Microsoft's D.C. lobbying sank Google-Yahoo deal, Jerry Yang

In theory, antitrust law helps foster competition. In reality, politically connected companies sometimes use it to bludgeon competitors and boost their own bottom line, as soon-to-be former Yahoo CEO Jerry Yang learned the hard way.

Yang had lent his prestige and the weight of his position to the proposed Google-Yahoo advertising deal, in part as an alternative to being gobbled up by Redmond, and in part as a way to get an easy $800 million a year in additional revenue.

When that proposed deal unceremoniously ended earlier this month--thanks to Microsoft's take-no-prisoners lobbying efforts in Washington, D.C., and a credulous Justice Department--Yang's time as CEO did too.

What a change. Back in the late 1990s, when Microsoft was busy fending off hordes of government antitrust lawyers, the company took a remarkable step: it actually asked Congress to reduce funding for the Justice Department's antitrust division.

That was then. Now, Microsoft has realized that spending money on antitrust lobbyists can pay off handsomely. Morality aside, that's an ROI that Warren Buffett would envy.

Consider the numbers: from February 1, 2005, and November 17, 2005, Microsoft spent $11.99 million on lobbyists, according to financial disclosure documents filed during that time. During that same period in 2006, the figure was $13.95 million. In 2007, it was $13.8 million.

But between the announcement of the Yahoo deal on February 1, 2008, and Monday, Microsoft's lobbying spending zoomed upward to $24.72 million.

Not only would that be a remarkable increase in any year, but it's especially notable during a time this year during which Congress has been quiescent on technology-related legislation. The figure also doesn't include money spent on public affairs firms and lobbyists who don't fit the relatively narrow legal definition and are not required to register with the government. (The numbers do include some spending that took place earlier than the February-November date range and was reported during that period.)

In return for millions of dollars distributed to Washington insiders, Microsoft could save billions on an eventual Yahoo purchase. Yahoo shares closed at $28.38 on February 1, the day the bid was announced, and at $10.63 on Monday. Even taking into account the market's overall fall in share prices, Microsoft may save billions by shoving Yahoo into a corner and eliminating its options.

One Redmond technique involved what's called astroturfing. CNET News reported in August about how anti-Google coalitions-one example was the American Corn Growers Association's sudden interest in the intricacies of online advertising and competition policy appeared immediately after Microsoft hired a secretive lobby firm called the LawMedia Group. Because LMG specializes in faux grassroots lobbying efforts, its efforts to sink the Google-Yahoo deal are not subject to disclosure requirements. Neither are funds spread around through trade associations.

(To be sure, Google is no saint. It tried to hamstring its Washington state rival by lodging a fanciful antitrust complaint about Windows Vista desktop search and tossed around terms like "illegal influence" when Microsoft was courting Yahoo earlier this year.)

What's odd is that the Bush administration took Microsoft's arguments about Yahoo's partial outsourcing seriously. This is the same group of antitrust bureaucrats who, along with President Bush's appointees over at the Federal Communications Commission, approved a long list of actual mergers with nary a word: XM and Sirius; Sprint and Nextel; AT&T and SBC; Verizon and MCI; and AT&T and BellSouth.

"The Bush administration has apparently never seen a telecommunications merger it didn't like," Rep. Edward Markey, a Massachusetts Democrat who leads the House Energy subcommittee on telecommunications, said earlier this year, according to the International Herald Tribune. Yet the Justice Department threatened Google and Yahoo with a lawsuit and even hired an outside attorney to run the show.

Another option for the Bushies would have been encouraging a kind of legal self-help. If Microsoft had truly believed that the Google-Yahoo deal was dodgy, it didn't need to run to Washington. It could have filed a private antitrust lawsuit instead. Redmond knows firsthand how this works: Sun Microsystems filed a private antitrust suit that Microsoft settled for $1.95 billion in 2004.

While that's not a perfect solution, it does force businesses to foot the bill for their own lawsuits, as opposed to pressuring the Justice Department to spend taxpayer dollars on a trial that could take years to resolve.

All of this should be a lesson to President-elect Barack Obama, whose campaign platform pledged to "reinvigorate antitrust enforcement" and "step up review of merger activity." He once complained to the American Antitrust Institute that "the current administration has what may be the weakest record of antitrust enforcement of any administration in the last half century."

If a supposedly weak Republican administration is so antitrust-hostile to business deals in Silicon Valley, imagine what a "reinvigorated" Obama administration will be willing to do.

