Google Walks Away from Yahoo! Search Deal
Five months after announcing the planned deal and more than a month after it was scheduled to go into effect, Google says it will drop a proposed partnership with Yahoo to increase pay-per-click ad revenue.
The Mountain View CA-based Google announced yesterday that it would walk away from the plan, which would have replaced Yahoo’s search ads with those from the search marketing leader under some conditions, potentially increasing profits for both search engines.
Under the terms of the ad partnership, Yahoo! would be able to serve up Google-sold pay-per-click ads against search terms rather than those it sold on its own. The Google ads would earn more revenue per search because of superior ad targeting, and Yahoo!’s share of that click cost would actually be larger than what it could earn from a click through its own ad.
At the time of the announcement, Yahoo! estimated that the deal could boost its revenue by as much as $800 million annually. Access to that increased income was an important factor in Yahoo’s refusal to be acquired by Microsoft earlier this year.
But the U.S. Justice Department voiced concern that the arrangement would concentrate too much search marketing business under Google’s roof: almost 90% of it, by some accounts. That concentration of business risked antitrust action by the federal government. Search-ad competitors such as MSN and a number of large advertisers also worried aloud that the deal would give Google overwhelming dominance of the performance ad space.
Talks over the weekend to amend the deal and make it more acceptable to regulators did not succeed, and Google announced early yesterday that it would discontinue efforts to get the partnership approved.
“We feel the agreement would have been good for publishers, advertisers and user–as well, of course, as for Yahoo! And Google,” Google chief legal officer David Drummond said in a post on the company’s blog. But months of review and talks with DOJ convinced Google that “pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners…So we have decided to end the agreement.”
Among the deal changes suggested by the parties were shortening its life from 10 years to two and capping Yahoo’s potential earnings at 25% of its advertising revenue.
But the Justice Department found those tweaks insufficient. “If implemented, the agreement between these two companies accounting for 90% or more of each relevant market would likely harm competition in the markets for Internet search advertising and Internet search syndication,” the DOJ said in a statement yesterday.
Meanwhile Yahoo! said in a statement that it continues to agree in the benefits of the agreement and is disappointed that Google has elected to withdraw from the agreement rather than defend it in court.”
Yahoo! may now be forced to resume exploring a search partnership with Microsoft’s MSN Live Search platform, the third search industry player in terms of both traffic and revenue.
Marketing industry experts were often split on the impact of a possible Google-Yahoo! search pact. Some, such as agency SearchIgnite, produced research to show that the same search term in the same position on a results page usually cost 12%-35% more from Google than from Yahoo!
And the Association of National Advertisers yesterday said it was “pleased’ by the scrapping of the partnership. “At a time when online advertising is growing as a vibrant, accountable medium for marketers, we need to encourage competition, innovation and productivity, and not concentrate market power, limit choices and potentially raise prices for search advertising,” ANA president and CEO Robert Liodice said in a statement.
But other industry watchers say marketers might ultimately have less search-ad choice as a result of the deal’s failure, since that now throws Yahoo!’s future into question and might eventually result in the same consolidation of search business under Google.
