May 23, 2008 114 reads by Navneet Kaushal

Our readers would probably remember that I had informed them about a possible partnership between Google and Yahoo! where Google was supposed to let Yahoo! display some of Google advertisements in its SERPs (Search Engine Result Pages). The prospective partnership was intended to solidify after the test run between Yahoo! and Google.

Now according to NYT, the proposed deal between these two search marketing juggernauts is under serious danger of falling into the abyss of anti-trust scrutiny. However, Eric E. Schmidt (Google CEO) said, “We would anticipate structuring a deal to address antitrust concerns.”

According to sources helping Google in reaching this deal, the proposed venture with Yahoo! is like a straightforward supplier arrangement, similar to ones in the markets for computer printers, appliances and cellphone service.

However, the Google CEO statement isn't enough to douse the doubts that the anti-trust experts have in their minds. They believe, that inspite of Google's claims and whether or not the deal materializes, the anti-trust issues will keep haunting Google. As Christine A. Varney (Partner, Hogan & Hartson Law Firm) explains, “Up to now, Google has been very careful to avoid predatory behavior. But a transaction like this, I think, is fundamentally anti-competitive.” But, Google states that nowadays forging partnerships between competing companies is quite ordinary and there is even a term coined for it, 'co-opetition'.

The anti-trust policies set in the year 2000 by Department of Justice (DOJ) and Federal Trade Commission (FTC) states that “In order to compete in modern markets, competitors sometimes need to collaborate. … Such collaborations are not only benign but pro-competitive.”

According to a source close to the deal, “There is nothing in antitrust law that says a company can’t use the best technology. It can’t be bad for competition to help a company become more efficient.” However, the anti-trust officials would be more concerned about the impact the deal would have on the market than the structuring of the deal. That is because, these officials weigh the efficiencies the companies gain through the collaboration against the risk of reduced competition as a result.

One of the foremost concerns of anti-trust officials and many investors is whether this deal would further reduce the revenue for Yahoo! to invest in its own search advertisement technology. It is a proven fact that Google earns more on each search than Yahoo! because of its superior technology and larger market share, that in turn attracts more advertisers to bid in Google’s advertisement auctions. By current estimates, Google earns 60 percent more revenue for each search than Yahoo !

On another note, the deal could be paced, keeping in mind that Microsoft had again put up a bid this week to buyout Yahoo’s search business. According to C. Scott Hemphill (Associate Professor, Columbia Law School), “In this business, where scale is so important, there is a danger that you effectively lose a second major player and the opportunity for a genuine counterweight to Google. But Google will argue that efficiencies of this kind of collaboration outweigh any anticompetitive risks. It can claim that it is supplying superior picks and shovels to the entire industry, the best mining tools for gold prospectors in the Internet economy.”

Whatever may be the findings of the anti-trust officials, one things is crystal clear and it is that Google is adamant for a concrete deal with Yahoo! and would leave no stone unturned to accomplish this.

Navneet Kaushal

Navneet Kaushal

Navneet Kaushal is the founder and CEO of PageTraffic, an SEO Agency in India with offices in Chicago, Mumbai and London. A leading search strategist, Navneet helps clients maintain an edge in search engines and the online media. Navneet's expertise has established PageTraffic as one of the most awarded and successful search marketing agencies.
Navneet Kaushal
Navneet Kaushal
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