Google and Yahoo: We Will Not Collude on Prices

Advertisers are worried about it. Publishers are panning it. U.S. and European government entities are inspecting it. Privacy advocates just plain don’t like it. As the October launch of the Google/Yahoo search ad partnership nears, Google and Yahoo execs are busy defending the deal that will place Google ads on some Yahoo pages in the U.S. and Canada.

Responding to concerns regarding price increases, Google President, Advertising and Commerce, North America Tim Armstrong released a statement today on the company’s Public Policy Blog. He stressed the deal will not result in collusion or price-fixing, as some ad buyers fear.

“Neither Google nor Yahoo set ad prices. Ads are priced by an auction where an advertiser only bids what an ad is worth to them,” Armstrong wrote. “Under the terms of our agreement Yahoo won’t be able to see the current auction prices for Google ads, and Google won’t be able to see Yahoo’s prices,” he continued.

Last week in a complaint regarding the deal, Paris-based World Association of Newspapers expressed concern that competition between the two search firms “is absolutely essential to ensuring that our member titles receive competitive returns for online advertising on their sites, and for obtaining competitive prices when they purchase paid search advertising.”

A SearchIgnite report predicting that keyword prices on Yahoo could rocket upwards of 20 percent once the deal is implemented also has advertisers raising eyebrows. Google responded directly to the report recently, suggesting it “suffers from a number of methodology flaws,” and that it fails to acknowledge the relationship “will bring more relevant ads to Yahoo users — which is better for both advertisers and users.”

Today’s statement by Armstrong also tackled speculation that Google and Yahoo could collude by setting universal bid minimums for particular keywords. “Google and Yahoo will continue to set minimum bids in their auctions independently,” he noted, adding, “Google has never based minimums on what competitors are doing and this agreement won’t change our approach to minimum bids in any way.”

In June, the companies announced the forthcoming partnership, and at the time, agreed to wait till October for the U.S. Department of Justice to conduct an investigation of the deal. The DOJ review has yet to be finalized. Speaking with The New York Times, Google CEO Eric Schmidt reiterated his dedication to implementing the deal next month, whether or not the DOJ has concluded its inspection. “Time is money in our business,” he told the Times.

Yahoo has also defended the deal, noting in a statement sent to ClickZ News recently that the partnership will “help to drive a more robust, higher quality Yahoo marketplace for our advertisers and publishers.”

Yahoo said running Google ads in some of its search results could result in added revenue of $800 million, which has advertisers wondering if that’s simply a way of saying ad prices will go up. Armstrong explained the revenue boost won’t come from higher ad prices; rather, by displaying ads where they didn’t exist before, and enabling more relevant ads that could increase click-throughs, Yahoo stands to gain.

Earlier this week it was reported that the European Commission began a preliminary investigation in July, focused on the agreement’s potential effects on competition within the European Economic Area. Yahoo and Google have continuously stressed the pact only affects advertising in North America.

Google said it plans to address antitrust issues related to the deal tomorrow.