Google ramps up defense of Yahoo deal

Heather Havenstein
23 September, 2008
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Google has stepped up its defense of its proposed search advertising deal with Yahoo as criticism mounts that it will give the search giant a monopolistic hold on online advertising.

Tim Armstrong, Google’s president of advertising and commerce in North America, wrote two separate blog posts late last week defending the proposed deal, which would have Yahoo running advertising from Google alongside Yahoo search results.

In one, he seeks to dispel the notion of some that the deal would lead to increased ad prices, noting that ads are priced by auction where an advertiser only bids what an ad is worth to them. In a second post, he argues that the deal will actually be good for competition because Yahoo will remain an independent company. He noted that had Microsoft succeeded in its attempt to buy Yahoo, the Internet pioneer would have lost its independence.

“Yahoo will continue to run its own search engine and advertising system,” Armstrong added. “Yahoo will benefit from Google ads in areas where they have low ad inventory and maintain control over how much and what inventory they make available to Google. Yahoo will invest additional revenue in remaining a viable competitor in advertising.”

However, the deal has come under fire from major advertiser groups, and it prompted the U.S. Department of Justice to hire a high-profile litigator to look into a possible anti-trust investigation.

And the hullabaloo over the deal continues in the blogosphere this week.

Michael Arrington, a blogger at TechCrunch, noted Sunday that the deal would bring a disproportionate amount of advertisers to the search giant’s stable. The real long-term win for Google and Yahoo, he added, is their building of commercial relationships directly with advertisers.

“Google has far more of them, because they’re chasing the massive search page views that Google supplies them,” Arrington noted. “The more advertisers bidding, the higher the price. With the addition of Yahoo search queries, there will be even more inventory, and even more incentive for those advertisers to jump on the Google platform.”

He went on to note that third-party sites like MySpace, Facebook, Digg and others that show Google’s ads on their sites are at the “mercy” of Google when their agreements come up for renewal.

“Google may give Yahoo most of the revenue today from Google ads, but in 10 years, when Google is the only player in town, look for the terms to move towards a more standard monopolistic model,” Arrington noted. “Today Google is kept in check via competitive deals where Microsoft or Yahoo are willing to actually lose money to win away the partner from Google, and get control of those search queries.”

Paul Glazowski, a blogger at Mashable, argued that Google’s search market share must be examined as part of the proposed partnership. “It is, in short, what determines the value of advertising. Advertisers pay considerably more to Google for ads that are more or less equal in size and shape to Yahoo’s own placements because Google’s audience is naturally much larger, and is growing still,” he added.

Glazowski went on to note that the DOJ has to consider how advertising networks and individual advertisers will respond to the joining of the top two search advertisers.

“I would venture to guess [they] would simply hang up their competitive hats, because so much traffic going one way means less traffic going in any other direction,” Glazowski added. “Eventually the choice really just becomes a matter of being seen or not seen. That’s already the case now to some degree. It’ll be even more pronounced if Google-Yahoo becomes a real thing.”

However, blogger Danny Sullivan at Search Engine Land, questioned what would happen to Yahoo if the deal doesn’t go through.

“There’s an excellent chance then that Microsoft will eventually buy Yahoo, say in six to 12 months,” he noted. “Google’s just going to storm along on the search front during this time, getting stronger and stronger. Even worse, Microsoft — sad to say — has only proven so far that it makes a mess of search. It is not guaranteed that Microsoft somehow will gain share by getting Yahoo. As a result, Google might hit 90% share regardless of whether a Yahoo deal happens.”

He concluded that Yahoo should be allowed to proceed with the deal.

“I mean, it could decide to close its entire search operation tomorrow — both paid and unpaid — and say that it was out of that game. If it did this, would it actually be prevented from using Google in favor of Microsoft, even if Microsoft was likely to provide it with lower quality search results and less monetisation?” Sullivan asked.

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