The ad deal between Yahoo and Google is not an anti-trust problem

It’s become increasingly clear that the U.S. Department of Justice is building a case against the proposed ad deal between Google and Yahoo. And now there are rumblings that Google may walk away from the deal. Amid this speculation, there’s more talk that Yahoo and AOL are sniffing around each other again for some possible deal. If the Google deal collapses, Yahoo apparently feels it needs something to get its stock price going and buy it some time to implement its new “open” strategy.

All this hand wringing over the Google deal, however, has left me shaking my head.

Recall that Yahoo signed the deal with Google as a way to thwart the takeover bid by Microsoft. Not the greatest move in the world. But still, I don’t understand the firestorm of protest over it.

Here’s why:

Fist, let’s understand just what these two companies are proposing to do. This deal is about text-based advertising, where Google is the undisputed king. When people type keywords into search engines, they get results in one column and sponsored results in another column.

For some of the most commonly searched terms, Google and Yahoo are not that far apart in terms of the depth of people paying for those text-based ads. Where Yahoo falls short of Google are the more obscure searches. Google simply has a broader and deeper set of advertising customers than Yahoo.

So, what the companies are proposing is targeted at the so-called “tail” of search-driven advertising. Yahoo’s search engine would compare its inventory to Google’s and whenever Google had a sponsored text ad that would pay more, it would get served up on a Yahoo page. Of course, the revenue would be split in some fashion. But in theory, Yahoo would collect more than if it served up its own ads which would likely be less relevant, and so less likely that the consumer would click on them.

Here’s the thing to remember: This is not an exclusive deal. Yahoo could sign similar partnerships with other companies, and scan their ads as well as Google’s and serve up the most lucrative. Of course, Google is the 800-pound gorilla in this world. But still, other deals could be struck.

It’s also worth remembering that Yahoo still kills on display advertising compared to Google, which is still trying to figure out how to get into this game

So while I don’t think this deal would provide a huge upside to Yahoo, I don’t fundamentally believe it raises anti-trust issues. Again, the DOJ begs to differ. I bet if DOJ files to block it, Yahoo and Google would probably have a good chance of winning in court.

But fighting a long court battle probably isn’t worth the time and money for Yahoo or Google. And so I expect that in the next couple of weeks, we’ll probably get word that Google has simply walked on moved on to other things.


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