Recently, Google announced an agreement with rival search engine, Yahoo. In their blog, Google maintains that this agreement does not signify a merger, nor will it harm competition in advertising. However there is general concern over the extent that Yahoo will make use of these ads.

Although there are not a lot of details available as yet, some further information can be found in this blog post. According to this post, this agreement will enable Yahoo to display some Google Ads on their Search and Content Networks. The real question (and concern) is how will Yahoo make use of this.

If they only use Google Ads as filler for less competitive phrases, then likely this would likely have little impact on their own advertising clients. If they go further and start pitting their client’s bids against those of Adwords, costs will soar for advertisers using Panama.

How Yahoo will determine bidding between Google advertisements and their own remains to be seen, but if cost per click is a factor (as I’m sure it will be), then Yahoo’s advertisers may be in for a shock.

I must admit, I am curious as to what effect this integration will have on AdWords advertisers as well. Will we have to optimize for a new Quality Index/Score now? Presumably they’ll work out some sort of common rating algorithm, but I’m a bit concerned about the potential for migraines.

Additionally, the deal includes adding interoperability to their instant messaging platforms. How they intend to accomplish this has yet to be disclosed, but it would be a positive step for users.

While this would be a good move financially for both Google and Yahoo, I am skeptical that the search advertising “partnership” side of this arrangement would have no adverse effect on competition. Having the two top competitors working so closely together could have negative effects for users and advertisers both.

While there is speculation as to whether or not this will even go through, we can expect to see significant changes in the industry one way or another.