The partnership is expected to generate between US$250 to $450 million in incremental operating cash flow for Yahoo! in the first year after it is implemented, Jerry Yang, chief executive officer, and Roy Bostock, chairman of the board, said in the letter to shareholders.

Yang and Bostock explained that the Google agreement will help meet some of Yahoo!'s key strategies: “to capitalise on the increasing convergence of search and display advertising,” and “to open our platform to other developers to optimise monetization for our advertisers and publishers and provide the best experience for our users.”

The non-exclusive agreement will also provide Yahoo! with operational flexibility, something the Microsoft deal would not have, and also doesn't prevent Yahoo! from looking at other strategies that could also increase stockholder value.

“It allows Yahoo! to use Google's services in those areas where Google monetizes our inventory more effectively but also permits us to continue to use our own search technology in areas where we believe we are most competitive. The net result is that the agreement helps us accelerate one of our strategic aims--closing the monetization gap. At the same time, it allows Yahoo! to continue to compete aggressively in search and display advertising,” states the letter, available on Yahoo!'s Web site.