Facebook (News - Alert) and Yahoo, up until recently bitter enemies over patent disputes, have agreed to try to get along. To cement their new accord, the two companies have formed a partnership, while dropping their lawsuits, agreeing to license their patents to each other and form an advertising and content-sharing alliance. Observers say the deal, which involves no cash exchange, could be lucrative for both of them.
According to reports, the new advertising alliance could help Yahoo recover some of the revenue that it has been losing as marketers have been flocking to a “more engaged” social media audience on Facebook. Facebook, in turn, gains the opportunity to show the ads tailored to fit the individual interests of its 900 million users in other heavily trafficked areas besides its own website.
The deal follows the departure of Yahoo's short-lived and unpopular Scott Thompson, fired by Yahoo two months ago following accusations against him that he had embellished his biography, adding a major in computer science that he had never earned. Thompson, who was responsible for laying off 14,000 Yahoo employees, or 14 percent of the company's workforce, was responsible for initiating the patent lawsuit against Facebook. The complaint alleged that Facebook infringed on 10 Yahoo patents covering Internet advertising, privacy controls and social networks. Yahoo Inc. later added two more patents to the lawsuit. The lawsuit was a public relations disaster for Yahoo, and many analysts and business columnist viewed it as “a financial shakedown by a desperate company whose well of innovation had run dry,” according to the AP.
In response to the suits, Facebook counter-sued. After the departure of Thompson, the Yahoo's interim CEO, Ross Levinsohn quickly began working on a deal with Facebook's chief operating officer, Sheryl Sandberg, recognizing more potential in cooperation than enmity. On Friday, the two companies issued statements praising each other for working toward an agreement.