Google-Yahoo adventure ends after warning by US dept of justice

06 November 2008

Google threw in the towel yesterday by declining to wage a legal battle with the US Justice Department (DoJ) by announcing that it was terminating its proposed advertising search deal with Yahoo after the DoJ told the two companies yesterday  that it would file a lawsuit to block the proposed deal as it would restrict Yahoo from investing and promoting its own search advertising business and Google would end with a bigger slice of the search advertising market.

The Justice Department said "if implemented, the agreement between these two companies accounting for 90 per cent or more of each relevant market would likely harm competition in the markets for Internet search advertising and Internet search syndication".

The DoJ said, "Had the companies implemented their arrangement, Yahoo's competition likely would have been blunted immediately with respect to the search pages that Yahoo chose to fill with ads sold by Google rather than its own ads."

Thomas Barnett, assistant attorney general in the Justice Department's antitrust division, said in a press release, ''The arrangement likely would have denied consumers the benefits of competition - lower prices, better service and greater innovation.''

doJ noted on its website, "Yahoo! is by far Google's most significant competitor in both markets, with combined market shares of 90 per cent and 95 per cent in the search advertising and search syndication markets, respectively. Yahoo! provides an alternative to Google for many advertisers and syndication partners, and Yahoo! recently had begun making significant investments in order to compete more effectively against Google, including the 2007 introduction of its Panama search advertising platform. Had the companies implemented their arrangement, Yahoo!'s competition likely would have been blunted immediately with respect to the search pages that Yahoo! chose to fill with ads sold by Google rather than its own ads, and Yahoo! would have had significantly reduced incentives to invest in areas of its search advertising business where outsourcing ads to Google made financial sense for Yahoo!

It concluded that Google and Yahoo! would have become collaborators rather than competitors for a significant portion of their search advertising businesses, materially reducing important competitive rivalry between the two companies.