With an antitrust lawsuit promised to block implementation Google vacates search partnership with Yahoo

Antitrust Breaks Up Search Pact: Google and Yahoo Part Ways

Seth Gilbert, 11-5-2008

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In June, in the wake of Microsoft’s bid for the company, Yahoo’s management team stepped into the lion’s den and made an alternate deal with Google. The agreement, which focused on the lucrative search advertising market that Google dominates but both Microsoft and Yahoo participate in, provided terms for the placement of Google-sold advertisements next to Yahoo’s search results.

Yahoo’s president Sue Decker said at the time that the non-exclusive “agreement [would provide] a source of funds to both deliver financial value to stockholders from search monetization and to invest in our broader strategy.” Based on then current monetization rates, Yahoo expected the partnership could mean near $800m in annual revenue opportunity or incremental cash flow in the range of $250m to $400m.

The one obstacle was the approval of anti-trust regulators. It turned out to be too big a mountain to climb.

After more than four months of investigation which included the participation of 15 state’s Attorney Generals and the Canadian Competition Bureau, the Justice Department concluded the deal “would likely harm competition in the markets for Internet search advertising and Internet search syndication.”

The companies were informed an antitrust lawsuit would be filed to block the implementation of the agreement if they proceeded. (The DOJ Press Release)

In the face of the pressure, Google decided to withdraw and thereby annulled the shotgun wedding some viewed comparable to a reconciliation of the Hatfield’s and the McCoy’s at the peak of their feud.

Writing on the company’s blog Wednesday, Chief Legal Officer David Drummond explained, “Google’s continued success depends on staying focused on what we do best: creating useful products for our users and our partners.”

“Pressing ahead,” he said, “risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn’t have been in the long-term interests of Google or our users, so we have decided to end the agreement.”

Yahoo, in public statements and a mass letter to all advertising partners, expressed disappointment in Google’s decision to not defend the agreement in court. Yahoo management also downplayed the lost revenue opportunity and tried to reassure advertisers and staff worries over the potential impact of the failed agreement.

“The fundamental building blocks of a stronger Yahoo… were put in place independent of the agreement” a memo from Decker told staff.

“The fact is,” EVP Hilary Schneider wrote ad partners, “this deal was incremental to Yahoo’s product roadmap…. In addition to being the largest aggregate publisher in the U.S., we are the #1 or #2 across virtually every key category, including being #1 in the categories of News, Sports, Finance and Entertainment.”

These reassurances notwithstanding, in light of the canceled partnership, bloggers and the traditional press quickly began to revitalize what is sure to be a consistent debate over Yahoo’s future as an independent company; and for that matter, Jerry Yang’s future at its helm.

Already there is chatter about the prospect of a new Microsoft offer (either to buy the company outright, to buy the search business, or to trade MSN for Search). There are also theoretical musings about marriages to AOL or to News Corps’ properties.

With Google out, the prognostication over what happens to Yahoo could become rampant.

Metue.com

Antitrust Breaks Up Search Pact: Google and Yahoo Part Ways

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