Google-Yahoo: What’s the Big Deal?

by Alex Harris on July 15, 2008 · 3 comments

Pretty much everyone has gotten into the Google-Yahoo thicket. First, it was the companies themselves, by intentionally leaving time for regulators to kill the non-exclusive, fairly limited advertising deal. Then, the DoJ started its investigation. Now, the Senate is holding a hearing and a whole bunch of states are reviewing the deal too.

What’s the fuss all about? The deal is as follows: Yahoo will get to, like many other websites, put Ads by Google on its pages. But it doesn’t have to. It can use its own ads or other companies’ ads as well, if it so chooses. Sounds like a pretty clear antitrust violation to me!

As Cato’s Jim Harper has pointed out at TechLiberation, both customers and advertisers have lots of options outside of Google and Yahoo and they still will after the deal. If the Google “monopoly” ends up charging you higher prices for ads, then just use a different ad-distribution service. If the Google “monopoly” ends up not giving your website enough revenue, then just use a different ad-distribution service. Start-up costs for internet ad-distributers aren’t exactly high.

More fundamentally, Adam Thierer argues, all of this antitrust wrangling – Google claiming that Microsoft-Yahoo would create a monopoly, then Microsoft shouting that Google-Yahoo would create a monopoly – is just big companies using the government to hurt each other. Antitrust is inherently vague and manipulable. If you set prices too high, you’re accused of hurting customers. Set them too low and you’re accused of hurting competitors.

As Hance Haney notes, defining “anti-competitive” is very difficult in the internet economy. Ads on search result pages may make a lot of money today. But search ads will be supplanted by some higher-profit venture tomorrow. Haney reminds us that:

Not too long ago some believed Microsoft’s success in desktop software would allow it to monopolize the online world.

Then along came Google and search ads, which no one foresaw.

An outsourcing deal between Google and Yahoo could be profoundly procompetitive because Yahoo makes less than it could in search ads.  Using Google’s technology may enable Yahoo to pocket an extra $1 billion which could make Yahoo a stronger player in the search for the next big thing.

Now, a multitude of different governmental entities are set to prevent that next big thing by regulating the internet to death.

Alex Harris July 15, 2008 at 11:05 am

My colleague Sam Glaser just pointed out that it may have been fitting to include a quote from when the deal was announced, way back in the Dark Ages of June 12.

At the time, the Google-Yahoo deal didn’t seem like… well, like such a big deal. Google and Yahoo agreed to hold the deal up, but largely so that Yahoo could back out if Microsoft changed its mind. No one thought that it even needed approval. It’s not a merger, after all.

Yahoo CEO Jerry Yang said, “We believe, given that it’s a commercial agreement, there’s not formal regulatory approval. We agreed with the Department of Justice on a voluntary basis to have them review this deal.”

http://news.cnet.com/8301-10784_3-9967369-7.html

How times have changed.

Skip Oliva July 16, 2008 at 6:52 am

"But search ads will be supplanted by some higher-profit venture tomorrow."

Ah, but antitrust regulators aren't smart enough to know that — otherwise they'd be working in the industry themselves. The regulators take a static snapshot and use that as a baseline, which inherently makes any change suspect.

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