Web ad deal a tough sell
Antitrust regulators scrutinizing the online advertising deal between Yahoo Inc. and Google Inc. are sure to hear from worried Internet advertisers, public interest groups, lawmakers and one well-connected competitor -- Microsoft Corp.
The deal to link the world’s top two search engines faces tough examination from the Justice Department, analysts said Friday.
But Yahoo and Google are optimistic that the government will approve their pact, in which Google’s text ads will accompany some of Yahoo’s search results and Web pages. Analysts said the companies had clearly structured their relationship to maximize the odds it would pass antitrust review.
They limited it, at least initially, to the United States and Canada, avoiding the tougher antitrust review of European officials. The deal isn’t exclusive, so the companies are free to strike similar partnerships elsewhere.
And although Google and Yahoo don’t need pre-approval from the Justice Department, they are delaying implementation for at least 3 1/2 months to give regulators a chance to review the plans.
“I think that they certainly understood there was going to be regulatory concern worldwide, and in that case better to have some small steps rather than roll it out big-time and face all kind of objections,” said Blair Levin, an analyst at brokerage Stifel, Nicolaus & Co.
But having to use such a strategy shows that the deal faces a tough road, Levin said.
Google Senior Vice President Omid Kordestani laid out detailed arguments for why the deal should not be halted. Although Google and Yahoo sit atop the search engine heap, he said on Google’s corporate blog, the ad deal was no different from similar arrangements in other businesses that haven’t been blocked.
“Toyota sells its hybrid technology to General Motors, even though they are the No. 1 and No. 2 car manufacturers globally,” he wrote. “Google and Yahoo will continue to be vigorous competitors, and that competition will help fuel innovation that is good for users.”
Google general counsel Kent Walker said in an interview that the company was confident the Justice Department would give its blessing. But Google and Yahoo wanted to make sure officials had enough time to review the arrangement, given the questions they had when the companies ran a two-week test of their plan this spring.
A Justice Department spokeswoman would not comment.
House and Senate lawmakers have promised to hold hearings about the deal’s effect on the Internet advertising market. Some Internet advertisers also raised concerns.
“The consolidation of everything under Google is not good,” said Aimee Reker, global director of search at digital agency MRM Worldwide. “It will aggregate so much power and control in one place that it no longer is an open marketplace.”
Advertisers will be able to bid to place their ads alongside certain search terms for both search engines at once, which means more companies will be going after the same turf. That will drive up prices, said Tim Hickernell, lead research analyst at advisory firm Info-Tech Research Group.
“There will be a ripple effect for many Yahoo search engine advertisers, increasing the prices they have to pay for top-tier keywords,” he said.
Microsoft has been making the same argument since Yahoo began discussing a deal with Google this year. Yahoo saw the deal as a way to stave off Microsoft’s attempt to buy the company.
“Our position has been clear since April that any deal between these two companies will increase prices for advertisers and start to consolidate more than 90% of the search advertising market in Google’s hands,” Microsoft spokesman Jack Evans said Friday.
In an e-mail to employees Friday, a Microsoft executive said the company had recently proposed its own search deal with Yahoo. Microsoft would have invested $8 billion in Yahoo, bought Yahoo’s search assets for $1 billion and entered into a long-term search partnership with the company, said Kevin Johnson, president of Microsoft’s Platform and Services Division.
“We believe that our proposal would have created total value for Yahoo’s shareholders in excess of $33 per share,” he wrote.
Instead, Yahoo shares dropped 10% Thursday and dipped by more than 4% Friday before recovering to close down just 5 cents at $23.47.
Microsoft’s interest in Yahoo could be a factor in the Justice Department’s review, said Jeffrey Chester, executive director of the Center for Digital Democracy.
If the search deal between Google and Yahoo is nixed, it could push together Yahoo and Microsoft, which would create a force in Web-based e-mail, instant messaging and other Internet services.
“I think regulators and lawmakers are caught in a bind,” he said.
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alana.semuels@latimes.com
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Puzzanghera reported from Washington and Semuels from Los Angeles.
