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Google withdraws from ad pact with Yahoo
Date: 07/11/2008
To read WFA's response to the proposed Google/Yahoo! partnership, click here.
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Source: ChannelWeb (Wed. Nov. 05, 2008)
It's not often that Google loses out once it sets its sights on something, but that's exactly what happened Wednesday. Both Google and Yahoo have abandoned their plans for an online advertising deal that would have allowed Yahoo to place ads on Google's Web sites. It's a grim blow to Yahoo, which was expecting a large infusion of cash to bolster its business.
Writing on the official Google Public Policy Blog, David Drummond, senior vice president, corporate development and chief legal officer for Google, placed the final nail in the coffin for the Google-Yahoo ad pact.
"[A]fter four months of review, including discussions of various possible changes to the agreement, it's clear that government regulators and some advertisers continue to have concerns about the agreement," Drummond wrote. "Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn't have been in the long-term interests of Google or our users, so we have decided to end the agreement."
Yahoo quickly issued its own statement, expressing its disappointment that the deal had fallen apart. Yahoo isn't too happy with its former partner, either.
"Yahoo today announced that Google has terminated the advertising services agreement the companies announced in June," the company wrote in a statement. "Yahoo continues to believe in the benefits of the agreement and is disappointed that Google has elected to withdraw from the agreement rather than defend it in court.
"Google notified Yahoo of its refusal to move forward with implementation of the agreement following indication from the Department of Justice that it would seek to block it, despite Yahoo's proposed revisions to address the DOJ's concerns."
Google's Drummond expressed his company's own disappointment, noting that the prospect of a protracted legal battle isn't something Google wanted to become mired in, instead choosing to focus on innovation and moving forward.
"We're of course disappointed that this deal won't be moving ahead," Drummond wrote. "But we're not going to let the prospect of a lengthy legal battle distract us from our core mission."
It's clear that the sting of this decision strikes closest to the heart of Yahoo, which had made it clear in the past week that it was counting on the money partnering with Google would have brought. Original projections estimated that Yahoo would have reaped between $250 million and $450 million in profit.
On Tuesday, Yahoo said it would be willing to restructure the deal due to the concerns of antitrust regulators, agreeing to put a 25 percent cap on the profit it would take in. Theoretically, that would have dropped Yahoo's profit in the deal from its original projections to a projected $80 million to $100 million.
That's still a fairly hefty chunk of change, but it hamstrung 75 percent of the profit the company was originally expecting. However, Yahoo was still willing to do the deal. That seems to indicate how desperate Yahoo was to kick-start its revenue stream.
The proposed Google-Yahoo ad pact quickly came under fire from the World Federation of Advertisers when it was announced. The WFA argued that the ad deal would "have a detrimental effect on competition, result in price increases and reduce the options available to advertisers."
Shortly after the WFA spoke up, U.S. antitrust regulators began to take notice. Sen. Herb Kohl, a Democrat from Wisconsin, went so far as to write a letter to the Department of Justice, urging the agency to take a closer look at whether or not competition would be hampered.
"Recognizing the nascent and fast-changing nature of this marketplace, we encourage the department to continue to monitor the state of competition in this industry, whatever the outcome of its current investigation," wrote Kohl. "If, over time, you determine that Google is gaining a dominant market position as a result of the Google-Yahoo agreement, then we would encourage the Justice Department to intervene to protect competition."
Yahoo and Google then agreed to delay the deal, allowing it to be submitted to greater scrutiny by regulatory watchdogs.
Yesterday, it was reported that Google was considering walking away from the Yahoo ad deal.
Today it happened.
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WFA Comment: This agreement was opposed by our members in North America and around the world as it was felt to be detrimental to a competitive search advertising marketing place and would increase prices for advertisers (https://wb01.wfanet.org/globalnews.cfm?id=126). It appears the Department of Justice agreed. One of the interesting points to note from the DOJ's statement in relation to any potential future issues is that "The Department's investigation revealed that Internet search advertising and Internet search syndication are each relevant antitrust markets": Meaning that search can be viewed uniquely as a market rather than as just one part of internet advertising. To read the DOJ's statement, click on this link: http://www.usdoj.gov/opa/pr/2008/November/08-at-981.html.
For more information contact Robert Dreblow [email protected]
