Google Kills Yahoo Ad Deal

mytrip writes "Google has pulled the plug on on a search-ad partnership with Yahoo that would have given Yahoo major new revenue but that raised antitrust concerns. 'After four months of review, including discussions of various possible changes to the agreement, it's clear that government regulators and some advertisers continue to have concerns about the agreement,' said David Drummond, Google's chief legal officer in a blog post Wednesday."

Comments

This one confused me.

[fuzzyfuzzyfungus]

I'm not a huge Google booster, you won't see much more than spamtrap stuff in any of my Gmail accounts; but I don't really understand why this deal is seen as so serious. Yahoo has a fairly strong set of web properties, but mediocre advertising and search. Running Google ads sure isn't a long term vote of confidence in their own ad department; but Yahoo's ad space is quite valuable, and presumably they believe that they can do better as a site operator selling ad space. I'm not sure whether they are right or not; but it is at least plausible.

Am I missing something about this, or did the deal get shot down by some sort of outside pressure? (Is MS still involved in some corporate version of "It's complicated" here?)

DOJ & antitrust

[mattytee]

Outside pressure is unlikely -- though TFA mentions the association of national advertisers wrote the DOJ a letter, here's how it works:

There's an index called Herfindahl-Hirschmann, where the percentage of the market share for all companies in the market (here, they probably ran it for advertising and search) is squared. If the sum of the squares is above 1700, the DOJ *automatically* threatens/files an antitrust suit.

Hopefully that's semi-clear. It's part of basic microeconomics if you need a better explanation.

What This Means

[rsmith-mac]

There are two very interesting things about Google pulling out:

1) Google is now big enough to attract serious government anti-trust attention. It just immensely harder for them to do anything big that would benefit their core business (advertising) or anything external where they could throw their weight around. The message from the government seems to be that they're going to start treating Google as a de-facto monopoly in search/advertising, which means they're going to try to keep Google from using that monopoly in other markets.* I don't think they're the kind of market threat that the government makes them out to be, but left unchecked they may get there one day soon.

2) Yahoo is fucked. Yang should have sold it to Microsoft when he had the chance; they're probably not going to be able to stand on their own now, and whoever ends up being their suitor won't pay nearly as much as MS's best offer.

* Not that the DoJ is particularly effective here. See: Microsoft

Re:What This Means

[tsotha]

Oh my God, no it wasn't. Yang was treating Yahoo like it was still his company, when in fact it belongs to the shareholders. There was no reasonable way to run Yahoo's numbers and think the stock would be worth what Microsoft was paying within any reasonable time frame.

Actually, this is something of a coup by Google. They screwed both Microsoft and Yahoo without spending a dime.

More economics terms

[mattytee]

I really dig microeconomics, if you can't tell.

Technically speaking, Google's an oligopolist rather than a monopolist. Oligopoly is a market in which a few large firms control a market with a high concentration ratio (the Herfindahl-Hirschmann Index I mentioned above) and high barriers to entry (in this case, the R&D and advertising that would be required to compete).

Consider the barriers in terms of the fact that Microsoft, with all its money and brand recognition, can't compete with Google in search or advertising. That's partly an issue of quality (real or perceived), as we geeks know, but it does make clear that it's not a "hit and run" (contestable) market where many small firms can jump in and compete.

Re:I'm glad the government is in on this.

[walshy007]

Google has a very special place in society now given their success and they have a social duty--an obligation if you will--to provide society with quick and effective searches.

The only duty google has is to please it's shareholders, if you were to 'redistribute' the wealth of large companies that annoy you like you say, well that isn't exactly encouraging for people to try to form successful companies is it, what with them putting in the work and collectively everyone else getting the profit.

to our right to access to Google's search servers.

yes, because you have an inalienable human right to access corporately owned servers, you see.... surely even you must see how fallacious this is.

You wouldn't complain if it were MS

[iamapizza]

The DoJ isn't partial or biased. They are 'doing their job' by ensuring that a 'threatening' (note the quotes) monopoly doesn't form. In either case, on the flip side, they represent a tiny form of government regulation in a free capitalistic market - so whether you're a Microsoft-hater or a Google-brownnoser, try looking at the real issue here.

Google was about to enter a deal with Yahoo that may have caused a monopoly of sorts (and infested the place with IFRAMEs, how can you not hate IFRAMEs?). The DoJ said they were worried about it. Google pulled out. End of. They saved money instead of waiting for the court case and going through years of appeals and spending millions/billions.