Hands Off Google-Yahoo

Any day now, Yahoo’s search advertising deal with Google is set to take effect. Unless, that is, federal regulators come in with a machete to slice apart the arrangement whereby Google will sell text ads that appear on some Yahoo SERPs (define).

The deal, if permitted to go through, should help Yahoo return to its old fighting self.

Still, not everyone sees it that way. Microsoft, which unsuccessfully bid to acquire Yahoo, is crying foul. And a growing number of influential organizations, including the Association of National Advertisers (ANA), have called on the U.S. Department of Justice to block the partnership.

The fear: the Google-Yahoo search ad arrangement puts too much power in the hands of Google and would increase the cost of all paid search advertising. “Although marketers are ‘free’ to bid independently, the ‘lure’ of broader search advertising coverage through the Google-Yahoo partnership will likely entice them to participate,” ANA CEO Robert D. Liodice wrote to the Department of Justice.

Demanding that federal regulators block the agreement is the easy way out.

Wouldn’t it be better for businesses to develop innovations that challenge Google’s prominence, instead of leaning on the government to intervene? Digital businesses — including those engaged in marketing and advertising — have thrived in a culture that includes high risks and high rewards. (Nor can we forget the big losers, either.)

To be sure, given these tough economic times, it’s hard to imagine a startup overtaking Google. Still, the Google killer is something most of us won’t see coming.

To examine the antitrust issues, I tracked down two polar opposites: Norman Hawker, a senior fellow at the American Antitrust Institute, and Alex Epstein, an analyst focusing on business issues at the Ayn Rand Center for Individual Rights.

The American Antitrust Institute sees some merits to limiting, but not killing, the Google-Yahoo deal. “It is possible that the transaction will throw off sufficient revenue for Yahoo to not only protect its core business…but to underwrite its plans to become a stronger competitor,” Hawker wrote in a white paper for the institute.

The institute, however, recommends that federal regulators impose measures to prohibit Google and Yahoo from setting minimum bid or reserve prices and to prohibit Yahoo from using Google ads when Yahoo has a sufficient number of sponsored ads from its own advertisers to serve up.

Keeping true to its mission of promoting individual rights and laissez-faire capitalism, the Ayn Rand Center advocates a hands-off approach to the Google-Yahoo deal.

“Government control and the marketplace do not go together. Everything beautiful in the marketplace is the result of individuals thinking and planning. Not the government controlling and planning the fate of business,” Epstein said.

And that includes the fate of Google, Yahoo, and even Microsoft.

Yahoo estimates the deal will help it bring in an additional $800 million a year in revenue. Some search marketers fear what’s good for Yahoo will be bad for advertisers because they’ll be footing that pay.

If Google and Yahoo want to raise prices so be it. If they don’t provide value to advertisers, count on those advertisers to seek out alternatives. Yes, Google and Yahoo together dominate the search market, but marketers can get value from channels such as e-mail marketing, display advertising, and social media marketing.

Consider this point of view espoused during the ongoing debate: “Natural advances of technology and the investment by competitive organizations will stimulate the evolution of the search advertising marketplace and, organically, will provide marketers with the advantages they need.”

That point was made by the ANA in its plea to the Department of Justice to block the Google-Yahoo deal. It could also be used to make a case to let these businesses operate in a free market.

And that means hands off Google and Yahoo.

After all, Yahoo cannot count on the federal government for a bail out, À la Fannie Mae and Freddie Mac.

For another view of the Google-Yahoo deal, check out Kevin Lee’s column, “Is the Google-Yahoo Deal Good for Marketers?“