Yahoo (NASDAQ:YHOO) and Facebook (NASDAQ:FB) had been involved in a messy patent dispute after Yahoo tried to make a quick buck by threatening Facebook with a patent infringement lawsuit right before its IPO. Facebook, instead of giving in to Yahoo’s demands, retaliated by lobbing a counter-lawsuit at Yahoo and doubled down on its patent portfolio by buying a truckload of patents from Microsoft and IBM. Apparently, both companies have dropped the lawsuits against each other, and will now cross-license their existing patents. They have also agreed to team up for an advertising alliance which would expand their existing partnership. [1]
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The new ad partnership could be beneficial for Yahoo whose market share in the online ad market has been on the decline in the last couple of years. Combining Facebook’s and Yahoo’s reach over all their properties to offer a better value proposition to advertisers could lead to an increase in ad revenue for both parties.
Facebook’s COO, Sheryl Sandberg commented: “Combining the premium content and reach of Yahoo! as the world’s leading digital media company with Facebook provides branded advertisers with unmatched opportunity.”
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The deal is much more valuable to Yahoo than it is to Facebook. Online advertising accounts for a major portion of Yahoo’s overall value. We currently have a $19 Trefis price estimate for Yahoo, which stands nearly 20% above its market price.
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