Microsoft-Yahoo Deal Will Dredge up Anti-Trust Concerns Again

Yahoo’s search ad deal with Microsoft will almost surely come under government scrutiny, as did the proposed Yahoo/Google ad deal and Microsoft’s failed Yahoo takeover that came before it. The Senate Antitrust subcommittee chairman said as much already, and many expect the Department of Justice to inspect the partnership.

Fierce adversaries Microsoft and Google have each accused the other of squelching search ad industry competition in the past, and this latest deal is bound to dredge up old arguments and concerns regarding industry competition. Although the newly-announced deal between Microsoft and Yahoo differs from last year’s proposed Yahoo/Google hookup, questions regarding the new deal’s impact on ad pricing, for instance, are sure to arise. Indeed, in its statement threatening a suit against Google over its proposed Yahoo partnership, DOJ Antitrust Division assistant attorney general Thomas O. Barnett noted, “The arrangement likely would have denied consumers the benefits of competition…lower prices, better service and greater innovation.”

On Ad Pricing Concerns
If the DOJ or Congress does scrutinize the Yahoo/Microsoft pairing, Microsoft’s earlier words could come back to haunt it. In testifying before a Senate Judiciary Subcommittee hearing against the proposed search ad deal between Yahoo and Google in July 2008, Microsoft SVP and General Counsel Brad Smith contended the Google/Yahoo deal would harm competition “in several critical ways.” One involved ad pricing. “Advertisers and online content providers would be harmed through price coordination that will establish higher prices and limit choice,” he said.

The proposed Yahoo/Google deal of last year would have enabled Yahoo to carry ads purchased by Google advertisers on some of its search results pages, assumedly when the Google-sold ad brought in higher ad revenue. Google countered pricing collusion fears by arguing that because Yahoo wouldn’t be able to see auction prices for Google ads, and Yahoo wouldn’t be able to see Google ad prices, the concern was baseless.

On Search Market Share
Another argument against the Google/Yahoo tie-up involved market share. Microsoft and several other industry players suggested competition would be harmed if the two largest search engines were to combine forces. Supporters of the new Microsoft/Yahoo pairing believe it will level the playing field by giving Google’s biggest competitors more of a fighting chance to maintain or gain market share.

“Microsoft is quick to recognize that a company like Google has worked hard to achieve many of its great accomplishments,” Smith said in his Senate testimony in opposition to Yahoo/Google. “However, compared to earned success, achieving or entrenching dominance through collusive agreements or other artificial means undermines competition.”

Although a combined Yahoo/Microsoft search ad operation does not establish market share dominance for the two underdogs, those words could come back to bite. Some wonder if, by essentially removing Yahoo’s self-serve Panama platform from the market, the deal with Microsoft could lead to fewer ad product choices for advertisers and potentially less innovation.

On Industry Innovation
Yesterday Senator Herb Kohl, Chairman of the Senate Antitrust, Competition Policy & Consumer Rights Panel, raised the issue of innovation.

“Our Subcommittee is concerned about competition issues in these markets because of the potentially far-reaching consequences for consumers and advertisers, and our concern about dampening the innovation we have come to expect from a competitive high-tech industry,” said Kohl. “The implications of this proposed joint agreement will be closely reviewed by my Subcommittee.” Kohl said almost the same after Microsoft made its bid to acquire Yahoo lock, stock, and barrel in February 2008.

In its November 2008 statement threatening to sue Google over the Yahoo deal, the DOJ said the search firms “would have become collaborators rather than competitors for a significant portion of their search ad businesses, materially reducing important competitive rivalry between the two companies.”

Last year, Google called Microsoft’s failed takeover of Yahoo a “hostile bid,” and questioned its impact on industry competition, suggesting it could limit Internet openness and innovation. Yesterday, Google said very little about the Microsoft/Yahoo deal, stating only, “There has traditionally been a lot of competition online, and our experience is that competition brings about great things for users. We’re interested to learn more about the deal.”

It’s unclear whether Google will combat this most recent partnership, but because the company disagreed on many points Microsoft made against it in its own proposed partnership with Yahoo, Google could be deemed hypocritical if it vigorously attempts to stop Yahoo/Microsoft.

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