Yahoo and Google Ban Gambling Ads

Aiming to avoid a possible showdown with law-enforcement officials, Yahoo (Nasdaq: YHOO) and Google (Nasdaq: GOOG), the two largest search engines -- and online-advertising generators -- have said they will stop taking advertisements in the United States from gambling casinos and related companies.

Both search providers reached their decisions independently. The moves could substantially reduce the ability of online casinos to reach their target audience.

The two companies, which are increasingly bitter rivals in the booming search business, indicated the ads will be phased out over time. As of Monday morning, searches on both sites still turned up a lengthy list of online casinos under the "sponsored results" heading, where paid advertisers get top billing.

Because Yahoo subsidiary Overture provides paid search listings to MSN, the ban will extend to that portal as well, meaning hundreds of millions of search engine users will no longer see the ads.

Down to a Science

The move is significant because online casinos are one of the most effective users of online advertising.

In fact, Forrester Research analyst Chris Charron told the E-Commerce Times that online gamblers as a group are more likely than non-gamblers to click on Web advertising -- and to make purchases as a result of those clicks.

"These sites rely upon their paid search listings and their banner ads to generate the traffic that is their lifeblood," Charron told the E-Commerce Times. "They're going to have to work that much harder to get their potential customers to come through their virtual doors now."

In the wake of the decisions by Yahoo and Google, casinos likely will turn to other marketing tools to reach their audiences, which critics say too often include underage gamblers and people with gambling problems. Gambling sites are already a major source of spam, Charron noted, and have long used techniques such as boisterous pop-up advertisements to grab users' attention.

Still, analysts said, loss of revenue from gambling-site advertisements probably will not be sufficient to dent either Yahoo's or Google's profit.

Long Arm of the Law

The moves come as federal prosecutors are gearing up to attack illegal online gambling. The search engines likely would have been directly in the line of fire because they make it easier for users to find the sites.

Many gambling sites operate offshore -- BetonSports.com, which bills itself as the largest interactive gambling site, is run from Costa Rica -- but taking bets from U.S. residents is considered illegal.

Within the United States, the regulatory environment is even more confusing. Some states have passed bills legalizing Web gambling, while others have made it a crime for companies to accept bets from residents of their states via the Web.

The world of online gambling has long been a troublesome arena. For years, many Web users believed gambling sites were fixed, with the odds of winning games at online casinos far worse than in real-life legal gambling parlors.

More recently, security experts have warned that online casinos may become the target of hackers and extortionists, who could threaten to cripple sites with denial-of-service and worm attacks if they do not receive payoffs.

Little Agreement

Yahoo and Google may have moved to halt the ads rather than get bogged down in battling any charges levied against them, even though some observers said the search-engine sites technically have done nothing wrong.

The two companies increasingly are locked in battle for search engine supremacy. That war escalated to new heights last week when Google announced it would debut a free e-mail service called Gmail to compete with Yahoo! Mail and MSN's Hotmail.