:37321:2::0

Looks like Yahoo’s CEO Jerry Yang is going to pin down the revenue, and work from there. A lot of the criticism aimed at Yahoo has been based on what could be politely described as a vague directional approach. The market has been both baffled and unimpressed, and that hasn’t done wonders for Yahoo’s stock price.

The Microsoft bid, however unwelcome, under-priced, or underdone, was, however an indication that somebody did see value in Yahoo. The only block on the deal was price, Yahoo saying it was undervalued, and the deal with Google has actually added some weight to that argument. Yahoo are already talking about a three-quarter billion or so’s worth of extra revenue per year.

That, in turn, means cashflow. That addresses one of the primary market targets for the endless barrage of criticism directed at Yahoo’s earlier strategy. Projects were all over the place, costing a fortune, and not delivering.

There’s another point. Google is so massive that people tend to forget that Yahoo is itself no corporate dwarf. It does have some depth, and it can reinvent itself. When it started, it was the enfant terrible of the internet, the brazen new kid in town. Yang was the founder of that version of Yahoo, and it’s more than likely he wants to get the company back into its original, far more productive, mode.

Which is exactly what he appears to be doing.

From a Yahoo press release comes this series of shots:

June 12, Yahoo! Inc. (Nasdaq:YHOO), a leading global Internet company, announced today that it has reached an agreement with Google Inc. that will enhance its ability to compete in the converging search and display marketplace, advancing the company's open strategy. The agreement enables Yahoo! to run ads supplied by Google alongside Yahoo!'s search results and on some of its web properties in the United States and Canada. The agreement is non-exclusive, giving Yahoo! the ability to display paid search results from Google, other third parties, and Yahoo!'s own Panama marketplace.

Under the terms of the agreement, Yahoo! will select the search term queries for which – and the pages on which – Yahoo! may offer Google paid search results. Yahoo! will define its users' experience and will determine the number and placement of the results provided by Google and the mix of paid results provided by Panama, Google or other providers. The agreement applies to paid search and content match and does not apply to algorithmic search. The agreement also applies to current partners in Yahoo's publisher network.

Translation: Big money, ongoing cashflow, don’t sell the cat yet.

Effect: Market gets interested, Yahoo starts to look good, investors come back, market capital gets healthy glow.

That’s the basic deal. Everybody knew about it, and Yahoo did itself a favor by letting people know about it.

Jerry Yang's comments are interesting:

Yahoo! CEO and co-founder Jerry Yang 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."

Translation: The internet advertising market is wide open. It’s worth trillions, and we’ve socked in a good slice of it with one deal, with a lot of growth upside.

Effect: Market realizes that Jerry Yang isn’t an idiot, and he can prove it. End of directional issues.

Add this small gem/sales pitch from the press release:

Significant Benefits Will Flow to Users, Advertisers, Publishers and Employees
Users will also benefit from Yahoo!'s ability to invest incremental operating cash flow in ongoing improvements to its search services, building upon recent major innovations such as Search Assist and SearchMonkey. Advertisers will continue to benefit from multiple marketplace alternatives including Panama, Google and others. Publishers will benefit from a winning combination of distribution, monetization and services to help them grow their businesses. The financial benefits will enable Yahoo! to broaden the scope of its investments and initiatives, enhancing Yahoo!'s ability to offer attractive career opportunities to its employees.

There’s more than a little chutzpah in this piece.

“Even the janitor will feel better,” it says, while reassuring people who use Yahoo services that things are gonna be great.

The new services are another vindication of Yahoo’s much maligned position during the Microsoft takeover period.

Yahoo’s gone from written off has-been to back in the ball game.

This may figure out as a better deal for Yahoo customers, (like me) who have had the opportunity to use both Yahoo and Google websites, and would like things like website design turned over to the site owners, not some damn collection of hack template-copiers in one of the less wonderful parts of whatever hellish place they get those things.

We’d like good commercial rates, new applications, better search profiles, better shopping facilities, better downloads, etc.

Yahoo, in its original incarnation, was an innovator, and a good one. If it has the money, it can go to work on improving its existing products, which are actually pretty competitive, if seriously undersold.

I don’t see this as a sweetheart deal between Yahoo and Google. I see it as basic commercial good sense. Nobody was pointing a gun at Google to make this deal. Google apparently sees some value in Yahoo, too.

Generally speaking they’re normally right when they make a call like that. YouTube was a white elephant, according to the market. Google turned it into the top site on Earth.

Suggestion for Mr. Yang:

We have the sites, the cultures, and the products.

You help us, we’ll help you.