September 16, 2008 |
Back in June Google and Yahoo announced an advertising deal that was supposed to help Yahoo resist Microsoft takeover by adding a very substantial revenue stream. The idea is to display Google ads on the search results pages in Yahoo. It is obvious that while Yahoo is supposed to receive a revenue boost, Google is supposed to further strengthen its monopoly in search advertising.
It is exactly this monopoly that has been so controversial about the deal and the reason for scrutiny by various antitrust authorities in the US. Only last week Yahoo confirmed that the company was going to move forward with the deal despite concerns of the US Department of Justice. And the companies deliberately decided to include only US and Canadian websites in this advertising arrangement to avoid questions from EU authorities that are known to be much pickier when it comes to violations of competition. But now we see Reuters reporting that the deal will be suspended because of an investigation of the deal by European competition authorities added to the investigation in the US.
Regardless of the assumption that the deal will not affect European market, the World Association of Newspapers has called the European Commission to investigate the deal anyway so Google and Yahoo are not supposed to turn their plans into reality until the probe is completed. The main reason is that, even if the advertising partnership is only limited to US and Canadian websites, such a cooperation will make it more difficult in the future for Yahoo to compete with Google, thus helping Google preserve and further strengthen its leadership.
It is understandable that advertisers are unwilling to have this partnership in place since Google and Yahoo partnership may mean price fixing at a level higher than advertisers are willing to pay. But now we see that web publishers (and there’s no doubt newspapers act as web publishers relying for online advertising to earn money) are equally concerned that the landscape will change significantly if the two search and advertising giants join forces.
Now that the deal is investigated both in the US and in the EU, Google and Yahoo will have to temporary suspend the deal and I would not be optimistic thinking that the potential deal will be considered as harmless and not damaging competition. But even if I am uncomfortable about Yahoo assisting Google in further dominating the market, I also feel that if the deal is not approved by the authorities, Yahoo will have a hard time trying to come up with an alternative solution for revenue boost- which is something the company needs badly.