Facing Antitrust Lawsuit, Google Pulls Out of Ad Deal with Yahoo!

By Mae Kowalke

TMCnet Senior Editor

 

Sometimes it pays to take bold risks in the business world, and other times a bit more caution is appropriate. Finding the balance between the two is never easy; it might mean risking some partnerships or relationships in lieu of preserving others.

 

The value of being a bit cautious is now apparent for Google, which has decided to pull out of an advertising partnership with Yahoo! in the face of opposition from regulators and advertisers.

 

A Wednesday blog post from David Drummond, Google’s (News - Alert) senior vice president of corporate development and chief legal officer, explained that an agreement was formed with Yahoo! in June giving that company the option to use Google as a means of providing ads on Web sites in the U.S. and Canada.

 

While at the time the two companies were optimistic this partnership would be mutually beneficial, they delayed actual implementation to give regulators ample review time. Since the two companies are major players in the online advertising and search market, cooperation between them could be seen as an anti-competitive move, though Google didn’t see it that way, Drummond noted.

 

“We feel that the agreement would have been good for publishers, advertisers, and users —  as well, of course, for Yahoo! and Google,” Drummond wrote in his blog post. “It would have allowed Yahoo! (and its existing publisher partners) to show more relevant ads for queries that currently generate few or no advertisements. Better ads are more useful for users, more efficient for advertisers, and more valuable for publishers.”

 

But, regulators and advertisers did not agree that this deal would have a positive impact. Following delays in the implementation timeline, and probes from the U.S. Department of Justice, Google considered the ramifications of staying the course or cutting its losses, and opted for the latter.

 

“Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners,” Drummond wrote. “That wouldn't have been in the long-term interests of Google or our users, so we have decided to end the agreement.”

 

While disappointed that the deal didn’t end up being worth the effort needed to make it successful, Drummond stressed that Google is has not lost sight of its core mission: to create useful products for its partners and users.

 

Yahoo! apparently had a less rosy view of Google’s pulling out of the deal. A Wednesday Reuters (News - Alert) report quoted a statement from Yahoo! officials expressing disappointment that “Google has elected to withdraw from the agreement rather than defend it in court.”

 

Perhaps in better economic times, Google would have been more willing to fight the good fight over this deal, or perhaps not. Reuters said the DOJ indicated it planned to file a lawsuit against the two companies to block the deal, based on antitrust concerns. (comScore figures indicate that Google and Yahoo! collectively dominate 80 percent of the Web search market as of August.) It could have been a long and ugly fight.

 

Yahoo!’s (News - Alert) disappointment is no doubt colored by its own financial difficulties of late. Last month, the company announced plans to cut 10 percent of its workforce, following declining profits. TMCnet President and Editor-in-Chief recently speculated that Yahoo!’s prospects could improve if it were able to monetize its search traffic more effectively. To what extent its failure to do so is a result of economic fluctuations, and to what extent the result of strategies that need improving, is somewhat unclear. Tehrani, though, concluded that the latter is more likely.

 

“By now, Yahoo! should own the world,” Tehrani wrote. “Many people say the disconnect is a corporate culture of complacency and bureaucracy. Although I have no first-hand knowledge of this, I can't imagine what else is keeping Yahoo! from making new highs in the market and really taking over the advertising world.”

 

To its credit, Yahoo! has been making efforts to better serve its clients and partners, while staying competitive. For example, in September the company began looking at a major layout and structural overhaul of its Web site, and in early October it introduced an online calendar, competing with Google’s Calendar app.

 

Early Wednesday afternoon, Google (GOOG) stocks were down and Yahoo! (YHOO) stocks were up in Nasdaq trading. Yahoo! shares were selling for $14.21 at 12:35 Eastern Time, up from previous close of $13.35. Google shares, meanwhile, were selling for roughly $350 in active trading, down from previous close of $366.94.