Yahoo-Google deal faces scrutiny: antitrust experts

WASHINGTON (Reuters) - Google and Yahoo face intense U.S. Justice Department scrutiny of their deal to share some advertising revenue, and the heat will likely increase under a new administration, antitrust experts said.

Google, with more than 60 percent of the Web search market, and Yahoo, with 16.6 percent, announced a deal last week that would allow Yahoo to place Google ads on its site and collect the revenue.

The firms said Yahoo's cash flow could grow by $250 million to $450 million (127 million to 229 million pounds) in the first year under the deal, which Yahoo sought as an alternative to software giant Microsoft's $47.5 billion buyout offer.

Yahoo and Google describe the deal as very limited. "These are still independent companies who will continue to compete aggressively," said Yahoo lawyer Hewitt Pate of law firm Hunton and Williams.

But the deal has raised eyebrows among antitrust lawyers.

Bruce McDonald, a Jones Day antitrust attorney and former deputy assistant attorney general, pointed out that the arrangement could lessen Yahoo's incentive to compete vigorously against Google because Yahoo would collect revenue no matter which company placed an advertisement.

Google, Yahoo Clients Defend Tie-Up, Say It May Boost Sales

June 20 (Bloomberg) -- Google Inc., owner of the most popular Internet search engine, may have some unlikely allies in defending its proposed partnership with Yahoo! Inc.: the very advertisers that critics say may be hurt by the deal.

Microsoft Corp., the software maker that tried to buy Yahoo, and lawmakers argued that the agreement announced last week may reduce competition in Internet marketing and raise prices. Some customers say the arrangement for Yahoo to show ads sold by Google actually may lower their costs because Google ads do a better job targeting Web users.

``The agreement between Yahoo and Google should help the relevancy of our advertising on Yahoo, which should actually make the dollars we spend more efficient,'' said Geoff Atkinson, vice president of tactical marketing at online retailer Inc. in Salt Lake City.

The views of advertisers may help determine whether the tie- up between the two biggest Internet ad companies passes U.S. government muster. Google already gets $7 of every $10 spent on sponsored search links in the U.S., according to researcher IDC in Framingham, Massachusetts.

Google, based in Mountain View, California, and Yahoo, in nearby Sunnyvale, say they will wait up to 3 1/2 months for a Justice Department review before closing the deal.

Waiting will give executives time to address concerns and avoid forcing the government to sue to halt the transaction, said antitrust lawyer Glenn Manishin at Duane Morris in Washington.

Government Review

``We are looking at the proposed transaction,'' Justice Department spokeswoman Gina Talamona said. She declined to comment further.

Google Chief Executive Officer Eric Schmidt said last week the deal will improve the relevance of ads on Yahoo's pages, so customers are more likely to buy. Yahoo CEO Jerry Yang forged the agreement, which Yahoo says may add $800 million in annual sales, after merger talks with Microsoft collapsed.

Google fell $2.18 to $560.20 on the Nasdaq Stock Market yesterday and has lost 19 percent this year. Yahoo, the second most popular search engine, slipped 18 cents to $22.73. Yahoo spokeswoman Diana Wong declined to comment. Google's press office didn't return e-mails.

Among those questioning the deal are Senator Herb Kohl, a Democrat from Wisconsin, who said June 12 that the partnership raises ``important competition concerns.''

`Makes It Easier'

Representative Joe Barton, a Republican from Texas, sent Yang a letter this week with eight questions about it. Harry Alford, head of the National Black Chamber of Commerce in Washington, said in an e-mail last week the arrangement would hurt small businesses that advertise online.

Eric Parkinson, who runs distribution at Empire Film Group Inc. in Beverly Hills, California, disagrees. He said he sees advantages for his company in the Google-Yahoo pact.

``When it comes to online advertising, it's simpler to reach people if the access to the marketplace is controlled by fewer sources,'' said Parkinson, who has released more than 800 movies and is best known for marketing ``The Terminator.'' ``As the market matures and the number of players consolidates, it actually makes it easier.''

Parkinson plans a $750,000 Web campaign for the Sept. 5 release of ``Hounddog,'' a drama starring Dakota Fanning.

Customers will flee if Google abuses its power, Parkinson said. ``If it turns out that Google becomes the bully of the marketplace, hopefully someone will step in and not be a bully,'' he said.

Zappos View

Darrin Shamo, who manages search ads for Inc., the shoe retailer in Henderson, Nevada, said he and his staff have concluded that prices won't change much because of a Google- Yahoo partnership.

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