DOJ lays out concerns to Yahoo and Google, no lawsuit threats yet

Federal antitrust regulators have clearly laid out their concerns to Yahoo and Google regarding their controversial search advertising agreement, but discussions of potential remedies have yet to come up, according to a source familiar with the discussions.

Antitrust regulators with the Department of Justice have largely narrowed their concerns into two buckets, one centering on the potential affect on advertising pricing in the short run and to what extent there would be a negative impact on the industry, and the second being will the agreement eventually lead to Yahoo exiting the search advertising business altogether, the source noted.

Currently, the parties are discussing those concerns, but the conversations have not yet migrated to a point where the DOJ is saying they are illegal and the agency is contemplating filing a lawsuit to block the partnership, the source said.

In most cases, once the DOJ indicates it may file a lawsuit, the agency leaves it up to the companies to suggest possible remedies to mitigate regulators' concerns, said the source. Yahoo and Google have not offered up any potential remedies to mitigate the DOJ's concerns, according to the source.

Within the coming weeks, it will be clear whether such action is needed. The DOJ and a multi-state task force are rushing to come to a conclusion on whether they will oppose the Yahoo-Google search advertising deal, which the companies hope to launch by mid-October. Earlier this month, the DOJ hired antitrust litigator Sandy Litvack as a consultant in its networking and technology unit. Litvack was hired to weigh whether the DOJ's case could be won at trial, say sources.

A spokeswoman for the DOJ declined to comment, other than to note the investigation is ongoing.

Meanwhile, the American Antitrust Institute, a nonprofit think tank, announced Tuesday that the Yahoo-Google deal should be viewed as "presumptively anticompetitive" but may also contain some possible pro-competitive benefits. The group released a white paper on the topic.

The group, which tends to be viewed as pro-antitrust enforcement, took a slightly different view on the Yahoo-Google deal and did not come out with a blanket opposition to the agreement. The group, however, offered up several recommendations to regulators on how the Yahoo and Google agreement should be retooled:

The pro-competitive potential of the arrangement depends on Yahoo remaining in paid search.

The government cannot compel Yahoo to do this, however, the government can insist on legally enforceable requirements that will ensure that Yahoo has an incentive to continue to develop.

The AAI offered up four key recommendations:

• Prohibit Yahoo from using Google ads on organic search results outside North America and on any third-party Web sites.

• Prohibit Google and Yahoo from setting minimum bid or reserve prices.

• Prohibit Yahoo from using Google ads when Yahoo has a sufficient number of ads of its own to fill the white space surrounding an organic search result on Yahoo's site.

• Require the share of revenue that Yahoo receives from each click be constant, (for example), that the agreement does not reward Yahoo with a higher share of revenue for using more Google ads.

The AAI, however, further noted:

The AAI also found that the publicly available data, including briefings provided by Yahoo and Google, do not rebut the concerns that the alliance as proposed is anticompetitive.

Such concerns would arise in any case where the top two firms in a highly concentrated market reach an agreement that potentially gives the dominant firm a market share in excess of 90 percent. The parties' statements of good intent cannot be relied upon to override the economic incentives that may be generated by this agreement to engage in what may turn out to be anticompetitive conduct.

But Google and Yahoo differ on the AAI's conclusions that the deal would be anticompetitive without instituting the organization's recommended changes.

"While we disagree with AAI's conclusions, it is noteworthy that even a group that has opposed most deals acknowledges the pro-competitive elements of our agreement with Yahoo. We believe strongly that this deal is good for competition and will benefit advertisers, Web site publishers, and consumers," according to a statement from Google.

Yahoo made a similar statement, saying, "We believe strongly that this agreement will strengthen Yahoo's competitive position in online advertising and will help to drive a more robust, higher quality Yahoo marketplace for our advertisers, publishers, and users."

In sizing up the four key recommendations issued by the AAI, one source familiar with the deal noted the agreement between the two companies involves only North America, making the first suggested workaround irrelevant.

And in prohibiting a minimum bid, or reserve price, the issue it could create may be one where cheap, irrelevant ads begin showing up on search pages, since the bar would be set low, added the source.

The third recommendation would require the DOJ to monitor Yahoo as to whether its ad inventory was low enough to warrant allowing Google to place its ads on its search pages--a move that would amount to micromanaging for the agency, said the source.

And finally, the fourth recommendation is one that, in essence, prohibits allowing volume incentives with higher revenues. But the source noted such practices are common in a number of industries and are not anticompetitive.

But a spokesman for the AAI noted the organization is not married to its bullet points but wanted to illustrate some ways the companies could mitigate potential antitrust concerns.

[Sweetpatootie]

These guys ALREADY have a monopoly which is SUPPOSED to be illegal and anti-competitive! If I just had another way of accessing the internet I'd been gone from them sooo fast it would make their heads spin! Isn't there ANYBODY out there that can create an efficient new search engine??

[ZetaZeta_]

The search engine isn't what the deal is about. It's about advertising and advertisement results. Google is 60% of the search market only because people love using Google. You can use Yahoo and MSN search just the same, but no one seems to want to (combined share is, what, around 25%???), and then people like you complain.

