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Washington Examines Yahoo-Google Agreement

Posted on: Wednesday, 16 July 2008, 07:55 CDT

On Tuesday Congress entered the fight over the future of Yahoo Inc.  They demanded to know if Yahoo’s advertising deal with Google Inc. was intended to prevent Microsoft from buying the Internet company.  The deal between the businesses has raised antitrust questions.

Executives from the three companies testified before the Senate and House Judiciary Committees on Tuesday.  Each executive painted a different picture of the agreement that lets Google sell ads that appear next to Yahoo search engine results.  Microsoft said that the agreement would raise prices and limit competition for online advertisers, while Google and Yahoo urged that the deal would help advertisers and consumers.

Yahoo entered the partnership with its primary competitor Google as an option to the $47.5 billion buyout offer from Microsoft.  The decision has caused a dispute among shareholders and has led activist Carl Icahn to try an overthrow of Yahoo’s CEO Jerry Yang, and its board.  If Congress prohibits the partnership with Google, Yahoo could be under more pressure to reach an agreement with Microsoft.

Both Google and Yahoo say that Washington can do little to stop the agreement, but Congress can use their reach to raise questions about the business venture.

Some of the lawmakers questioned whether the partnership weakens Yahoo and helps Google solidify themselves as the more dominant company.

Herb Kohl, D-Wis., chairman of the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, said lawmakers need to search out "whether this agreement will reduce Yahoo to nothing more than the newest satellite in the Google orbit."

Brad Smith, Microsoft's general counsel and senior vice president, said that Google currently controls nearly 70 percent of the advertising market tied to search engines.  The partnership will allow Google to take up another 20 percent of the market, and will potentially raise prices for online advertisers.

"Never before in the history of advertising has one company been in a position to control prices on up to 90 percent of advertising in a single medium," Smith insisted. "Not in television, not in radio, not in publishing. It should not happen on the Internet."

According to Smith, Yang had warned Microsoft officials last month that an agreement between Google and Yahoo would keep Microsoft out of the search-related advertising market.

Matthew Crowley, chief marketing officer for AT&T’s Yellowpages.com, echoed those concerns.

If Yahoo "does anything but continue to compete all out to best Google, there is a real risk that the market will tip even further toward Google," Crowley testified.  "No one in the industry wants that to happen."

Google’s senior vice president of corporate development and chief legal officer, testified that the deal will help advertisers and consumers by allowing Google and Yahoo to target advertisements to the most relevant consumers.

The whole system becomes more efficient: people see and click on more ads that are useful to them ... and advertisers get more potentially interested customers," Drummond noted.

Michael Callahan, Yahoo’s general counsel and executive vice president, said that the partnership would make Yahoo "an even stronger competitor to Google, to Microsoft and to others in the dynamic and rapidly growing online advertising world."

Yahoo expects the agreement will increase its cash flow by $250 million to $450 million in the first year.  The money will help the company strengthen its balance sheet.

Most lawmakers refrained from any type of final judgment on Tuesday.

"I am not concerned that this deal will spell the end of any of these three companies," said Sen. Charles Schumer, D-N.Y.  "I'm confident that Yahoo, Google, and Microsoft will wake up the next morning and prepare for the next battle."

"What I am concerned about is whether this deal is good for everyday Internet users," he added.

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On the Net:

• http://www.yahoo.com/
• http://www.google.com/

Source: redOrbit Staff & Wire Reports

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