Google, Yahoo Abandon Controversial Ad Deal
Internet giants Google and Yahoo decided Wednesday to abandon their high-profile advertising agreement after the Justice Department informed them that it would file an antitrust lawsuit to block the long-planned deal. The agency said, if enacted, the arrangement would have accounted for 90 percent or more of each relevant market and would likely harm competition in the Internet search advertising and search syndication fields. Justice's reasoning echoed a chorus of concerns raised by key members of Congress, consumer groups and rival Microsoft in the months since the partnership was announced.
Senate Judiciary Antitrust Subcommittee Chairman Herb Kohl, D-Wis., House Energy and Commerce ranking member Joe Barton and others repeatedly expressed their apprehension over the deal since it was unveiled in June. Just last month, Barton wrote to the Justice Department urging officials to take a close look at largely unexplored issues of privacy and pricing arising from the proposed partnership. In his letter, the Texas Republican argued that Yahoo has resisted congressional inquiries about the arrangement, noting that "many of their responses seemed designed to obscure rather than clarify how the Google-Yahoo partnership would work." Yahoo insisted that it had "fully cooperated" with Barton's staff.
"The companies’ decision to abandon their agreement eliminates the competitive concerns identified during our investigation and eliminates the need to file an enforcement action," Assistant Attorney General Thomas Barnett said in a statement. "The arrangement likely would have denied consumers the benefits of competition -- lower prices, better service and greater innovation." The pairing would have let Yahoo replace a significant portion of its own search ad results with those sold by Google. Yahoo predicted the arrangement would generate as much as $800 million a year in additional revenue.
Although Google and Yahoo proposed various changes to their original agreement in an effort to address the department’s antitrust concerns, regulators determined that such modifications would not lessen competition problems raised by the agreement. Justice's examination revealed that Internet search advertising and search syndication are each relevant antitrust markets and that Google is by far the largest provider, with shares of more than 70 percent in both markets. Yahoo is Google’s most significant competitor in those markets, with combined market shares of 90 percent and 95 percent in the search advertising and search syndication markets, respectively.
Google chief legal officer David Drummond posted news of the deal's demise on his company's Web site, saying that he felt the arrangement would have been good for publishers, advertisers, and users but "after four months of review… it's clear that government regulators and some advertisers continue to have concerns." "Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn't have been in the long-term interests of Google or our users," he wrote. Drummond added that the prospect of a lengthy legal battle would distract Google from its core mission. "That would be like trying to drive down the road of innovation with the parking brake on," he wrote.
Scott Cleland, a telecom consultant who heads a group funded by cable and telecommunications providers, was among the first to comment on the news, saying that Google has "permanently crippled Yahoo, its current top competitor, and sidelined its future top rival, Microsoft, for almost a year." "Far from being the benign search engine most people know, Google is a take-no-prisoners monopolist, with an extensive predatory playbook to thwart competition," he said. The Center for Digital Democracy's Jeff Chester said he was pleased the deal is off because it underscores what he has been telling policymakers for some time: that a handful of large companies is increasingly dominating the most prevalent way online publishing is financially supported.
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