Why the DOJ wants more on Yahoo search deal
The long road toward Microsoft and Yahoo's search deal could be set to get a little longer, or fall off a cliff.
Both companies have long expected the U.S. Department of Justice to scrutinize the deal to install Microsoft as the exclusive search provider for Yahoo's Web pages, which would also see Yahoo end its time as a search company. Microsoft and Yahoo confirmed Friday that the Justice Department has asked the two companies for more information about their deal, which is a step beyond taking a mere interest in the proceedings.
In this case, the Justice Department is likely looking at two different aspects of the deal. On one hand, regulators are expected to probe whether advertisers will be harmed by the loss of an outlet for their ad dollars, as well as whether Google has less incentive to compete for searchers now that there's only two fish in the pond.
In some ways, it's almost a reflexive action. When there are three major companies in a market, and two of them decide to join forces, that almost automatically provokes a review, said Matthew Cantor, an antitrust lawyer with Constantine Cannon in New York.
"This deal is going to eliminate a competitor in search in a market that has high barriers to entry and only has three players," Cantor said. He compared it to the reaction that would have arisen in the 1960s if two of the three major television networks had decided to merge amid a far-smaller media landscape.
But the deal--years in the making--could have arrived at a time when the DOJ is more interested mergers and acquisitions than under past administrations.
After years of a largely hands-off approach toward intervening in mergers, the Justice Department is likely to increase its scrutiny of merger activity, said Donald Russell, a partner with Robbins Russell in Washington. The poor state of the economy has decreased merger activity, but things are starting to pick up and the Justice Department under President Obama could begin to assert itself more strongly than it did under the Bush administration.
Cantor thinks the Justice Department will force Microsoft and Yahoo to put Yahoo's search technology assets up for auction to let the deal go through. That would allow a third major player to enter the business, although that new entrant would still have the burden of attracting searchers: Yahoo has said that an overwhelming majority of the people using Yahoo search are already doing so from a Yahoo Web page, the combination of which are among the most visited pages on the Internet.
However, that might not be as appealing to Microsoft and would at least throw the deal into question. The company has spent millions on the development and launch of Bing, but it likely is interested in retaining certain aspects of Yahoo's search technology, not to mention some of its engineers.
Given that Microsoft and Google have been fighting behind the scenes in Washington all year as scrutiny of Google ramps up, you might think Google had decided turnabout was fair play. Google declined to comment on the circumstances that have led to the Justice Department's review, other than to say in a statement "there has traditionally been a lot of competition online, and our experience is that competition brings about great things for users. We're interested to learn more about the deal."
Tom Krazit writes about the ever-expanding world of Internet search, including Google, Yahoo, online advertising, and portals, as well as the evolution of mobile computing. He has written about traditional PC companies, chip manufacturers, and mobile computers, spending the last three years covering Apple. E-mail Tom. 
Yahoo will always have a good percentage of search, by virtue of the fact that, they have some great internet properties (Yahoo Finance, Yahoo Mail, Flickr, etc.). Plus, Yahoo is in the process of introducing some great native mobile apps for the iPhone, etc. that should have the effect of driving more traffic to their properties (increasing search).
Microsoft has Hotmail, etc. and it is in the process of moving their other applications online (e.g. Office Web). That should have the effect of driving more traffic to their properties, as well (increasing search).
Having 3 major search providers results in more consumer choice AND it keeps the pressure on all 3 companies to continue to deliver innovative search technologies.
Take iTunes, for example. Should all of the other services merge, to create a bigger competitor to iTunes? NO, because new music services will ultimately emerge to try to challenge the leader (e.g. Spotify).
As long as there is money to be made, there will always be innovative people & companies trying to figure out a way to get some of it. Sometimes, it takes a while, but it always happens.
There really isn't a huge barrier to entry into this particular market - Google itself started when the market was already crowded with big companies: Microsoft (MSN), Yahoo, Altavista, Ask (Jeeves)... Google merely managed to blow them away with a simple, clean, and (IMHO still) superior engine.
All it would take is for someone to build a better mousetrap than Google has, market it, and in less than five years Google would be gasping for oxygen.
That said, entry would be much easier with a diffuse market, and not a market rigged with more than one strong competitor (especially by strengthening one with a history of raising huge barriers to entry via a monopolistic position).
- by odubtaig September 12, 2009 6:58 AM PDT
- Where's all the usual screeching and tubthumping? Oh, sorry, this is DoJ, not EC. Obviously it's 'different'.
- Like this Reply to this comment
-
-
- by t8 September 13, 2009 2:31 PM PDT
- True.
- Like this
-
(8 Comments)If it was the EU, there would by now be 2 pages of posts complaining and flaming.