The Justice Department has opened a formal antitrust investigation into a deal struck last month that would allow the Internet titan Google to provide some search advertising for Yahoo, according to sources familiar with the inquiry. Investigators are planning to demand documents not only from Google and Yahoo, but also from other large companies in the Internet and media industries, said the sources, who spoke on condition of anonymity because the investigation is ongoing.
Google and Yahoo officials have said since the deal’s announcement that they would delay its implementation for a voluntary Justice Department review. But a formal investigation signals that the department may have found some cause for concern. More>>
Yahoo and Google have confirmed that they are indeed entering into a partnership around search advertising, a story we broke earlier today. Google’s blog post on the agreement is here.
—The deal is non-exclusive. Yahoo will be able to run Google ads alongside Yahoo ads or other ad providers. —The deal is expected to add $800 million a year in revenues and $250 million to $450 million in operating cash flow. —The deal only applies to paid search and contextual ads, not to algorithmic search.
This arrangement will no doubt intensify the scrutiny from Washington, where the Justice Department has already launched an investigation into antitrust issues arising from Yahoo and Google merely testing the waters for today’s partnership. Congress might want to hold hearings as well. Back in April, Citi analyst Mark Mahaney estimated that a Google deal could increase Yahoo’s cash flows by more than $1 billion a year. It turns it will be less than that. But given the antitrust scrutiny, the deal is necessarily structured in a creative way. As part of the deal, Yahoo can decide to go with Google only for those search queries where it will get the most bang for the buck.
On Wednesday, when asked by Fox News about the antitrust issues surrounding a possible search deal with Yahoo, Schmidt responded:
Well you are presuming that there’s an issue there.
If there were an issue, it’s perfectly possible that you can do commercial deals that look like outsourcing deals which are not exclusive and where industry structures allow everybody to win. If you look in the automobile industry and lots and lots of industries like that, you have suppliers who supply other people. So if there were a deal, it would be based on those sorts of principles.
As long as the relationship is competitive, it might pass regulatory scrutiny. That is, if Microsoft can bid for Yahoo’s search advertising business as well, then whoever can deliver the most cash to Yahoo will win the business. In reality, we all know who that will be: Google. Neither Microsoft nor Yahoo can match the search dollars that Google can deliver.
Google has said it will strengthen its relationship with Yahoo!, fuelling recent speculation the two companies will develop an on-going ad-share deal.
The two internet giants recently underwent a two-week trial that saw Google ads served on Yahoo.com.
Ahead of a shareholders meeting, Google co-founder Sergey Brin confirmed the success of the trial and that two companies were looking at other possibilities.
“We have been talking to Yahoo! and we’re very excited to be working with them,” said Brin. “We share a lot of values with them.”
Google CEO Eric Schmidt said any deal with Yahoo! would have to comply with anti-trust laws.
“If there were a deal, we would anticipate structuring the deal to address the antitrust concerns that have been widely discussed,” said Schmidt.
Brin also rubbished speculation that the two-week trial was responsible for the collapse of Microsoft’s proposed takeover of Yahoo!.
“We really believe in companies having choices about their destinies,” said Brin. “It’s not about scuttling (the deal). They were under a hostile attack and we wanted to make sure they had as many options as possible.”
A weird assortment of lobby groups has come out against Google and Yahoo! working together.
Although there is no formal deal in place, lobbyists including the Black Leadership Forum (which represents 35 black activist organisations), the League of Rural Voters and the Corn Growers Association have written to the Justice Department. They warn that any tie-up between the two companies would create an effective monopoly on internet searching.
The 16 groups wrote to Assistant Attorney General Thomas Barnett, warning that such mega-mergers usually work to the detriment of consumers and minority groups. It was Barnett who warned that European antitrust action against Microsoft might chill innovation and discourage competition.
The Black Leadership Forum is funded by corporate donations but does not take money from Microsoft. However, the LA Times noted, the PR company which was pitching the letter does also work for Microsoft.
The Justice Department is believed to be taking an interest in Yahoo!’s trial of using Google’s ad technology. Any permanent deal would need to pass the scrutiny of US regulators.
The Justice Department has opened a formal antitrust investigation into a deal struck last month that would allow the Internet titan Google to provide some search advertising for Yahoo, according to sources familiar with the inquiry.