Disclosure: the author is married to a Google employee.

See also:
• Yahoo CEO Yang to step down
• Yahoo's ultimate search: A new CEO
• Yang's travails: A Yahoo timeline
• A pity for Yahoo that John McCain didn't win
• Jerry Yang memo to staff about stepping down
• Microhoo revisited: Would it be a search-only deal?

[MadLyb]

OK, I'm not fan of the tactics these companies use, but I think you are looking at the wrong detail here.

Don't you think the number 1 and Number 2 Search Ad companies becoming joined at the hip is a cause for concern?

For once, I was cheering MS as they carpetbombed the proposal off the map.

[declan00]

Microsoft carpetbombed the proposal to limit Yahoo's options and buy it more cheaply. I don't see much in the way of looking out for the public interest going on there...

[jdzions]

Hey, Declan00 - which part of "We're done" didn't you get - Microsoft has categorically stated they're not interested in buying Yahoo, at any price.

[stuxstu]

Google has something like 75-80% of the internet advertising market. Yahoo had 10-15%. So you beleive a 90% market share for Google is a good thing and a competitor should not lobby the Justice department to prevent a "Monopoly" from aquiring more market share... Oh wait, your problem was that it was Microsoft and not that Google was entering in to an agreement that is anti-competitive.

I forgot that this is CNET... Did you cry when Jerry "screw the investor" Yang stepped down?

[declan00]

Google wouldn't have a "90 percent market share" -- it's not a merger. But if there are antitrust concerns that become apparent after the deal concludes, I presume the Justice Department's antitrust division would not disappear into thin air.

[CBattery]

Too bad this was Microsoft and not Apple who opposed the deal. If it was Apple you'd be hearing how Steve the Savior saved us all from an overbearing Google/Yahoo monopoly. Since it's Microsoft all we hear about is 'questionable morality' and how much was spent lobbying. Fantastic.

[Penguinisto]

You do realize that Apple has no marketshare at all in search, Internet advertising, et al.... right?

Sorta makes you comment rather nonsensical.

[spacydog]

Penguin, he mentioned it as a theoretical thing. We all know Apple isn't in the search business right now, although there are rumors that it is expanding into it.

[dctrofspin]

Way to go MS! How ironic that MS is out fighting monopolies. This deal was a loser from day one and Jerry Yang will go down as total bust. He should have taken the deal from MS at $31 a share....Ballmer now has Yahoo by the testies and will get it for much much less. Yang blaming MS for screwing this deal up is like blaming the weatherman for a rainy day. Thank goodness he's done.

[ancre007]

OK, the disclosure at the end of the article explains the writer's stance. While clearly all commenters have pointed out that it is good for competition that the Google-Yahoo deal was not allowed to happen, the author of this article is clearly using cnet to further his personal agenda. The disclosure is welcome, but I would rather cnet ban authors from writing about companies with which they have any substantial connections.

[declan00]

I have taken the same position on antitrust for over a decade, including when Microsoft was being targeted as well.

[smilin:)]

"Disclosure: the author is married to a Google employee."

Bub with an article this biased you need to put that in the title. Bias is becoming a real problem at CNet and they are letting it slide under the guise of "blogger not journalist". CNet should not have published this article/blog.

This deal fell through because it was a monopoly in the making. Microsoft was not a deciding factor. Shame on Google for even considering it.

[fdunn3]

Since he has a vested interest in Google the author should not consider this an unbiased article falling under "Politics and Law" published by C|Net rather this should be a blog item under his name and not published by C|Net.

[kc_cramer]

How fascinating! So far no comments risk dealing with any of the facts in the column at all! Is that because we're looking at nothing but astroturfers!?
Back in my grade 12 English class Mr. Pickering, who had been a radio operator in the Navy and a carny barker back home so he knew flim-flam when he saw it, made sure we learned the basic logical fallacies. He'd have a ball exposing the disinformative caviling of the first few comments. I'll check back tomorrow, and I hope to find someone actually being objective.
On the other hand, maybe you folks should just take your $15,000 from Microsoft and call yourselves Entitled.

[aintnorainbowdorothy]

Let me see. KC Cramer takes it out on Microsoft when the deal was totally making Google so powerful in Search, it would have had a total monopoly. Take your $15,000 from Google, Bub, and leave the rest of the posters alone, especially since their comments were pretty well right on. Boohoo for Google, good for Microsoft.

