Yahoo! comes to Israel

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Last update - 02:06 14/01/2008}

Yahoo! comes to Israel

_{By Raz Smolsky and Maayan Cohen haaretz.com}

Internet giant Yahoo! is coming to Israel, and not only over the Net. The company is taking its battle for survival against Google and Microsoft to Israel on two levels. It will open a research and development center in Haifa, and will also enter the content side of the business here for the first time through a cooperation agreement with Walla!, which is partly owned by Haaretz.

Yahoo! is following Google, which set up R&D centers in Tel Aviv and Haifa, as well as establishing a marketing center that also deals in joint content arrangements with Israeli portals. Microsoft, meanwhile, has set up a sales and marketing branch in Ra'anana, as well as R&D centers in Tel Aviv and Herzliya.

Yahoo! is now negotiating office space in the Matam high-tech park in Haifa; and is expected to open its research center within a few months.

Google kicked off in the Middle East with its Haifa R&D center in July 2006, despite the Second Lebanon War at the time; the center was its first in the region and only its fourth outside of the U.S. Other well-known companies in the Matam industrial park include Intel, Microsoft, Elbit and Zim.

Yahoo!'s first foray into the Israeli content market is based on a strategic deal signed with portal Walla!. The goal is to threaten Google's hegemony in the Israeli search market for the first time and the real challenge is to compete in search-based advertising.

Under the long-term deal signed between Yahoo! and Walla!, the technology and databases will come from Yahoo!, but the search engine will be branded as Walla! Search, the name of Walla!'s present engine.

Only six months ago there were reports that Walla! was negotiating with Google in the search market, but no agreement was ever reached. Google usually partners with a local search engine by providing the technology and the advertisements, while the revenues are split.

The joint Walla!-Yahoo! venture will continue using Walla!'s AdVantage platform. This will allow Walla! to continue to manage the advertising itself, and it will receive a higher percentage of the revenues than in a deal that also included advertising, such as Google proposed.

According to Walla! CEO Ilan Yeshua: "The search and advertising in search results sector is one of the fastest growing in the world, and also in Israel. The agreement with Yahoo! allows us to offer Walla!'s surfers an excellent search product ... for the Israeli user. The agreement will help Walla! increase its market share in the search-based advertising market. The existence of another strong player in the search and textual advertising sector will contribute to competitiveness , both in the search experience and in the range of possibilities available to advertisers."

Yahoo! and Walla! had previously discussed technological cooperation in the past, but nothing serious came of it. Walla!'s previous management, replaced in 2006, was never willing to allow outsiders to share its advertising revenues.

Israeli Internet advertising was estimated at $90 million in 2007, 10% of the total advertising pie. Of this figure, search engine advertising took about half, $40-50 million, the large majority of which went to Google.