Competition exists for Google, it's just the best product. <_<

This advertisement deal, however, might be dangerous, though. Even though at the moment advertisers are the ones who set prices (so I've read in countless articles) I wonder if Google can even change that easily?

Meh, In my opinion monopolies are *not inherently bad.* They have their downsides, but sometimes they can have upsides (if there's only one company for search advertisement, then you know you ad can potentially reach 100% of searchers, etc.) Of course, the downside would be Google dictating prices (which I would assume wouldn't happen, but you never know, hence all this scare) or retardation of development (although I consider Google to be on the forefront of innovation, but again you still can't know for sure, and I don't want to appeal to authority).

[ahcollin]

To Sweetpatootie:

Google doesn't have a monopoly. No one is forced to point their browser to google.com and do a search. Competition is one click away. Morons like you perpetuate this myth, however.

[BIGELLOW]

I think schools need to push for more education in the area of business and economics. People clearly have the wrong idea about what a monopoly is. A monopoly ISN'T when your product is so popular that a majority of people use your product and don't bother with the competition. That's just called having a successful product. If having the most successful product alone were a monopoly, there would be no incentive for businesses to try to create a successful product. Innovation and come to a halt and the economy would collapse.

A monopoly is when it is very difficult, nearly impossible, or very problematic for people to use your competition. If people feel "forced" to use one product and only one product, either because there is NO competition (whether good competition or poor competition) or that switching to the competition is cumbersome, problematic, etc...

Given this, Google is NOT a monopoly... not even CLOSE. They are simply very successful. As quickly as you came to this site to read this article, you can also just as quickly go to live.com to perform a search... or cuil.com... or ask.com... or yahoo.com... or altavista.com... etc... There is a LOT of competition out there in the search engine marketplace. Why don't people just flock to Google's competition? Simply because Google's better at it.

Also, the DOJ has no concerns whatsoever about Google's search engine and a possible monopoly. It isn't even a consideration. Instead, this is about advertising. But, again, there are still many choices. Yahoo isn't getting rid of their advertising platform. If you want to advertise on just Yahoo, go ahead. Yahoo will get 100% of the money. Google isn't stealing any of Yahoo's ad business. It also makes no sense whatsoever (this is basic statistics or, rather, simple math) to add Yahoo's advertising market share to Google's advertising market share and than say "Google's market share has now grown to XX%." That's ridiculous. You might as well add the numbers together and say that Yahoo's market share has now grown to that same amount. It's irrelevant. Yahoo will be in the power to determine whether or not to use an ad from Google's ad network. It will likely be a very small amount... perhaps less than 10% or 5% of Yahoo's overall traffic... maybe even 1%... again, the ball is in Yahoo's court. They are only going to do what makes them (Yahoo) the most money.

This would be a different story ENTIRELY if Yahoo decided to eliminate every single one of its own ads and closed its ad marketplace, then put up Google's ads all over its site. THAT would increase Google's advertising market share to XX%. THEN, there would be a case of monopoly concerns. It would mean that it would be very difficult for anyone to advertise on any of the high traffic sites without sending plenty of money in Google's direction.

In the meantime, Yahoo's properties (overall) gets more traffic than Google's properties. Why has nobody been saying all along that Yahoo has a monopoly on traffic? The reality of it is, size alone or popularity alone does not shout "monopoly"... there has to be some difficulty on the part of businesses or consumers TRYING to switch. Just saying "Using Google's services helps my business out so much that it is DIFFICULT to switch." That doesn't cut it. It isn't about the quality of the services making it hard to switch, or the low prices making it hard to switch, or the powerful brand name making it hard to switch, or the peer pressure making it hard to switch... these are things you need to deal with yourself. Monopoly comes into play if there is a real-world technical reason that makes it cumbersome for you to switch. Switching ads is as simple as typing the same ad text or sending the same ad images or videos to another provider, of which there are still plenty. Switching search engine choices is as simple as visiting one of the other choices and using it instead.

It has been a long time since a company has become so successful and popular as Google in such a short period of time that people are still stuck in the "Microsoft" mentality, thinking that Google is somehow tricking everyone like the tobacco industry did. This isn't hardware... it isn't even software... it's just a service. Your web browser has no problems with you changing to another service. It really doesn't. If you don't like using Google, go somewhere else and stop complaining. If you DO like using Google, chances are, there isn't a monopoly. In general, people tend to DISLIKE monopolies... and yet, when they try to leave to use a better service (or piece of hardware or piece of software) they find technical difficulties and simply cannot do so without major disruption.

[jharrisofkansas]

I have had great luck using Google to get my online business started as they have many webmaster tools and tips on how to do business online...all of it is free.There are other things aside from being the biggest company in your field that can raise the ire of the feds....Does the company in question have unethical or illegal business practices that can stifle fair competition...Then again our government (both major parties) failed miserably in ignoring the abuse in our financial institutions...Of course we know that a possible monopoly concerning search engines is much more of an issue.....yes that was sarcasm.