Despite Microsoft's confidence the proposed acquisition will pass regulatory muster, analysts, privacy advocates and legislators aren't so sure.
Microsoft CEO Steve Ballmer said Friday he believes the company's proposed Yahoo buy, if accepted, would pass regulatory muster in the second half of this year. However, once analysts, antitrust lawyers, privacy advocates and legislators caught wind of Microsoft's startlingly bold acquisition offer last week, they pounced.
Considering the magnitude of the potentially combined companies, along with the shockingly high $44.6 billion price tag Microsoft has placed on beleaguered Yahoo, and ongoing antitrust investigations of the Redmond software giant, it's no wonder.
"We will need to scrutinize the deal carefully to insure that it will not cause any harm to the competitiveness of what has been a vibrant high tech marketplace, nor negatively impact the privacy rights of internet users," Senator Herb Kohl, chairman of the Senate Antitrust Subcommittee, wrote in a statement issued Friday.
"Should Yahoo! accept Microsoft's offer, the subcommittee expects to hold hearings to explore the competitive and privacy implications of the deal," continued the Wisconsin Democrat.
It's also been reported that the U.S. Department of Justice (DOJ) may inspect the proposed acquisition if accepted by Yahoo, or advanced by Microsoft through less consensual means.
Microsoft is no stranger to antitrust disputes in regards to its dominant Windows operating system. A U.S. judge last week decided to extend oversight of the company in a years-long case involving the DOJ and several state governments. The European Commission also recently opened two new antitrust investigations of Microsoft, alleging anti-competitive software bundling. In 2004, the commission ruled against the firm in an antitrust case.
"One thing I've learned about this regulatory stuff is there will be a lot of surprises out there," said Michael Gartenberg, Jupiter Research VP and research director. "The European [Commission] is going to have a couple of words to say about this to Microsoft."
Just how the U.S. Federal Trade Commission will rule on such an enormous deal is anyone's guess. Yet, the fact that the FTC approved Google's highly controversial acquisition of ad management firm DoubleClick has already caused consternation from detractors of that alignment. Now Microsoft's bombshell has some spooked.
"The failure of the Federal Trade Commission and the Congress to adequately address the emerging consolidation in the online advertising business helped lead to this proposed transaction," wrote Jeffrey Chester, executive director at the Center for Digital Democracy, in a statement regarding Microsoft's bid for Yahoo. "Beyond competition safeguards, the proposed deal underscores the need for both the FTC and the Congress to enact policies that will protect consumer data online," he continued.
Ironically, Microsoft has been a vocal critic of Google's proposed DoubleClick buy on competition grounds. The FTC also gave Microsoft's acquisition of ad services firm aQuantive a pass.
"Microsoft feels there's some potential argument they can make that will be strong enough that it will drive the deal through," suggested Gartenberg.
A Microsoft/Yahoo combo would still only account for about a third of search market share compared to Google's 56 percent (Nielsen Online). However, the combined firms would certainly be a force to be reckoned with in the display ad arena, which is bound to spark criticism from rivals. On its own properties alone, Yahoo served the most display ads in November 2007, nearly 19 percent of all served by ad publisher properties, according to comScore Ad Metrix. Microsoft sites came in at a distant second with about seven percent, while Google served just one percent on its own properties, including Blogger and YouTube.
The true measure of the potential deal's impact on display advertising, which can be far more lucrative than search ads, is network advertising. While Google serves display ads in its AdSense network of non-Google sites, Yahoo is becoming a leader in display ad market share outside its own properties.
In 2007, Yahoo put increasing emphasis on its mission to build a dominant display ad network. Deals with an expanding group of online newspaper publishers, the acquisitions of ad networks Right Media and Blue Lithium, and an agreement to sell, manage, and serve display and video ads on Comcast.net have set Yahoo on a firm path towards competing as a full-fledged display ad network.
Adding Microsoft's properties and buying power to the mix could be a blow to AOL's large Advertising.com network, and the last of the independent ad networks, ValueClick, not to mention countless smaller display network players.
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Kate Kaye was Managing Editor at ClickZ News until October 2012. As a daily reporter and editor for the original news source, she covered beats including digital political campaigns and government regulation of the online ad industry. Kate is the author of Campaign '08: A Turning Point for Digital Media, the only book focused on the paid digital media efforts of the 2008 presidential campaigns. Kate created ClickZ's Politics & Advocacy section, and is the primary contributor to the one-of-a-kind section. She began reporting on the interactive ad industry in 1999 and has spoken at several events and in interviews for television, radio, print, and digital media outlets. You can follow Kate on Twitter at @LowbrowKate.
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