[kc_cramer]

Nice taking the bait. Still insults with no addressing of facts, or history. Microsoft has astroturfed extensively. It's a fact. It's not an opinion. Microsoft has been caught (and recently) trying to bribe international government authorities and American journalists to protect itself. Google has not. You can certainly accuse Google of all kinds of the same stuff and just not having been caught, but I'm sorry, that's pathetically farfetched.

It's also a typical Microsoft and MS-supporter strategy to minimize criticism of Microsoft by claiming "yeah, well, everyone does it, too!" whatever it is, abusing monopoly, bribery, fraud, lying, etc. It's a handy way to dodge responsibility and directly address the facts, and history.

Apparently, the worst thing MS "fanbois" can say about Google boils down to "we have to stop Google from becoming as bad as Microsoft." Now that's scary!

[tm_anon]

From all I've read about the Google-Yahoo deal, they would not have become one gigantic Search monopoly. Instead, Yahoo would have allowed Google to post advertisements on their own Search engine in order to continue to operate. In essence, Google would be helping out a competitor in exchange for revenue. What Microsoft did was twist the truth by saying this would be a complete merger and you fell for it. If Google wants more market share, all they have to do is advertise to the 10-15% who don't already use Google. Let's face it, Yahoo is trying to survive and Microsoft and Google have both been circling it. The difference being, if Microsoft buys it, no more Yahoo as it is. Microsoft has a way of taking something that used to be good and turning it into crap that somehow still makes it money. This is coming from a Windows user, by the way, so keep your fanboy crap to yourselves. I see how both of these companies operate and, from what I've seen, I'd much rather Google use shared ad-space on Yahoos website than have Microsoft take a working, valid competitor to Google and turn it into a Google killer by making it the only working search engine on whatever newest version of IE they come up with along with making all other web browsers not work so well on their sites and all the other actual monopolistic tendencies Microsoft has had over the years.

[sean_001]

"In theory, antitrust law helps foster competition. In reality, politically connected companies sometimes use it to bludgeon competitors and boost their own bottom line, as soon-to-be former Yahoo CEO Jerry Yang learned the hard way. "

Let me ask you a question: how much google paid you to write this artcile. msft need not to spend a cent for this, the deal should not go through from anybody's point of view.

[kc_cramer]

What a pointless flop of an insult. Only Microsoft has just been caught trying to bribe American journalists and international government officials, if I recall. It's, like, in their DNA. Gates once said something about how a successful CEO must know not only what a corporation is allowed to do and not allowed to do, but how close to the line he can go without getting caught (or was that how far over the line, sweet Jesus!)

[warproder]

I think this person is an utter idiot (or on Google?s pay roll). Simply put?Google is a monopoly in every sense of the word. The agreement with Yahoo would increase the influence of this monopoly in the area where they are engaging in monopolistic activity. Lobbying didn?t write this law. If MS wants to spend lobbying money to point this out to an inept government, so be it. If the law applies, it should be enforced. The Google deal was only there to begin with because Google wanted to give Jerry an option that would block the MS acquisition ? he was desperate and obstinate regarding the idea of his precious company being in MS?s hands. It bought him the time he needed with his shareholders and Yahoo and its shareholders are worse for it. MS retreated realizing the cost of an unwilling acquisition was too great. Months later, Google?s two major competitors are weaker and Google is stronger as a result. Google got what they wanted. They didn?t need they deal anymore. MS wisely is now waiting for Yahoo?s complete submission; its assets lessened but the cost much more sensible. However, even if combined now, the competition is much less of a threat to Google than at the beginning of the year. Another win to Google.

[kc_cramer]

Yeah, right. As I already pointed out, stop with the insults with no addressing of facts, or history. Microsoft has astroturfed extensively. It's a fact. It's not an opinion. Microsoft has been caught (and recently) trying to bribe international government authorities and American journalists to protect itself. Google has not. Is accusing Google of being as bad as Microsoft the best argument you've got for trying to subvert the coopetition between Google and Yahoo?

And after all, it really shouldn't have to be pointed out, yet again (sigh), that there is nothing wrong, unethical, illegal, naughty, or unhealthy about becoming or maintaining a monopoly. The crime of which Microsoft was convicted, the crime it continues to commit over and over again, with the stubbornness of a turtle trying to cross a highway, is the abuse of monopoly power, by lying, astroturfing, bribery, subverting standards organizations, etc etc etc

When we can finally unravel the Microsoft genome, we'll probably find out it's all junk DNA.