Yahoo-Google ad deal is scrutinized
As if the battle over the fate of Yahoo Inc. didn’t have enough drama, a Microsoft Corp. executive Tuesday accused Yahoo Chief Executive Jerry Yang of acknowledging during a private meeting that the company’s Web search advertising deal with Google Inc. would reduce competition.
The testimony by Microsoft General Counsel Brad Smith roiled a Senate subcommittee hearing on the proposed Yahoo-Google deal, which was also the subject of a House subcommittee hearing. Although lawmakers have no formal role in approving the deal, which is being reviewed by the Justice Department and attorneys general in several states, congressional concern could influence those decisions.
Smith told senators that Yang made the comment during a meeting in San Jose last month involving Microsoft Chief Executive Steve Ballmer.
According to Smith, Yang said the search business had become “bipolar,” with leader Google on one pole and Yahoo and Microsoft, both trying to remain competitive, on the other.
“He said, ‘If we do this deal with Google, Yahoo will become part of Google’s pole,’ ” Smith testified. “And Microsoft, he said, would not be strong enough in this market to be a pole of its own.”
Yahoo General Counsel Michael Callahan, who attended the June 8 meeting with Ballmer and also testified at Tuesday’s Senate antitrust subcommittee hearing, said he couldn’t recall Yang making such a statement. A Yahoo spokesman later said, “The alleged comment is inconsistent with our stated position and inconsistent with any comment we recall making.”
Callahan reiterated that Yahoo’s board of directors had decided to continue competing against Google, and he said the ad deal would help Yahoo do that by increasing its operating cash flow by $250 million to $450 million in the first year. Yahoo would replace some of the text ads it places next to search results and on sites with more valuable ads brokered by Google, generating more money for both companies because they share the revenue when the ads are clicked.
Sen. Herb Kohl (D-Wis.), who chaired the hearing and already had expressed reservations about the Yahoo-Google deal, called Smith’s sworn testimony “pretty explosive stuff” that he would have to consider.
The hearing added to the tensions among the three companies, which are battling intensely over the lucrative Internet search market. Some lawmakers asked what would be worse: a Yahoo-Google ad deal or Microsoft buying Yahoo.
David C. Drummond, Google’s chief legal officer, said the prospect of Microsoft buying Yahoo was more troublesome because it would eliminate one of the major online players.
“Yahoo’s staying in the market. They’re going to be a competitor going forward. . . . There still will be three large aggressive competitors competing across the board in Internet services,” Drummond told Rep. John Conyers Jr. (D-Mich.), chairman of the House antitrust task force. “If Microsoft is successful in swallowing up Yahoo, one will be gone.”
Smith said the Yahoo-Google deal would raise search advertising prices, hurting consumers, businesses and websites. But Conyers did not appear sympathetic.
“I never felt so sorry for poor, little old Microsoft,” Conyers said sardonically.
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