Report: Justice Dept. talking with Yahoo, Google

Google and Yahoo are in early-stage negotiations with the U.S. Justice Department to avoid an antitrust challenge to their proposed advertising agreement, according to a report Monday night in The Wall Street Journal.

Meanwhile, the Justice Department and a multistate task force are still reviewing the proposal to decide whether to oppose the partnership, which has been criticized by advertising groups as anticompetitive. In September, the Justice Department hired antitrust litigator Sandy Litvack as a consultant in its networking and technology unit to weigh whether the case could be won at trial, say sources.

Under the nonexclusive partnership, which the companies hope to launch later this month, Google would supply Yahoo with some search ads, a move that could increase Yahoo search revenue but that also gives Google even more power in the market. Yahoo expects the 10-year deal to raise revenue by $800 million in its first year and to provide an extra $250 million to $450 million in incremental operating cash flow.

As part of the original proposal, which was made to regulators when Microsoft still had a buyout offer on the table for Yahoo, the Internet search pioneer said it would give the Justice Department three and half months to review the deal before it implements the search advertising partnership.

Faced with that financial challenge and a desire to push the Google ad deal through, Yahoo proposed to regulators that it subject the search advertising deal to a review process similar to one used for major mergers under the Hart-Scott-Rodino Act, said a source familiar with Yahoo.

Google's share of the U.S. search market reached 71 percent in August, compared with Yahoo's 18.26, according to Hitwise's most recent numbers.

[naterandrews]

Am I the only one that thinks this deal is doomed?

Yahoo!- Hit yet another low point this past week with it's stock price. Investors are, yet again, calling for a sale to Microsoft. The AOL talks are very fragile, as they have always been- even if the AOL merger follows suit, what will Yahoo! gain? A degenerating web presence with little to no ad-traction? Fast forwarding to the point in time Yahoo! realizes it is strong enough to operate and compete on it's own- will the board and investors be happy with millions in losses stemming from ending a Google partnership?

Microsoft- The powerful, and vocal third party in this awkward love triangle has deep pockets, an army of lawyers, and a lobbyist arm that can put other rivals to shame will not be happy if this partnership gains traction. This situation potentially is a win-win for the Redmond giant. If Google and Y! do well, they could argue a monopoly, which would enter even more scrutiny. If Google and Y! do poorly, they could directly appeal to shareholders, urging them that the current boards' latest attempts have failed, and it's time for a new change. Microsoft has little to lose (seriously, they represent very little in search and ads), and everything to gain.

Google- Once believed to be the company that would eventually acquire Microsoft, and even thought to be the world's first company valued at $1T is now in the doldrums. A heavily battered stock along with increasing hostility from partners and competitors are putting this giant on alert. The Yahoo! deal could be the saving grace- or, Google's greatest mistake. Does anyone remember how much Google fought Microsoft on a AOL deal/stake? Where does that multi-billion dollar deal stand now? Ah, yes- Google expected to report a loss on this over-valued partnership. The leaders at Google have had operational and strategic blunders of their own, will a Yahoo! deal be the next in a string of flops or become the swan song that launched their share farther,and helped them to become the next Microsoft?
I'm thinking that this will be a gigantic flop. After all of the time put towards this effort, investors will want ridiculous growth, and even if Google meets the new lofty expectations, they'll be welcomed by threats coming from every corner.