Why this works for Yahoo: Yahoo needs a partner that really understands how brands spend big money, and WPP knows that business the best. WPP’s mega portfolio of companies, which include advertising agencies such as Ogilvy & Mather, and media-planning companies such as Mindshare, work closely with global Fortune 1000 brands that spend over $600 billion in advertising. Yahoo’s billing is in the $6 billion range, or just 1% of the global market. WPP understands brands’ needs intimately. Yahoo needs to go deep into brand-spend psychology and orient itself to what they want and get beyond the 1% of global media spending. It needs to have an “interested” partner that quickly influences the gray-haired marketing directors of the power brands into buying the internet (even though they get their secretaries to print out e-mails to read). Buying WPP accelerates that learning and influence. Today, Martin Sorrell is the marketing oracle brand owners listen to. Yahoo needs to partner with him.

Yahoo knows how to create audiences. That’s its core business. It lost out on search (first to Google and then by allowing Bing in) primarily because it’s an audience media company – not a technologist. WPP and team can lead Yahoo’s evolution on the media-sale side and help scale it to the next level. Getting the best media sales partner on your side can be a big win for Yahoo.

Why this works for WPP: Sorrell thinks of Google as a “frenemy,” thanks to its disruptive business that eliminates the need for WPP-type companies. Yahoo could turn out to be his “solome” (soulmate). The medieval media models that made WPP successful are crumbling. Advertising is no longer about making slick ad films that cost millions of dollars and then spraying them across expensive media and praying that they work. Consumers zap ads on TV; the younger set rarely spends time in front of the idiot box, and word-of-mouth marketing is actually what influences consumers the most today.

WPP needs a Yahoo to resurrect itself before it becomes a business that ran out of fashion. Fundamentally, WPP is an “intermediary” – it acts as a go-between between media and brands owners. However, intermediaries are headed the way of the dinosaurs. Technology is making everything transparent and going the DIY way. Brands are getting consumers to make ads for them. Media companies allow their media to be bought at the stroke of a button rather than relying on an army of planners. This deal can help WPP transform itself by becoming a complete solution provider to brands in the world - by not just creating ads but also playing those ads for brands.

Why this works for both Yahoo and WPP: Display advertising in its current traditional avatar is broken. The famous adage in traditional advertising that went “half the money I spend on advertising is wasted, and the trouble is I don’t know which half” needs resolution. Google dealt with it by going the non-advertising route and creating text links around content. That works well for local brands that need leads and e-commerce brands that thrive on visitors; not necessarily for Coca-Cola, which needs to show itself to the world and remain top of mind.

Yahoo and WPP can actually create the new business model of impacting consumers using their vast interactive media assets and actually show how its display ads not just make consumers fond of brand but also measure their responsiveness and commitment. Today, Coca-Cola gets its ads made by a creative agency and then gets its media agency to buy media for that ad on traditional and internet media. It gets yet another agency to monitor and measure the impact of those ads. All all these agencies charge Coke upfront without really guaranteeing that the campaign will work.

Imagine if the creative geniuses of WPP pair up with the media power of Yahoo and create campaigns that charge Coke only on the measured success of its brand lift. Pay per performance in the display world! If Yahoo and WPP become one entity, they can afford to take these risks (risking some test campaign creation costs and media spends) and take the display-business model to a higher level.  If successful, Yahoo can become a monopoly in the display-advertising space.

Google billed $22 billion in top line last year. My bet is that if Yahoo bills $6 billion today and combines with WPP, which trawls the $600 billion global advertising markets for its clients, the results could be market changing and also a win-win for brands, consumers and the media business.